Renting vs. Buying a Home in 2024 and Do You Have Enough in Your 401(k)?

by NEW YORK DIGITAL NEWS


Renting vs. buying a house: when it comes to FIRE, many people assume that you must own a home and preferably have it paid off to reach financial freedom. But is this really true? With renting so much cheaper than buying in 2024, would it be wiser to rent a place and send the savings to your investment accounts? Today, we’re tackling this topic and a few other heavy hitters as we give our takes on four of the hottest financial headlines.

Kyle Mast, certified financial planner, joins Scott Trench to share FIRE-first thoughts on these not-so-easy-to-answer questions. First, we give our take on the ever-relevant renting vs. buying debate and ask whether things have changed since high mortgage rates have made buying a home much more expensive. Then, how do you manage savings and investments with interest rates so high—should you keep your money in a high-yield savings account or search for better opportunities even with savings yields so high?

Think your nest egg is a little too light? We share the average 401(k) balance for those close to retirement and give our strategies to boost retirement savings before you leave full-time work. Finally, for those struggling to take care of elderly parents, our last headline is for you. We talk about the growing number of Americans physically, mentally, and financially caring for aging parents and how you can set yourself up in the best position possible to care for those in your life.

Scott:
Alright, is renting a home cheaper than buying a house these days? How can you take advantage of the market to stockpile cash in an environment with interest rates as high as these ones? Are you planning for your parents’ elderly care and should you be Kyle Mast and I are going to talk about all of these and more in today’s episode of the BiggerPockets Money Podcast. Hello, hello, hello and welcome to the BiggerPockets Money podcast. I’m your host, Scott Trench, and here today is Kyle Mast, co-host. How you doing Kyle?

Kyle:
Yeah, it’s good to be here, Scott. It is a great show today. BiggerPockets in the mission statement is about making a million millionaires and it’s not so that we just have a bunch of wealthy people running around the place, but it’s so that people have the flexibility to do what’s purposeful for them in their lives, what’s most important for them. So that’s why we want to introduce people to every money story because we really do believe that financial freedom is attainable for everyone no matter where they’re starting or when they’re starting, they can do it

Scott:
And no matter what headlines are in the news telling them they can’t. Today we’re going to bring you four headlines from the financial news cycle so that we can discuss how you can make better financial decisions. We’re going to cover things like is it cheaper to rent than to buy in the context of today’s high interest rate environment? And in many cases, yes, we’ll talk about more depth around that one. We’re talk about strategies to talk about cash and how to optimize investments. You do have in the context of a high interest rate environment, we’ll talk about how the average and median 401k balances are perhaps and sadly unsurprisingly low, and the strategy that they should employ to catch up to early retirement or to retirement in general. And last, we’re going to talk about how to financially plan for an environment where you might have to take care of your elderly parents at some point. And if you should consider adding that into your financial plan, 29 million Americans provide some form of that elderly care. One quick note, Kyle and I are a bit under the weather today. If you hear some scratchy throats and if you hear some clicking, it’s because I am crushing cough drops throughout this episode while trying to have a great discussion with Kyle. With that, let’s get into it.

Kyle:
Headline number one, renting is increasingly cheaper than buying a home. This comes from Newsweek, a recent study by realtor.com using February data stated that renting a home was $1,000 cheaper than buying a home in the country’s 50 largest metros and larger metros like Austin and Seattle. However, owning a home was twice as expensive as renting. In February, the median asking rent of $1,700 per month was down by about $7 0.4%. As of June 12th, mortgage on 30 year fixed mortgages is sitting at 7.522%. Now this is not a softball question. There are so many different opinions on this one. So Scott, I’m just going to get your first reactions to this article and the data they’re providing here. Yeah,

