I think the confusion stems from people believing (me until this morning) that fixed income meant you relied on income from a source which paid a defined amount (social security, pension), rather than on income you controlled, like wages (work more to earn more) or drawing down investments/individual retirement accounts (you choose how much to withdraw). I legit did not know old school fixed income was income fixed in nominal terms, and I suspect most people (including those on social security and other retirement programs with automatic CoL adjustments) don't either!
You’re not wrong, TIPS (inflation-adjusted bonds) are normally still considered “fixed income securities.” It just has multiple meanings depending on context.
Honestly, the framing that they are not living on fixed income feels a bit like someone pointing out someone isn't actually a gentleman, because that means land owner. Not wrong, per se, but not right either.
He just went to some trouble to explain why it's not merely a semantic point. The implicit argument in Kelly's tweet and similar invocations of "seniors on fixed incomes" is that seniors are more exposed to inflation than others. The fact that's entirely wrong and a lot of our policy thinking assumes it is right is a legitimate concern, not pedantic diction policing.
I thought this was a recent post, so got a bit lost. :D
I think it is fair to say that seniors are not unique in how they are impacted. I further think it is fair to say there is a lot of ignorance with regards to how these things go.
But, it is also true that a once a year adjustment can have a hard time taming the impact on populations that rely on it. It is not nothing, but it is not the same as people that have non fixed payments for the year.
How many working people can "work more to earn more"? Unless they take a second job, those on hourly wages don't often have an opportunity to increase their hours, and those on salary don't have that option at all.
Sorry for the inartful phrasing, but the wages you earn are more open to change if you choose to do so than receiving payment from a fixed payment system like Social Security, pretty obvious
But are they really? I certainly can't just decide to change my wages. I could maybe look for a different job, but the job market is pretty tight right now, not many companies are hiring.
I mean you can prove to yourself that your cynical viewpoint is right as long as you just don't look at any evidence. In the real world, wages basically always rise alongside inflation. As Matt points out, there are frictions. But it's simply not true that it's impossible for workers to increase their nominal wages when an economy is hot enough to generate inflation.
Do you think retirees who no longer work and depend on defined payments in programs like social security have more or less control over their earnings than those who are still in the labor market?
About the same. Maybe a little more, maybe a little less, depending on circumstances. Healthy seniors do have the option of going back to work, active workers have the option of getting another job.
What seniors do have that workers don't is guaranteed income.
This is absolutely the wrong question. It has nothing to do with how much *control* they have over what they make. It has to do with how much impact they see when prices change. And that's much less for seniors.
I feel like back in the day that Matt was talking about, there was more opportunity for factory and other hourly-wage workers to pick up optional overtime on demand.
To a point, yes. Though when prices are rising and everyone is asking — often at the same time demand is declining and employers are looking to save money — the answer is going to be “no” and maybe “sorry, I actually need to reduce your hours”.
The good side of “fixed income” is that you get it regardless.
I'm not so impressed. The fact that "fixed income" used to mean something slightly different isn't ultimately that relevant for the policy issues we face today.
It was never intended that people retire solely on SS, but many people do. Although a smaller proportion than previously, there are still people with pensions, and very few are adjusted for inflation. If someone has a annuity, that isn't adjusted for inflation. If someone is using CD's or bonds (other than TIPS or I bonds, which are a very small proportion of bonds) for income, those are not adjusted for inflation. In fact, in the investing world, things like CD's and bonds are literally called "fixed income". All of those are nominal. Matt seems to think it would be weird to have much of your assets in bonds at retirement, but Vanguard's capital markets model suggests that people should have 2/3 in fixed income at retirement. That makes sense as equities are too volatile to rely on heavily and should not be sold during recessions. Investments in equities are somewhat cushioned from inflation, but perform considerably worse following bursts of unexpected inflation (like we just experienced).
In addition, many workers do get more or less automatic inflation adjustments (e.g., public sector workers). In the private sector, asking for a raise or switching jobs is a hassle, but more effective than asking your annuity for an inflation increase. About a third of retirees end up going back to work part time to supplement their income.
Below, commenters make fun of how higher income people say they're living "paycheck to paycheck" because they feel obligated to make large retirement contributions. A general recommendation is that people set aside 15% for retirement, and that would cover half of your retirement needs, while SS covers the other half. (It's important to remember, again, that the first half, for those who have it, is not necessarily adjusted for inflation.) Without SS, people would have to put 30% of their pre-tax income aside.
It is true that, on average, retirees are more financially secure than young people, but many are not. The median American retires with $200k in retirement investments, yielding $8k / year by the 4% rule. That's not a lavish income. People tend to be better off when recently retired, but end up leaning more and more heavily on SS as they age. The claim that 65 year olds have a higher net worth than 25 year olds is true, but bizarre. While it's true that "fixed income" doesn't quite mean today what it meant in 1960, the claim that retirees are living on fixed incomes is more or less true.
I came here to make a similar point - I think this article is technically correct and thought provoking but misses how people colloquially use “fixed income” for seniors.
I think people use it to mean some combination of “unable to generate wage growth above inflation (by switching jobs, getting a promotion, adding more hours, etc) because they don’t have jobs” and “have put away money for retirement and are drawing down a relatively fixed amount each month without the ability to draw materially more if there’s a price shock.”
By that logic you do need to make special accommodation for seniors.
IMO, there are no interpretations that really add up to "fixed income == needs help." Fixed at what? Not only could a pension be generous, but I don't even associate "pension" with "low income."