Scott:
So I think in a nutshell, I agree with the article’s conclusion and I’m going to complain about the way they got there. When people talk about median rents, the typical rental unit in most metros is a two bed, one bath apartment or similar. And the typical median home is a three bed, two bath home. So obviously a two bed, one bath apartment is going to be cheaper rent three bed is than the payment is going to be on a three bed, two bath house. So we’re comparing apples to oranges. When we compare median rents to median mortgage payments, you have to really adjust what is the cost to rent that three bed, two bath house. And I think you get much closer, but in a city like Austin, maybe Seattle, I’ll pick on Austin though as a specific example. Right now it’s hands down going to be cheaper to rent than to buy in most situations, excluding the people who plan to live in a house for 20 plus 30 plus years.
Austin, Texas is a really extreme example of a skewed housing market here because they have so much inbound supply coming online, both in new construction, single family homes and in new construction, multifamily homes. Multifamily inventory is particularly interesting stat about Austin. They’re actually going to see 10% increase in multifamily units in Austin in 2024. That is absolutely absurd. It is one of the most in the country and rents are plummeting in Austin, Texas year over year. And I think that’s not going to change for some time. So right now is a glorious time to be a renter in Austin, Texas, at least in a relative sense. And rents are not only not keeping up with inflation, they’re actually actively deflating. So I think that it’s going to be region specific in many cases. And yes, we’ll get into this I’m sure, but unless you intend to live in a property for a very long period of time, it’s going to tend to be better to rent than to buy for many people who are again, not living, not staying put for decades.

Kyle:
Yeah, I think I just want to point out something that Scott said there, the market specificity, we’re talking about Austin here, and there’s a reason that Austin shows up and Seattle in articles like this because articles need to draw eyeballs and the numbers are high and fast and extreme in some of these higher price markets that inflated a lot during booms and busts. So that’s something that you need to look at the market specificity, like which market are you looking at? We’re looking at these averages here and it definitely as we get into this discussion that makes a big difference. But Scott, for people interested in fire, in achieving fire in general, is it waiting to buy a house, a better solution to save more or renting in the meantime? What are your thoughts there?

Scott:
Yeah, I think that Mindy and I wrote the book First Time Home Buyer and in the first section of it we talk about how many people shouldn’t be buying a home. When we wrote that two or three years ago, I modeled it out and made a fancy spreadsheet for this, but I found that for the median American, and it depends on every region of course, but you really have to plan to live in a property for at least seven years on average for it to be better to buy than to rent. From a housing standpoint decision that varies by market like San Francisco, you’d probably have to live in there a lot longer for buying to be better than renting. And somewhere in the Midwest probably a lot shorter payback period. So it just depends on the market, but because interest rates have risen so much and rents have not risen nearly as much, especially in the last two or three years, that decision has been even more skewed.
I bet you if I’ve modeled it out today, it would be closer to 12 to 15 years before renting becomes cheaper. I’m sorry, buying a home becomes cheaper than renting. And I think that’s the major dynamic here. Again, if you tend to buy your family home where you’re going to live in the next 20 years, you should buy it. But if you’re not sure on that front, you should probably rent. And I’ll throw out, I did this analysis, I rented or occupied one of my rentals for the last three years, but I recently bought my family home this year and it’s the worst timing from a lot of standpoints. It’s so much more expensive to buy this place than to rent it in the near term. But because I plan to live here for the next 20 years, it wasn’t really that much of a financial decision. It was something else. It was more like, this is my home. I want to make sure that I am here for the next 20 years. I’m not going to surrender that power and I’m willing to make a unquote bad financial decision in order to get that outcome. So what do you think about all this?

Kyle:
Yeah, this is a discussion that I would always have with clients when I was doing financial planning. And a lot of times if you’ll talk to your older relatives and you talk about what their greatest asset is, it’s their house, it’s usually their house and that’s what they have everything invested in. That’s what their retirement is kind of based on either paying that off or using some of that to downsize and help with retirement. So I’ve learned to look at this question a lot more behaviorally over the years and when you come down to the financial aspects of it, everything that you just pointed out, Scott is spot on the timeframe. And I agree with you. I think if you did that analysis now, that timeframe for the breakeven of the house being a better investment would be much further out. Three years ago, affordability was at an all time low or compared to incomes and now it’s at an all time high with the mortgage rate increase. But what I’ve realized is that owning a home is, it’s like, and I hate to say this, it’s like whole life insurance in some ways, and by that I mean that in most ways it’s not. But the only way that I say that it is, is that it’s a forced savings plan.

Scott:
I don’t like buying a home anymore, Kyle, I’m out. I’m done.

Kyle:
I would agree with you on that. The reason that people have such a huge asset in their home is because they care about it, they buy it, they care about it, they take care of it. They don’t blow money on other stuff. Whereas if people rent, you may come out ahead financially, but I would say the majority of people, the tendency is to spend the extra financial bandwidth that you have. Now in the fire community, of course we would never do that. We would save it all, but that’s what you run into. You need to have this behavioral thing in mind, and that’s the reason why people have such a huge asset in their home and that’s why your grandparents and your parents will tell you to buy a house because it was that for them and it turned out to be a good savings plan because it forced them to rather than spending things away.
And there’s other things that you can do over time when you own real estate, and this is BiggerPockets. We can definitely get into leverage and all those things, but we just also had to bring that behavioral piece in here because it is a real thing. And a lot of people would not have the assets accumulated that they have if they hadn’t bought a house, even though it’s the less optimal financial thing to do. And I’ve just seen it over and over again looking at people’s balance sheets. That’s why it happened. If they would’ve rented for a certain amount of time or moved to a different area and bought rental properties instead of owning their own house, you come out way ahead. You’re not fixing a well pump without being able to deduct the expense or you’re not decorating it in ways that are super expensive that you don’t need to as you would with a rental property. You let a lot more things go. So yeah, I just want to bring that into the discussion that it’s not quite as easy as crunching the numbers, it’s the actual behavior of people. So jumping ahead a little bit on this, Scott, you can react to some of that, what I said, but I also like to know if you want to achieve this financial independence goal through real estate, how would you go about home ownership optimally, Scott Trench? What would you suggest people do?

Scott:
I think you take this question, is it better to rent or buy? And you say, okay, if you are maxing your way to financial independence, then the less you spend on housing, regardless of whether that is a home you own or a place that you’re renting, the faster you’re going to be able to accumulate wealth and invest. So by that, you can logic your way to an incredibly ridiculous position. I’ll use that word nicely to describe what Craig Kop one of my colleagues and friends did where he lived in the living room behind a curtain and rented out the bedrooms in his house. Obviously that’s a very efficient way to move toward financial independence. So when you get into mid Maxine, you can get on all these weird places about what’s the best, the optimal approach, and clearly that is better than him renting out an apartment.
And that will still be true today for someone that’s trying to do that. So when you get into house hacking or the live-in flip, those are going to be almost always better alternatives to renting, right? Yes. In a 50 year time horizon, you’re going to get unlucky ones when you’re doing a live and flip. If you do 20 of ’em and one time, it’s going to be worth less after the flip process because there’ll be a housing crash, but the other 40 other 19 times you do it over that period, you’re going to make a lot of money and it really efficiently moved toward financial independence. So I think that owning and using a home as an investment in the context of a fix and flip, a house hack or otherwise getting creative with that approach, you’re probably going to be able to find ways to get ahead of renting.
Another example is this Assumable Mortgage World in like Colorado Springs, which is just south of Denver, big Air force base down there. And so are a lot of people are using VA loans. There’s also a lot of FHA loans down there. Those are assumable mortgages that can help a first time someone contemplating this red versus buy decision, maybe stack those chips more in favor of the homeownership if you’re willing to get creative and find those needles in the haystack. Those are relatively rare. I thought they’d be a lot more popular today than they actually ended up being, but that’s a great creative approach to doing this. So you almost always can find a way for buying the home to be better than renting if you’re trying to in max your way to financial independence. But if you’re just looking to occupy a place and not get creative with any strategies and make it like a normal living situation, then renting is going to be better than buying in a lot of places and especially in places that are outliers like Austin, Texas.

Kyle:
Alright, we’ve hit our first headline, but we have three more including managing savings in high rate conditions coming up for you right after the break,

Scott:
And we’re back with the BiggerPockets Money podcast. Alright, let’s move on to our next headline. This one’s from Yahoo Finance and it says How to manage retirement savings with interest rates remaining elevated. Basically the premise here is that interest rates are going to stay higher for longer. According to the Federal Reserve meeting on June 12th, they’re only going to do one rate cut they say in 2024, which is a big change from the four plus that they were talking about. Were going to happen this year. This is maybe if you want to spin it this way, positive news for some short-term savers where you can still get a high yield on your savings account, your money market or your cd. But it’s really tough for a lot of people who are looking to build long-term wealth by investing in the stock market or real estate as obviously higher interest rates are impediments to growth in those areas. So Kyle, what are your initial reactions to this headline?