Seniors living on a fixed income is the same as millennials "living paycheck to paycheck": The number of people actually in that economic condition is dwarfed by the number of people who have placed themselves into that category based on vibes,
It is endlessly amusing to me when I see a Millennial or a Zoomer posting about their paycheck to paycheck budget and it's either "I don't have much left over after large 401k and roth contributions" or has some significant ongoing expense that is their fault like gambling debts or student debt for an MFA.
After rent, groceries, gas, dining out, newsletter subscriptions, contributing to my 401k, contributing to my taxable brokerage account, and my $1500-a-day Fabergé egg habit, I barely have anything left over to bet on five-way parlays so I can finally stop living paycheck to paycheck.
Ben's use of "less" is correct and one of the worst things is incompetent English speakers who are ignorant about correct English falsely asserting that long established uses are "wrong" and correcting the more educated Americans who know actual English rules.
Hello fellow redditors, my takehome is $100k, but after door dash, OF, sperchats to Hasanabi, Funko pops, Bespoke Post subscription, weekends and the barcade, and $3000 rent on a trendy apartment (all human rights btw) I don't have anything leftover. I went to the doctor and had to pay a $25 copay! It should be free! Unbelievable! I'm living paycheck to paycheck. This is life in amerikkka. This is why we need socialist system like Canada or Sweden.
My friend was complaining about someone who refuses to treat a UTI (caused in part due to their refusal to take insulin) due to costs, but who spends lots of money going out the bars.
This used to be a common one in the WSJ about how hard it is to be rich.
After putting back the median household income for retirement, upkeeping two HCOL homes, sending the kids to private school, and leasing a horse or two, there’s scarcely anything left for your average junior vice president!
It's a sign of being too internet-brained that I expected someone to use this line, despite it being an obscure microdrama pan-flash. Up there with "no one needs 27 pencils", which also didn't catch on. Sad! Or perhaps, Not Great, Claude!
One that really gets me is “most Americans are just 2 missed paychecks away from homelessness”. It just does not make sense and yet whenever I push back people start yelling t ‘em about “data”
It would be interesting to know how many (say) sixty year olds have been through at least one period of unemployment longer than two months. I bet it's a lot of them!
If I can max out my 401(k) and Rothschild contributions every year, while bagging groceries for a living in notoriously low-COL San Francisco and still juggling student loans...I don't know what their excuse is? And my annual net takehome is under $40k! Yeah, this doesn't leave *much* left over...but my life is already filled with enough baubles and gewgaws that there's not much excuse for profligate spending either. No, I don't need to buy another pair of Air Jordans out of boredom, or drop $70 on delivery (always tip nicely) because >tfw too lazy to boil pasta. And as Matt often says, entertainment is basically free and infinite these days. Suze Orman was full of shit when she said Millennials can't afford houses because of Starbucks and toasted avocados, but it's not wrong in spirit.
33% or so gets taken directly from paycheck for company 401(k). The Roth I manage on my own, can contribute to that whenever's most convenient. Unclear where the discrepancy is?
Maybe it's confusing to use the net amount rather than the gross. I'm counting the amount actually left over after pre- and post-tax deductions, insurance premiums, state and federal withholding, etc. Total gross receipts would be more like...$60k, inclusive of the 401(k). So 60 - 23ish = less than 40. I think it's weird to consider company match to retirement as a form of "compensation", but admittedly it's not *impossible* to early withdraw that money, just unwise.
I do have a bit of non-wage income (TIPS sends me a couple bucks every few months, tremendous!), and I guess including both refunds, that amounts to like an extra 1.5 paychecks per year? Cancels out with student loan payments though, thanks Trump for kicking me off forbearance two years early. Despite this, net worth broke six figures around my 35th year, just as this post's chart predicts. I guess it does sound pretty crazy in retrospect...dunno how else to avoid the "fixed income" trap though. If I'm gonna die alone, it'll damn well be on my own dime, not the government's.
But without these, you'll be stuck on a fixed income in retirement!
(No self-respecting millennial expects to see more than a dime of the social security we're currently paying into, given Congress' approach to fiscal responsibility in the 21st century.)
I think you may be in trouble tbh. Gen X is up against it first, and there are so few of us that that’ll be seen as a window of opportunity to do a fix that screws us over — along with subsequent gens, of course.
I was trying to remember what article Freddie was being a total asshole to you and your writing. It was the paycheck to paycheck one, I'll keep that in mind.
I would like it if Matt did an article on the decisions people make that wind up in the
10th/25th/50th/75th percentiles of the income distribution.
The NY Times articles on the finances of ordinary families are just wretched. They assume greater frugality and industry than often appear to be present, I think they often just accept people’s self justifications without pushing on them.
I’ve spent plenty of time with data, but I would like narratives of how people wind up different places. Now that teenage pregnancy has declined, far fewer women are stuck in low skilled jobs because of children.
My most Dave Ramsey coded opinion is that the vast majority of people complaining about “capitalism” or living “paycheck to paycheck” just need to set and stick to a budget
my most Republican coded opinion is that if you're 1) from America, 2) have no debilitating health issues, and 3) are at least roughly average in intelligence and conscientiousness, then you've already won the lottery so stop complaining
I agree with this, but what if you are American and are in the 15th percentile of intelligence and the 30th. percentile of conscientiousness ?
I don’t want to overthrow capitalism to help out the left tail, but I’m not sure this particular dude gets a better outcome than in France, and not offering variable paths to the somewhat below average is maybe the worst feature of the American system.
The bottom 5% and especially the bottom 1% are something close to utility monsters. They create massive quantities of unhappiness for normies.
There are a substantial number of people who choose to fail at 2) in part due to their failures at 3)
(Super myopic self destructive behaviors and who refuse to follow doctors’ guidance. Think of 20 something diabetics who continue to drink alcohol and not take a full course of antibiotics for UTI…. I might know physicians.)