Kyle:
Yeah, so any headline that talks about interest rates, whether it’s including the Federal Reserve or it’s mortgages or it’s especially in relation to savings accounts and inflation, I always try to make sure I take a step back and not look at the numbers themselves, but look at the relative comparison of the numbers. And by that I mean when we first started seeing the rates rise from the Federal Reserve, people were like, man, I’m getting 5% on my savings account. This is amazing. And that is if you leave it at that, but when you’re losing 9% to inflation, it’s no longer amazing. You have a negative 4% spread there that you’re now experiencing that before when you were getting a half a percent on your savings account and inflation was half a percent, you were breaking even, or even if inflation was 1%, you were only losing half a percent on your money in your savings account.
So do not look at the numbers only. So in these articles you really got to pay attention. And one of the things that’s unique about this article is that some of the inflation, the news of it coming down, it’s actually starting to appear to dip below what current savings rates are. And that is a positive thing that you have a positive spread there. So I think there’s some opportunity here. I think in my investing, I am not looking for 1% returns. I’m looking for 10 to 20% returns, and that’s basically through real estate and work in real estate and leverage and cashflow. But if you’re looking to be ultra conservative locking in a CD rate at 5% for two years when inflation’s now coming down to 3%, it’s not a bad route to go if you don’t need to push for the fences if you’re later in retirement.
These are positive things to try to lock in some of those. It’s not going to stay that way forever. Those rates are going to equalize and come back towards inflation because the banks need to make money, but some of those stay in place for a little bit longer. There’s a little bit of a lag there. So that’s my initial reaction. Just make sure you’re paying attention to what the rate of the savings or return is in comparison to what actual inflation is or what you think it might be in the coming year or two. What do you think, Scott?

Scott:
Yeah, I mean I don’t see, first I’m not surprised Jerome Powell after making a mistake in 2021, which I think even he would say, yes, we’ve made a mistake here and being way too slow to raise rates has aggressively managed inflation and done exactly what he said he was going to do up until this point with this, I was a little skeptical coming into the year that we were going to lower rates. I never bet on interest rates, but I like to talk about them like an uneducated pundit on the show here, but it doesn’t make any sense to me. There’s so many long-term headwinds to slowing inflation with so many folks exiting the workforce, that’s an increase in wages or that’s going to put upward pressure on wages for those who remain in the workforce, which is a driver of inflation. There’s so many underlying factors here that I think are going to drive this forward so much still such a huge increase in the money supply.
I mean rates would have to come down dramatically 10 times for the yield curve to basically stay where it is at this point for the 10 year and longer term items there, and that’s a disaster. So I think we’re going to see these higher rates here to stay for much longer than we thought. I think that rates getting lowered is bad news. Something bad is happening if the Fed is at lowering rates, which is not good for your retirement savings by the way there, and it makes everything hard. The stock market’s trading at a 25 times price to earnings ratio. Real estate is trading at a five cap, which means 20 times price to earnings on that front. Investing in debt is really hard way to build wealth. It’s a great way to potentially preserve wealth for those who have portfolios. But if you’re looking to approach financial independence, you need something that’s going to grow and it’s really hard to believe in the stock market.
It’s really hard to believe in the double digit returns and at least in unlevered real estate for example, you’re going to put it all in Bitcoin, you’re going to put it all in private business. So I think that that’s really the struggle that these higher rates and the much slower lowering of rates than what people anticipated are really bringing to the table here. And I think it means that the core focus, the fundamentals are just that much more important in terms of keeping your expenses low, really playing good defense, looking for those opportunities in the job market, which is also fairly tough right now. And then making sure that you’re comfortable with investing on a really long time horizon because there is a lot of risk in every single asset class as far as I can tell at this point. How’s that for Dyer?

Kyle:
No, I love it. Yeah, I think so. I’m going to turn the dyer into opportunity a little bit. I think because I see this is, I agree with you completely when there was a lot of talk at the beginning of the year about the Federal Reserve doing four to seven rate cuts. I mean people were talking crazy, crazy stuff out there. And it’s just like you said,

Scott:
By the way, the Federal Reserve never said they were going to do that, right? This was like pundits saying they were going to do that. So the Federal Reserve has done exactly what they said they were going to do the whole time and just markets didn’t believe ’em a

Kyle:
Hundred percent. Yeah, the markets, I think they were trying to force the federal reserve’s hand and it just didn’t work. So I think they’re going right in line with what they said they were going to do, and it is looking like they’re going right in line with what they should do because we’re not seeing a plummet in the economy. We’re seeing currently the soft landing that they were looking for. I mean, that can always change on a dime if something happens. But what I’m seeing currently, so high interest rates suppress prices, it slows the money down a little bit. And what I have started to see, and I’ve been looking for maybe another property or two, a short-term rental property in a couple markets that I really know and I really like, and it has just been tight. There’s just no houses on the market. The ones that are on the market are just not good and they’re not going to cash flow at the prices that they are, but literally within the last month or so, because the spring buying season is going longer, now I’m seeing price cuts in this specific market. I’m looking at me too,

Scott:
By the way, here in Denver.