Doesn't "roughly average in intelligence and conscientiousness" mean you have *a lot* of people below this threshold (assuming "roughly average" is the middle 20% tier, that means you're talking about 40% of the population being below this threshold)?
Very true! And I believe in a robust safety net to help these people specifically.
But go on any reddit comment thread and see how often you find people who consider themselves both very smart and a helpless victim of American capitalism.
This is a category error. Someone in the 40th percentile of talent doesn’t need a safety net. He needs truckers and phlebotomists to draw good wages or the economy to be good enough that 50th percentile dudes become assistant managers at walmart and he can be an assistant manager at a fast food place.
Someone in the 20th percentile needs a dignified job as a cashier or a stock boy or a warehouse worker or a nursing assistant.
Yeah it's hard not to sound all "kids these days" but I'm only in my early 40s and it feels like I can remember a time when people just better accepted material constraints as a part of life.
I've had the "it's too expensive and I'm not having kids" conversation with people and I'm just like, my dad, a lawyer (!), heated our house in Northern Minnesota by chopping wood by hand. In the 1990s!
My dad was a philosophy professor and also chopped wood! We had a wood stove in the dining room that wasn't the sole source of heat, but we sure used it a lot in the winters and especially during power outages (and speaking of the gold ol 90s, a lot of times these lasted for days, and you sure couldn't go online to check the ETA on a fix from the power company. They really have their shit together these days.)
And yet luxuries are edifying and kids reduce your ability to consume them. That’s a tradeoff, and it’s only fun having kids if you enjoy them more than luxuries or can afford both.
I think this is reversed. Kids are edifying. Most luxuries are not. The difference is that luxuries are easy, while kids are not. Given the choice, many people will choose the easier option even if the long term payout is much lower.
Yes, I guess what I was trying to say was, people should stop lying and and just admit they don't really want kids that badly instead of implying or stating that it's impossible because times are so hard.
I think the difference is that living standards are not growing as fast as they used to in the mid-late 20th century (although they also have not stagnated, and overall we are wealthier than we were then). A larger % of people are poorer than their parents were. I think that is the bigger issue
I think what makes people think that our economy is worse off now is the fact that the "middle-middle" class has disappeared. There used to be decent paying as well as distinguished jobs available for non-college white people - like my parents - that disappeared around the turn of the century (think secretary or old-school salesman).
The people from the younger generation of this class like myself that pursued college (with a marketable degree) or advanced training of some kind ended up graduating to the upper middle class. People like my brother didn't do this and now stuggle financially and developed resentment from being relegated to the working class.
A lot of these white people displaced from the middle-middle to the working class are a core constituency of the Trump regime.
As someone who dislikes careful budgeting (I’ve tried), I’ll throw in a recommendation for the “stick a chunk of money in automated savings every paycheck, don’t sweat the details with what’s left” strategy.
This may not work so well if you are seriously cash constrained or if you’re not habituated to a level of general mindfulness about spending (and pay off credit cards every month etc.). But it works well if you have a decent income and are reasonably conscientious, and is way less stressful than tracking every last dollar.
Or audit their existing budget and just say it out loud. Can be a humbling exercise to actually look at where you've sent a lot of money.
The one that always gets me, is folks will complain and complain about taxes. But then have more subscriptions than they can even list without consulting their bills.
Worse, how many elderly out there have multiple phone bills that they setup and didn't get canceled correctly.
I doubt 'quite closely'. I'm not in the weeds of the whole IQ discussion field, but I remember reading that the correlation actually breaks down above a given score (let's say 110, I could be a bit off). Lots of high-IQ workers choose to work in intellectual but not especially high-paying jobs (academia, research, etc.) Especially as neurosis seems to increase with higher IQ, so some (obviously not all) highly intelligent people are quite neurotic/anxious and wouldn't fare well in a highly demanding job.
On the flip side, being an electrician or a plumber pays reasonably well. Lots of not super-high IQ but driven blue collar guys & gals out there. Sales is another example- absurdly lucrative at the high end, doesn't require a high IQ
You don't have to be super-high IQ, but a stupid fabricator isn't going to last long. You need maths and problem solving skills. Same with millwrights. I expect the same is true of many plumbers and electricians. The dum dums get stuck sweeping the shop or just doing what the journeyman tells them to do when they're out on the job.
Trust me, there's a world of difference between a lot of the people I meet on the factory floor and the people that I worked with in a fab shop.
My thoughts are that the IQ test is fairly flawed at testing real life problem-solving skills. It’s a paper test (well, probably computer these days) with puzzles. It is very good at testing academic ability and the ability to manipulate symbols, but you could be a brilliant mechanic or carpenter without necessarily having a “high IQ”
Insert wojak IQ distribution meme here: spend less than you earn / nooo tax the rich and people shouldn't have to job hop and housing is a human right under late stage capitalism / spend less than you earn.
(I'm not really sure what to put in the middle because it's such a large potential bin of foolishness. Very fine horseshoes on both sides, they're not sending their best economists.)
Matt is totally right on the actual technical details here (of course). OTOH, I sort of think he's missing the whole point of people using the phrase "seniors on a fixed income."
Similar to using the phrase "death tax" or "pro life," talking about seniors on a fixed income evokes emotions that everyone intuitively understands and relates to despite the technical inaccuracy. Real median income increases substantially as people age up until around age 50 or so. After that, and especially after retirement, median real income decreases substantially. This is mostly due to an intentional shift away from labor income, as people age. This shift is often heavily influenced by ever increasing physical limitations. The reality is that older households usually have much less ability to increase income if needed. So while it's technically true that SS income is automatically adjusted for inflation and stock portfolios can keep up with inflation over long periods, most people face a transition from flexible, labor-driven income to largely predetermined (and "fixed") income streams in retirement.
This is the dynamic people are thinking about when they use or hear the term "fixed income." The dynamic is less about inflation eating away at nominal income and more about higher exposure to things like sequence-of-returns risk, the possibility of reduced withdrawal capacity if markets underperform, and increased risk of unexpected expenses (especially health related). People intuitively get that this dynamic is at work for many retirees. The phrase "fixed income" works well as a proxy to capture the fact that unlike younger people, most older people are in a phase of life with almost no income flexibility and often have lots of concern about rising expenses relative to what they can sustainably draw from their resources.
I think Matt is correct that the phrase started out as a literal meaning of "fixed nominal income," and the latter meaning you describe is more of a reverse engineering of a phrase that doesn't apply as straight forwardly anymore.
That said, the stock market and inflation relationship is complicated by both time and interest rates. The market had its worst year in a while when interest rates were hiked to bring inflation back down to earth, which was terrible timing of you were drawing on it for incomes.
Overall, however, we need to be more clear eyed about the relative affluence between generations given our aging population
If you have to sell down stocks to match your spending then yeah, owning stocks during inflationary periods is tough—stock prices will often go down in nominal terms while the price of everything else is rising. If you’re able to live off dividends it’s not nearly as bad; dividends tend to increase even in inflationary periods like the ‘70s and early 2020s. (They can get hit hard during deflationary recessions though.)
So long as they leave it to us, we shouldn’t cut a dime to seniors. We should, however, make long term care and nursing homes free so that our money doesn’t get stolen by those places.
More accurate to say "fixed assets" but that's also not quite true. They're playing with a money pot that income no longer supports. Hopefully by that time in one's life the pot is big enough for it not to matter. If it is too small, like it is for many, we'd be better off just being honest and advocating for programs and benefits for poor seniors rather than pretending it's all fixed assets that are open to the same market turbulence as anyone elses investments.
Funny how many people are against UBI because it would give money to rich people but our social security programs give money to all elderly people regardless if wealth. And often the wealthier receive more because they contributed more during their working years!
Because UBI is coded as a handout while SS is coded as a reward for hard work. This is why the EITC is probably our best hope politically to make redistribution to less productive non-retirees.
Is it progressive? AARP says that higher earners receive more money (up to a point). But also there's a cap on how much high earners contribute to SS. I feel progressive system would do the opposite. Though maybe what you say is true for "relative to their contributions". I'd be interested in learning more.
Very, it's heavily progressive. The calculation starts with average monthly earnings, indexed to today's dollars. The first ~15k per year you get 90%; beyond that to ~100k per year you get 32%; above that up to the cap you get 15%.
Like, it's very progressive in a sense that poor people receive a lot more than what they put in, but it's not very progressive in a sense that rich people don't get far less than what they put in.
It's also running out of money. I wonder if those things are related at all.
-seniors dependent solely on social security are in a bad place period. Matt said this and I think the number was 25% of seniors? I’d argue inflation makes it worse since any savings or $100 from friends/relatives go a shorter distance.
-seniors with very large bond portfolios are hit hard by inflation as Matt said. Typical financial advice is 40-60% bonds as a senior (since the stock market can go down). Matt seems to have waved his hand and said the stock market will provide—I believe the 70s were particularly bad for both inflation and stocks.
-seniors with actual fixed pensions (likely certain school districts and state/local government workers) do exist-Arizona might have more of them.
-Matt also did no analysis of how the goods/services used by seniors are different and might be differently impacted by inflation.
In contrast he has working people job hopping or having uncomfortable conversations with their boss—which I agree is painful, annoying and bad (I make less now than 2021 in real dollars, I think). Working people, however, do have those options, and they likely are saving some of their income, so their overall financial picture is rosier year over year.
I found the whole analysis today rather scattershot and unconvincing.
What is this “ability to increase income if needed”? Is that a thing people think in terms of? I’ve seen several people in this thread suggest that “fixed income” is about not having that ability, but I’ve always heard it as meaning the thing Matt is talking about with nominal pay that doesn’t respond to inflation.
I don't really think this is true -- every person I've talked to about inflation and "fixed income" seniors was under the impression that they were on a fixed nominal income every month (generally talking about a pension or SS), and that inflation was just decimating it.
Not that they had less income flexibility because it was investment/entitlement income rather than wage income.
Otoh, we have a reasonable facsimile of a nordic welfare state for senior citizens. If you run out of money medicare pays for long term care. If you plan a bit, you can have a self settled trust to pay for luxuries during this stretch.
Watching my parents slowly die a few years ago only convinced me more of the joys of voluntary euthanasia.
Obviously, I'm not for some of the excesses like suicidal teenagers using it, etc. But for anyone over 70 or with a terminal condition, I'm totally for it.
I thinks it's also worth mentioning that SS increases are done after the fact--so if you have a 9 percent inflation year like during post-covid you lost that 9 percent because the raise in SS benefits comes later.
But, the concern re "fixed income seniors" is the dramatic decline in their purchasing power over time. A series of 9 percent inflation years followed by a 9 percent increase each year leads to a 9 percent loss in purchasing power. Compare that to the ~35 percent decrease at 3 percent per year for 10 years.
Don't think it works that way, inflation doesn't go backwards (you're talking about 'disinflation' where prices stop going up but don't regress to the original prices---you would have to have deflation to come out ahead).