Kyle:
Yeah. Yes. And I think if you’re a long-term investor, I was worried that I’m looking to maybe buy sometime in the fall. That’s my timeframe. And I was worried that interest rates are actually going to go down too much and the market’s going to heat up and you’re not going to get a deal. And I actually think that I might get an off season deal now because of interest rates staying there. So this is an opportunity if you can find a property specifically in real estate and like your long-term dollar cost averaging in the market too, don’t stop doing that still. These are times to continue to do that. But in real estate in particular, having the interest rate sticky where they are right now, people are now getting a few years into this high interest rate environment where they were sitting on properties that they have these low interest rates on, they’re locked in, they don’t want to leave them, but now life is pushing them a different way.
They’re like, okay, I need to unload this one. I bought a different vacation property somewhere else. I need to sell this one. I need to move to a different job. I’m going to make way more. I need to sell my house. Doesn’t matter if I have a 2.95% interest rate. So this is starting to happen and it’s going to create some opportunity in the meantime with some of these prices being suppressed and people not being able to afford the mortgage. So if you’re able to be a little bit creative in some of these deals, like maybe pick up a property that’s been price cut and you offer a little bit under it, you get a decent purchase price on it, there’s some opportunity for flipping. I think you need to have some cash to be able to do this, but I think there’s definitely more opportunity going to happen this year than what people were saying at the beginning.
I think it’s going to stretch that out a little bit. So it’s not a completely dire situation if you’re trying to refinance a property or if you’re trying to increase your cashflow by getting your interest expense down, that’s not going to happen or it’s not going to happen very well this year or pulling some equity out to do another property that’s going to be harder to do. But the actual purchase prices are looking a little softer and the inventory is looking a little bit better. So you have to move so fast and make a bad decision, you can wait a little bit and kind of work the seller a little bit. So I’m liking what I’m seeing from a long-term investing standpoint. And I think that I always say this, I just don’t see in the US a better long-term investment than well leveraged cash flow in real estate from the security standpoint of it.
If you have it cash flowing and if you have reserves and you can lock something in even at a high interest rate, but you’re in it for 25% down and it’s cash flowing, but you get the inflation of the 4% appreciation on the full amount of the purchase price, not your down payment, you’re now pushing 15 plus returns in the long run. This is not a day trading thing, but in the long run this is going to build you wealth and that can happen today even with high interest rates. How’s that for flipping the dire to opportunity? I

Scott:
Completely agree, and I think the way I’ll summarize the wonderful points you made there is I think if your goal is to take income from a job and put it into something totally passive and make double digit returns, you’re out of luck. You’re going to have to take on some crazy amount of risk at this point and you may be really frustrated and disappointed, but if you’re willing to get hands on and actually know your real estate market, maybe do the work yourself self-manage and find those opportunities, they are starting to sprout up at this point in the market. And I think that that’s the lesson here. Same thing with private businesses, another great opportunity out there. A lot of the folks are struggling in the context of the current environment. You said that there was getting that soft landing. I’m sure a lot of people will disagree with that term because that’s not what they’re feeling right now in this current situation.
But the stats at the official level at least support that call. And if you can find pain that is not showing up there and go and solve it, that’s a great opportunity. So there’s a lot of active and involved opportunities in the market right now, but you can’t just stick your money in something totally passive or publicly traded right now and really expect to get awesome returns. I think I wouldn’t count on it. I’d have a much longer term outlook and be willing to accept mediocrity over a long period of time and build my strategy around that if I wasn’t going to get active. Alright, we do have to take one more quick break to hear a word from our sponsors, but stick with us. We have one final headline about financial planning and caring for your elderly parents. While we’re away, make sure to search for the BiggerPockets Money podcast in your favorite podcast app and hit that follow button so you never miss an episode of the show. And we always appreciate it in our eternally grateful for you following us.

Kyle:
Alright, welcome back to the show and let’s just jump right in. Alright, good stuff. Let’s move on to the headline number three here. This is the average 401k balance for ages 55 to 65, and this is from the Motley Fool. And we’re basically talking here in this article about what people have saved in this closer to retirement age bracket. According to Vanguard’s how America Saves 2023 report, it was reported that Americans from 55 to 65 have an average of 207,000 in their 401k. However, the median number was only 71,684. So we kind of raised some questions here of if the average American worker will even be able to retire where they collect only 1900 in social security is what they say is the average that people collect from Social Security. So Scott, again, we’re going on averages and medians here. What’s your first reaction to this article? What would you say? I guess, an encouragement in hearing an article like this? I think we want to try to maybe spin this one a little bit more positive. These articles are all about people just not having enough saved for retirement.

Scott:
Yeah, well, I think it’s good that people have something saved for retirement on average and at the median level here. I think that another encouraging thing is that this is just in the 401k. I think for many people in this age bracket, we can assume that they have positive equity in a home. Not all but many, maybe even most folks in this bracket will potentially have that. There may be other investments as well. So we can probably bump these numbers up by 30 to 50% in terms of looking at their overall wealth picture. But I think that the headline remains consistent with things that we’ve talked about for years on the show here, which is that’s not really enough to plan a really nice retirement without having to be dependent on Uncle Sam, which is not what we want. And so I think there’s going to be am hopeful that there will be a big movement in the next couple of years where people wake up and say, I need to actually hustle and start sacrificing gain control of my spending, downsize my lifestyle and get on top of this so I can catch up and maybe get as close as possible to that million dollar number for retirement.
Which a million bucks at the 4% rule with 40 grand a year in distributions and some social security and the Medicaid benefit can get you pretty close to a pretty comfortable retirement. But I think it’s going to require a lot of hustle and some creativity and some pretty major lifestyle cuts and sacrifice in order for the median American to be able have a crack at getting there. And I think that that’s not a new headline that’s just restated here in this great article from the Motley Fool. What do you think, Kyle?

Kyle:
Yeah, I would agree with that. Just like what you just said, this is something that happens every year. We have an article come out like this that states that people are not saving enough, but yet every year we have people retire and we have current retirees that are continuing to live and have enough to live on and make it buy. So how are they doing that? So one of the things that I just to preach all the time is that, and it doesn’t show up in these articles hardly ever is part-time employment in retirement and for the rest of your life because there’s just so many amazing things about it. It’s for one thing, it helps you live longer because you don’t retire and you don’t sit on your duff and do nothing. It helps you benefit society, which in itself has health benefits, feeling good about yourself and that you’re still a help to the people around you.
This is something that I would always work with clients on. And here’s an example, this is a cool example. I grew up on a Christmas tree farm. If people have listened to this before, they probably heard that. And my family would wholesale Christmas trees all over the place, but we also did retail lots. And my grandpa and my uncle would set these retail lots up in Phoenix, Arizona like 20 or 30 lots every year. It is crazy industry. If you ever want to do something crazy and fun, go run a Christmas tree lot in the winter in Arizona. But who ran our lots, retired people in RVs that came to work on our lots for free, had a blast talking to people all day long. What’s a retiree like to do? Talk to people all day long, at least most of them. So that’s what they would do.
And they would sell trees, they would make commission on it, some of them would crush it and at the same time, so they’re living for free, they’re making an income that probably in the span of a month and a half provides for their living expenses for the next four to five months regardless of the social security they’re receiving regardless of any other retirement income. And they have a great time doing it. And then they go to court site in Arizona and park for three months in the desert with all their friends and hang out. So this is something that people don’t realize. You can be so productive in retirement, have such a good time. I had another example, and this always comes back to the Christmas tree farm. There’s a family friend of ours who retired from the post office and he lived super simply, but he loved to work in retirement.
He would go to Idaho and work on a farm for like a month and a half for a harvest. He would count trees for us as they were going on the truck to be shipped to Arizona. There’s all kinds of jobs and interesting things. You could be a park ranger somewhere, you could be a museum instructor that teaches people about something. All of these different things. It’s just there’s so much opportunity to do part-time work and that fills the gap. Huge. What if you made 20,000 a year in retirement just from a part-time job that you work three months a year somehow? It’s a game changer. It’s a game changer. You can do that in your social security and you’re pretty much good if you have a paid for house, you can live. You can live simply and you’re fine. So that’s the one thing that just jumps out to me. I wish they would always throw that in these articles because we’re always assuming that it’s like save, save, save, save, work your tail off and then stop and you got to spend through your stuff and it’s just not true. I got a little bit of passion behind that. If you can’t tell