If you’re always getting the cost of living adjustment based on the previous year’s inflation, then if there’s a 9% year followed by a 1% year, you get a 9% adjustment even as inflation only increases prices by 1%. The post I was replying to suggested that one is always behind by the biggest amount of inflation that happened, but in fact you’re always just behind by the most recent year’s inflation, which is sometimes below average and sometimes above average.
We could also try to get more empty nesters to rent out their spare bedrooms. This has been banned in many places, and YIMBY should be pushing to repeal those rules. It used to be very common for empty nesters to rent rooms to young people, and bringing that back would create a lot of cheap rental housing.
I'm always seeing Facebook posts about "how come there's no kids riding bikes in the street anymore?" Well, there would have to be kids in your neighborhood in the first place for that to happen.
My neighborhood is largely older than we are, but there are ~20 households with kids almost exactly the same age as ours and another 20 or so with kids who are a bit older, and our seniors must be odd because they seem to derive actual joy from watching the kids run around and play, even when they're screaming at the top of their lungs at dinnertime.
I don't have data on this, but I would GUESS that Vancouver has more kids per capital than the other Portland-area suburbs. There are enough that Halloween is lively.
I think anyone who has kids or has had kids loves to see them running around and having a good time. I think there's some serious stereotype going on here.
And when people live in cul-de-sacs full of SUVs and everyone drives their kids to school, the few kids that are there find it isn't safe to ride bikes anymore.
Agree but I'm pretty confident if you tried to do this in a lot of places it would be be labeled "legalizing flop houses" and angry oldsters would show up to city council meetings to scream about "being forced to live with drug addicts" and the idea would die. And parking Ben, what about parking!?!?!?!?!?
Such is the nature of local politics in much of America.
I moved to New Zealand recently, and am renting what I think would be an accessory dwelling unit in US parlance. A huge portion of houses here have a small guest house that might host a young adult child or grandparents, but can also be rented out. Mine's basically a studio apartment but freestanding with its own parking space. It's been a much more pleasant place to live than the suburban apartment I used to rent in the states, with more natural light, no noisy neighbors, and much easier to carry groceries in.
IMHO, this would basically require the complete dissolution of renter-protection laws, at least for that class of rental. Whether you think that's a net good outcome is an interesting discussion.
We had two different questions in the mailbag about the step-up basis, and one reason that seniors hold onto too-big houses (especially in HCOL areas) is that they want to avoid the capital gains tax by waiting for death.
The Airbnb wars are mostly about using whole units as short-term rentals, which is seen as taking units away from long-term residents. Renting individual rooms on a long-term basis is different from the short-term Airbnb model.
There are a number of cities, including my hometown, that have erected significant legal barriers to renting out single rooms due to Airbnb/VRBO/hotel fights.
This is a great idea, and is used very often where I live. All you have to do is go on one of the sites for finding roommates and you'll find lots and lots of advertisements for roommates (rooms to let), quite a few from people that are older. In fact, the best deals are from people who are older, probably partly because their homes are older and so not quite as attractive to younger people. There are also quite a few young professionals who don't have children yet but wanted a house, generally high wage immigrants, but haven't started a family yet.
I despise with a purple passion most of the yimbi stuff, but this is one strategy I think is great and the more things that could be done to make this easier or more attractive, the better life would be for everyone.
Renting a room is obviously less desirable than owning your own house or renting an apartment, but it’s also obviously a huge upgrade over homelessness, and cheap rentals make it easier for young people to save for a down payment.
They don’t need to - they can rent to a student who would otherwise occupy a run-down studio apartment, and the homeless person can rent that run-down studio apartment.
People who are at risk of homelessness are a lot less disreputable than the currently homeless. Also, the prospect of earning $500 a month per room will overcome a lot of reluctance for many people.
So long as they have few tenant protections, I can’t imagine renting a room out *in my house* to someone I couldn’t kick out, even if they looked great on paper. And in Seattle, you can’t.
Absolutely! My frown there is that I think the focus on detached single family homes is misguided. Affordable housing is different from affordable homes. And I think a better goal.
>>But if affluent boomers were to sell their homes, realize large capital gains on the transaction, and move into smaller dwellings and live off their financial windfall, that would be a fine outcome for the country.
Looking at my local RE market the difference in price between a 4 bedroom and a 2 bedroom is not large enough to live off, especially after taxes.
A lot of the home price is tied to the land value, and a house with fewer rooms still needs a roof, boiler, kitchen, etc. and those are needed no matter how many bedrooms you have.
At least in MA, this only works if you move out of state or way west.
It’s a problem in the low cost Midwest, too. Downsizing housing does not result in much, if any, release of capital. Most 2 bedroom condos are close in price to 4 bedroom homes.
I live in a moderately priced city. Some convenient apartments were built a few blocks from me. I took a look at them, and the rental cost for a studio is higher than my monthly utility and tax bill in a high tax city in NY for my 3 bedroom, 1500 square foot house. The house is paid off. It wouldn't make financial sense to move there.
Huh, I would have thought that if rent costs just a bit more than utility plus taxes, then that’s a huge discount, because you no longer have a huge amount of capital tied up and it can earn money for you in other ways.
Well, sort of. But we would be living in a studio apartment vs. a 1,500-square-foot house, and the monthly out-of-pocket would be higher. Plus we would still have to pay utilities, so I need to check on the cost of those. Presumably, they would be less in an apartment, but we have solar panels, so electricity costs are negligible in the house. You are correct, though, that we wouldn't have to pay for maintenance, which is hard to predict. (This is all a moot point right now because there are three of us living in our house. I was going to look at the price of a two-bedroom, but stopped when I saw the price of a studio.)
One of the more common ways to downsize is to sell and move into a continuum of care retirement community. So they sell the house, use that and other proceeds to buy into a place that has both a high buy in but also a significant ongoing payment need.
That actually is not very common as a downsizing step, because continuity of care places are so extremely expensive and assisted living is generally not needed for decades after kids leave. It would be a good way to run out of money.
If you are wealth constrained, you move from a high cost area to a low cost area. Most of florida, most of arizona, and basically all of mississippi and south georgia are low cost. There are plenty of warm, low cost places for retirees to live.
"Pick up and move household to Mississippi" does not seem highly compatible with "Wow, it's really bad that nobody knows anybody and everybody lives and dies alone in front of their screen".
This is sort of the dog that didn't bark of the whole article. "....And all you have to do is be willing to totally uproot your life, dissolve any community ties or location-based social capital you've accumulated, and quietly wait to die somewhere cheap."
Not really. Most communities offer condos or small townhouses or are near places with those sort of options. Moving a half dozen miles often permits downsizing.
I mean, for them it kind of makes the most sense. Assuming you don’t leave your social ties, difference in price between your $3m brownstone in Manhattan and the 2 bedroom Manhattan condo is pretty substantial. Or the difference between your 4000sf house in a wealthy Memphis suburb for a nice 2000sf place in the same suburb - pretty substantial. For more middle class people, the price difference of downsizing is not so dramatic and gets eaten up by closing costs
Me thinks you have not looked at Florida housing prices lately.
I just bought a house out in the boonies in a cookie cutter neighborhood and it cost me just under half a mil. Inside the popular urban area it would have been $700K for the same house. In the actual trendy neighborhood it would be in the millions.
Florida is quickly becoming flat and swampy California.
I'll admit this is a bigger difference than my impression. Still not fully convinced, I wonder if factors like location are impacting this (are there more small houses in less well off areas? What about same town comparisons?)
Yes, I thought something similar re location. It was surprisingly difficult to find data by bedrooms.
For rentals, there is a useful comparison here, though there are no 4 beds. https://www.parklabrea.com/floor-plans -- not sure how that translates to purchase prices.
We need to float more debt and juice inflation further to transfer more income from workers to nonworkers (who are not future workers.)
I got so angry at the tax deduction for people over 65 in the OBBBA while doing taxes. It’s a break for like three years. Then there was a huge exclusion for capital gains income under like $90k AGI.
And what do people raising children get? A few bones, rising costs, and a deliberately sabotaged economy.
I do my parents' taxes, and while I was generally aware of the terms of the OBBBA, it was still striking to see that handout show up in real dollars. With a $2T federal deficit. In addition to state and local giveaways for seniors/retirees. It all is a little blackpilling. And so many people have no idea the extent of this.
When I was self-employed for a while I was shocked at how much lower my taxes were, and how many ridiculous writeoffs there were for me. The Trump 1 20% LLC writeoff, the whole S Corporation 'distributions versus minimum salary' thing which is kind of a scam, etc.
I guess it depends on the tax situation you're comparing it to. Like, paying double FICA can hurt at the lower income levels. Although I suppose we all indirectly pay both halves of FICA. But yeah, between those changes and small businesses being more aggressive with write-offs given a slackened IRS posture, I'm sure it's a real windfall for a lot of the GOP faithful.
It's not, and it's going to be politically painful to roll back. The only thing that'll soften the blow is that a bunch of people tipped with true cash don't report it all anyway.
According to a relative in the restuarant industry this used to be the case, but nowadays 98% of all checks are paid with a card, so they DO end up being reported.
Between increased opportunities for tipping and tips shifting to credit cards, I wonder how much reported tip income rose over the last decade or so. Maybe the current tips deduction is a wash if you weigh it against those trends (still a deficit hit on its own, of course)
Long-term capital gains tax has always been 0% as long as I remember for couples under $90k or so total AGI; that wasn’t from OBBBA (OG FIRE people brought this factoid up a lot).
When my mother died, and we sold her house, I had enough money to pay off my mortgage. I have been in the same home since 1999. So now my bills include a small HELOC, taxes, and insurance, plus ever-increasing maintenance costs. In 2012, I paid $12,000 for a new HVHC system. I am told today that the cost would be $25,000. Should I need a new septic system due to newer regulations or a sand dome, I can expect to pay upwards of $40,000.
I live in NJ, which has the highest property taxes in the nation. There are programs to pay up to $6500 of seniors' property taxes. There are towns near me where smaller homes than my center hall colonial pay $25,000 a year. Property taxes go up every year in NJ. My dilemma is that I could sell my home for a bundle, but to buy in NJ, anywhere where you would want to live, would cost a bundle. Downsizing is not that easy. I could move to Indiana, but I would be alone as my wife would stay near our two girls. I would swap out outdoor expenses for an HOA fee; they also go up. Same with condo association fees.
Owning a home is expensive if you choose to keep up the maintenance. Living on well water is expensive. You need pumps, a soft water tank, salt, and filters. I needed a new system last year, and it was $12,000. Do I get to choose where I live? Partially. We could leave the girls and go somewhere where I know no one, nor the area. In my case, I’d have to find about 5 new doctors. It took me 6 months to see my cardiologist two years ago.
I think is quaint that Matt thinks I should just move to a state with lower costs so a younger family can move in. Would they be prepared for all the costs associated with a home? My wife gets a $1250 teacher pension after 19 years of service. She only got 16 years worth of service as she was a pregnancy leave teacher for three years and the Union pension only accepts someone on the tenure track. We pay about $850 a month for our Medicare Part B, which is why her pension is that small. Her SS is only about $2000, less her part B. She retired at 65.