Scott:
Kyle, that is an amazing insight. Obviously you’re correct. I never would’ve thought of it. I don’t know. I could see why the person wrote the article, never thought of it. And I can see why someone who’s 55 and has $70,000 in their 401k would think they’re just way behind and screwed at this point without that nugget there. But I think that that’s a really healthy way to think about it. When you stack in $20,000 a year in part-time work, which should definitely be achievable and maybe even happy types of work. I don’t know if I would want to pick corn in Iowa during harvest time and my retirement, but maybe a park ranger job would be a little bit more fun there. But when you add that and another maybe $2,000 a month in social security at the minimum probably level that goes a long way, that’s 40 grand right there.
That’s like a million dollar portfolio between those two things alone, you add in. I still think that the takeaway here shouldn’t be, oh, I’m going to be fine and I’ll just use social security in my park ranger job for 20 grand when I’m 75. I still think there should be a fire in the ballet to go and get to as close as I can to that million dollar mark and use all the great advantages that we actually just talked about on the BiggerPockets Money podcast with Bill Yanet and Jackie from catching up to Fi here. But I think that that’s, you have all these advantages. Use this stat to go and light a fire and see how close you can get, but know that you don’t have to become a millionaire to live a probably pretty good retirement with what you’ve said here. And by the way, some of those advantages you should be thinking about the HSA. You have additional contribution limits that you can put into either your Roth or your 401k as part of this. And there’s a number of advantages that you should be pursuing at this point if you are in that age bracket and trying to catch up. Alright, should we move on to the next headline here?

Kyle:
Yeah, let’s do it.

Scott:
Alright. Headline four. This one comes from the Wall Street Journal When caring for your parents comes at a cost to your career. Key item here is that a lot of Americans are essentially working two jobs where one is they’re working their full-time job at 40 hours a week turning down promotions and assignments, but they’re also spending this part-time, 20 hours a week taking care of their elderly parents. They talk about one individual who is 37 taking care of his 82-year-old parents in there. And this is not an uncommon situation. An estimated 29 million workers in this country work full-time while being a caregiver to their elderly parents or elderly relatives. Americans are also living longer and they’re living longer with chronic illnesses, which put an increasing burden on their family members. So people can be living to their nineties or even as close to up to a hundred with chronic conditions that make them unable to care for themselves. And a lot of companies, most companies I would imagine do not extend benefits for their workers, for their elderly care, for their relatives and friends and family. So Kyle, any reactions to this headline?

Kyle:
Well, I mean this is a hard one because you see it all the time. I think this is just the reality of maybe modern medicine and being able to live longer, that there’s a lot more expensive care that happens later on in life where in generations past people just wouldn’t live as long. That expense wasn’t there. But my first reaction is what can I do for my kids? So that’s my first thought is if this is the case and this is happening and it’s probably a trend that’s going to continue to happen, and this is what I see with, I’ve seen with clients and even friends that have parents that they’re caring for, it lights a fire in them to be like, I don’t want my kids to have to do this. So I think it’s another benefit of the financial independence movement of really trying to shore your own financial situation so that you aren’t a burden to your kids or your grandkids later on in life.
And there’s a lot of things you can do to save for that. Investing in assets that appreciate long-term. Honestly, investing in high growth assets even when you’re 55, 65, a lot of people would assumed too much to make their portfolio. All of it go down to be really conservative at those ages and you just can’t play that game. You need to have some of it invested for long-term to beat inflation so that you have assets later on for some of these larger expenses later. You need to have 30 year invested assets at age 60 because you or your spouse is going to live to 90 very highly likely so that you need to have something that is going to, it’s going to fluctuate more, but it’s going to be appreciating more than the inflation that’s out there so that there is an asset down the road if there’s large expenses. But that’s my first reaction. What can I do if this is something that’s going to happen? I have the time the kids have the time. We can get into what people that are caring for other people can do. But this is a tough one. This is a tough one to come around. Situation is so different. What do you think, Scott?