If she were alone, trying to live in NJ on less than $4,000 a month, things would be very tight, and she would likely not have a home or own it. I dispute his assertion that seniors don’t have very tight budgets and are living some kind of life of luxury.
I don't think he's saying "seniors are living a life of luxury" but rather "on average, seniors are doing fine" which still allows for some seniors to be struggling financially
When you're letting contractors take you for a ride, everything is expensive.
$25k is pretty close to what it costs to install a standard central air and heating system *including ripping the house open to replace duct work* in our area.
How can you not, if you don’t know how to do the work yourself? I’m not being snarky, I’m asking legitimately. That shit feels hopeless, considering I didn’t have a dad that could teach me anything handy. Every time I’ve tried to do anything more complicated than, say, install shelves or a new faucet or mount a TV, despite all the YouTube videos in the world I hit a breaking point where I call someone
4+ quotes, call a buddy for a gutcheck, have a local handyman tell you what'd it'd take for him to half-ass it under the guise of another quote.
Eventually you develop a feel for what things should cost.
Installing a central air + gas furnace unit (or a heat pump, or central air with resistance heat, or central air + oil furnace) in the place of an existing central air unit requires the unit itself ($4-10k), roughly $500-1k of materials, and about 3 person-days of labor, 1 of them skilled.
Not sure what breaking point you'd be running into but in my experience there're basically only two tasks that require genuine skill to do well: place tile, and mud drywall.
Everything else, sufficient rigor and patience can substitute for skill.
"I think is quaint that Matt thinks I should just move to a state with lower costs so a younger family can move in. Would they be prepared for all the costs associated with a home?"
Yes? If you live in an area where nearby homes are paying property taxes of $25k, that sounds like a fairly desirable area. The person buying your home would be in a position to afford upkeep. I am literally a young father with plans to buy a home in the next two years, and that $6.5k handout for seniors is (indirectly) making it more expensive for me to do so.
All of the upper middle class NJ towns have a trend. The people who've been there forever? Nurses, cops, teachers. The people who can afford to move in, given limited inventory? Lawyers, doctors, executives. The town changed. Can't afford to maintain a home in an extremely expensive area? You aren't entitled to it. Cash out.
This is an especially frustrating complaint given that NJ has lots of 55+ housing at below market rates. I saw a 2 bedroom for $200k in Monroe -- a very nice town.
One of the significant undercounted transfers is Medicare. Looking at my parents last ten years, the level of spending on medical was significantly higher vs the amount sent by Social Security. This healthcare spending is really taken much of the worry about rising prices out for many in a real way but not in a psychological way.
The second thing I would say is although they were very well off, they had a very transaction view about being owed their Social Security. I doubt that they paid in enough compared to what they took out. So here was for them a program that they very much did not need but viewed as owed to them even though they had already taken out all their contributions very early.
Some seniors understand they will take more from SS and Medicare than they put in (true on average, not true for the 1%, who pay more than they take out).
But most of them do not understand this fact because political rhetoric, like the statement from Mark Kelly that Matt highlighted, has *deliberately misled* them for decades. I know you can't "take the politics out of politics", but the way politicians communicate with the populace is distasteful.
Most people keep a running balance on their credit cards. How would they ever be able to figure out whether or not they're getting more from Social Security than they put in? Even I don't know, and I'm the smartest person on the planet, or so my mother told me.
Well, not her, but her father was a low level person in the Cleveland Democratic machine. She remembers being held by her father's arms as a four year old to see Al Smith when he worked the crowd during the 1928 (!) campaign.
And then in 2012 she briefly met Joe Biden during a campaign rally in Florida and he just loved that story when she related it to him.
Whenever I read stats like "28 percent of America’s large homes with 3+ bedrooms are owned by empty-nesters" I remind myself that the definition of a 'bedroom' has little to do with what a room actually is or is used for. If you buy a house, a bedroom is whatever the person who built the house told the town planning board was a bedroom, and they get the best selling price by maximizing it. OTOH I'm planning on building a house soon, and the more bedrooms I say I have, the stricter the requirements for my septic and other systems, so I'd rather minimize that and call an office an office than a bedroom.
A 3BR/1BA often just means you've got two offices or an adult couple that prefers sleeping apart. Not the most efficient use of real estate maybe, but it ain't the Soviet Union.
Agreed. My current situation *is* probably pretty close to the most efficient use of real estate - two adults living and working in an RV, ~240 sq. ft. But it's not the best setup for productivity. After 5 yrs mobile, we will be moving to a 3BR setup soon.
That may be a state by state thing. Here in CA a bedroom has to have a window and a closet, and if it doesn't then it's an office/utility room/bonus room/etc.
You can decide how many bedrooms to have when you're building new, but you can't change the actual count up or down without a remodel.
Good point. If they applied such a simple, natural definition to old homes in the Northeast, some would have zero bedrooms :-) OTOH less strict rules leave a lot unclear. For example, I've been told you can really stretch the square footage limit on ADUs in NH by labeling an open loft as "storage."
When my wife first ranted about this it redpilled me like never before. Even the term makes no sense -social security gets a guaranteed raise matching inflation. No one working a regular job gets that - our income goes down over time by default! We are LUCKY to have a fixed income that doesn't go down. Plus obviously their house and stock values only go up.
No? Having to move in 2008-2012 would’ve likely meant a short sale, keeping the house 20yrs probably lead to some appreciation, but smaller than VTI/VOO and you’d have been tied to one place during the recession.