Scott:
I think it reinforces financial independence in a huge way, right? I mean, this is why I think it’s so important. A lot of people are like, oh, live your best life, all these things, spend money with that. But I spent my twenties going all out, living in duplexes when my wife moved in. I did not have a heater in my home at that point because it was the spring. I didn’t need it until the fall with all that and those things. And I think, and I’m not saying everyone can or should do that, but I think that this concept should light a fire under more people to achieve fire early in life. Because you don’t know what’s going to happen in 10, 20 years when you’re 20. Your parents are probably in their late forties, early fifties, and by the time you’re 30 or 40, they’re going to be in their sixties, seventies, eighties at that point.
And you may have children of your own there. And the more flexibility you can build by just knowing that things are going to change downstream, have your fun, live your best life in there, but try to accumulate as rapidly as you can towards early financial independence, I think, and make those sacrifices early so that when that time comes and there is an obligation that you feel in some way to take care of elderly parents, it’s not going to come at the expense of your future children, your current children or a career that is absolutely necessary to preserving your way of life. I think that that’s the lesson here is I think your instinct is perfect, Kyle, what can I do here? And I think parents should be thinking about how do I create enough wealth for myself and my family that my children will not be required to work, to sacrifice their lifestyles to care for me?
And how can I as a child make sure that I have enough flexibility to be there for my parents? And I think if more people thought from both of those diametrically opposed viewpoints, but in a healthy way, I think that’s the only way to plan for it. Because you can’t control what your children or your parents are going to do. You can only control what you’re going to do. And that building that flexibility in there by focusing on building your own wealth and giving yourself your own optionality, I think is the only answer to a number of major life problems when you have the opportunity. Because if you’re in this position now, you can’t up make a bunch of changes and go after fire in a really hard way. You have to be there for the people you love. So I think that’s the hard takeaway from this, and I think that the planning element goes into is embedded directly into what we talk about every day here on BiggerPockets money, which is trying to achieve fire. The closer you get, the more optionality and the less hard this situation will be if you are faced with it.

Kyle:
Yeah, I think just highlighting the words optionality and flexibility, I’m glad you pointed those out. You can talk about finances of the parents and not having maybe, so let’s flip it to you’re the generation that has five to 10-year-old kids, but you’re now maybe going to have to take care of your parents in some way. I think there’s definitely has to be conversations with your parents, and this is relation specific. Some parents will not want to talk about this. Some parents will expect you to take care of them. Some parents will not expect you to take care of them and want you to live the life that you’re meant to live with your family. So it just has to be an ongoing conversation. And then like you’re talking about the flexibility you need to build your life to fit what might come your way. And that’s just like these plan and C’s D’s that you talk about as you build the financial independence.
What if I lose my job? How much is that going to hurt? How can I build it out? What if my parents need care two or three days a week? Am I building to flexibility within the next five or 10 years to where I could do that and it’s not going to hurt my family or my financial situation and still allow wonderful time with my parents? Those are things that you need to have those conversations within your current family with your parents. But yeah, these things are so hard to plan for too because you can’t predict someone’s longevity. You can’t predict, even in specific illnesses, how long they last or how short they are. It’s just a really hard thing. But just coming back to it does not hurt to build financial independence and build flexibility. You can’t go wrong doing that. Best case scenario, your parents live to 110, they’re healthy the whole way and then they die and they just go right away. And your financial independent the whole time, you can spend a whole bunch of time with them and their grandkids. Worst case scenario, you have to, maybe you feel obligated to take care of your parents, but you have the flexibility to do it and you get more time with them. Maybe your kids get more time with their grandparents because you’re taking care of them. The financial independence and the flexibility just, it helps in so many situations. But this one, there’s just no for sure answers other than trying to prepare as much as you can.

Scott:
And I think that’s the answer is it’s preparation, right? Because I feel, I try to empathize with the folks that they highlighted in the article like this one woman who’s taking care of her elderly parents and has children in there while working a full-time job. And I’m not going to sit here and say like, oh yeah, that person should pursue financial independence right now. No way. They need to get through each week and each year they’re doing great. They’re doing great by their family, the best they possibly can do. And there’s not really a lot of planning advice you can give someone in that situation. All you can do is create that optionality way ahead of that point in time to the best of your ability because you never know when you’re going to need it and what you’re going to need. Well, Kyle, thank you so much for joining me today here on BiggerPockets Money. This was a tough, and in some parts fun conversation in some parts really hard and real. Really appreciate the wonderful perspective and ideas that you bring in from your experience as a financial planner. And I’m grateful to have you here on the show today.

Kyle:
Likewise with you, Scott. This is good stuff. It’s even the hard topics. It’s just really good to be thinking about all this stuff.

Scott:
Well, from this episode of the BiggerPockets Money podcast, I’m Scott Trench saying, Tutu Lou. Kangaroo.

Kyle:
Tuan. Play at that game.

Scott:
Oh, Kyle, with the big outro. See you next week everybody.

Outro:
BiggerPockets Money was created by Mindy Jensen and Scott Trench. This episode was produced by Eric Knutson, copywriting by Calico Content, post-production by Exodus Media and Chris McKen. Thanks for listening.

 

 

 

 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



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