It’s not the worst outcome and someone who currently owns a house they bought in 2006 is probably in a good position, but if I were a time traveler that wouldn’t be my decision.
I remember in the Obama days we even had a fight about whether or not to tie it to a more conservative inflation measure (chained CPI), and the seniors won.
Our fiscal path is now a bipartisan agreement to transfer money from the working-age people (who can still have children) to the retirees. Paul Ryan and the GWB-era Republicans who tried to reform Social Security are never coming back and Democrats have 50 years of muscle memory advocating for a more generous SS and Medicare.
Matt and his comment section recognize the economic decline across much of Western Europe and the UK as their economies have lost competitiveness and dynamism. But we seem to have chosen the same path, just a decade or two removed.
Matt is fond of saying 'the UK isn't going to make it' on X, but there seems to be overwhelming pressure to just ramp up benefits and increase sclerotic regulations all over the world. There seem to be more and more hard boards out there, and Matt's crappy little drill will not suffice.
The biggest situation where I encounter seniors struggling with expenses increasing faster than incomes is about property tax. If you're one of those boomer empty nesters, then your house has probably appreciated a lot over the past decade, much faster than inflation. This leads to significant pressure by said boomers on local and state governments to cut property taxes.
The right solution is for our famously productive financial industry to figure out how to make this windfall profit get used to pay the tax bill, but that unfortunately hasn't happened yet.
This has been mostly solved without Proposition 13 nonsense.
You let the tax bill go up by market rates, the *amount that has to be paid* is constrained, and the *difference* gets put on the property as a non-foreclosable lein earning interest at a modest rate.
A community can tap this wealth with normal financial instruments.
It really seems like there should be an easy way to just defer payment of increased property taxes until sale or transfer of the property. Especially if you only do it for increases above a certain amount, or for people above a certain age, so that you can’t end up deferring more than the sales price of the property.
Boomers, on average, are unlikely to live in dense urban centers and are even less likely to move towards dense urban centers. Property tax for the average Boomer is not a major expense.
Actually they generally are, because the services provided are typically minimal. Basically sheriff, schools, and fire/rescue. No public water, no public sewer, etc.
I'm welllllllll past being out of patience, so I will say this once:
You are a professional class resident of a prosperous and growing exurb, not a rural "good ol' girl." You have less insight into the realities of rural life than basically anyone because your blinders are far too large; stop thinking about the world in which you live and go look at actual rural life lived by people doing the sorts of work that rural economies center on and those who retired from such work.
My grandparents receive somewhere between $10 and $15k from Social Security each year and draw down some savings from the sale of their small farm to make ends meet. They pay $1,500 in local property taxes for a property with, as you note, no sewer or water service and in a state of generally poor repair.
There are more retirees in their town in a similar boat than there are not, by a whopping margin, and each successive generation has seen fewer kids stay for lack of any better prospects.
Please spare us your cosplaying bullshit. You are no more a typical rural resident than I am, and in some ways you're far less attuned to the realities of rural life precisely because you *want desperately to live there*. Most folks who live in rural areas didn't have a choice in the matter, anymore than most kids born into inner-city poverty in Baltimore or Philadelphia did.
But you don't see my urbanist ass endlessly talking about how great life is for the poor kid being raised in a barely-habitable rowhome 20 blocks into the city from me.
Actually, I am a native of Appalachia whose family has farmed in very rural southwest Virginia for around 250 years. I grew up spending considerable time on my family’s rural Appalachian farms, and my extended family still lives there.
My parents, grandparents, and so forth on back to the literal 1700s were born and are buried in rural Appalachia. My grandparents (and quite a lot of my aunts and uncles) were rural farmers as well as often having side businesses. One grandfather worked in coal mines during the Great Depression to earn enough to hold onto his land.
I lost a cousin by marriage, someone I knew my entire life, to a gruesome farm equipment accident. I literally lived in a barn (barn apartment, such as it was) when I first graduated from college, swapping chores for rent while I figured out what I wanted to do when I grew up.
I have unloaded hay, fixed fence, wormed livestock, turned manure piles, and broken ice on stock tanks until I couldn’t feel my hands. Those are not glamorous cosplay jobs done in a floaty dress.
I am not originally from central Virginia, and the central Virginia county I live in was hard rural, not exurban, when I moved here well over 30 years ago. I picked it because it was then within an hour’s drive of a city where I could get a job, and I wanted to have animals and a big vegetable garden. Given a choice, I would have preferred my county stay a lot more rural and a whole lot less exurban, but no one has to ask my permission before they move out here. Given a choice, I would have stayed a lot closer to where I was born in the first place. This is not a rare sentiment.
Most of rural Virginia is either in an MSA or within an hour of an MSA. Even tiny Highland County is within an hour or so of Staunton and Harrisonburg. That proximity to MSAs is a factor of geography and historic settlement patterns, not something I made up. It’s true for much of the east. It’s not the same settlement pattern west of the Mississippi - but about 2/3 of US rural residents live east of the Mississippi. The west has a lot more land, but a whole lot fewer rural people. Look it up.
My comment re taxes and services was after I double checked the most rural county in the state, Highland, which is also in Appalachia. Average home value 200k, average household income 65k, tax rate 0.48 per 100, which would average 960 per year. That is low relative to the average household income of the people who live there. That fact does not preclude rural poverty for people who make a lot less than the average.
I'm tempted to write, "Oh, so you should know better" and walk away, but I won't.
I'd like to point out a couple of details here: you left the area you were born in to move to somewhere where you'd have access to a knowledge economy job market. That shift happened a generation earlier for my family but it happened in the same way. I spent a lot of summers up there doing that same sort of work; I have slung hay bales, helped load cattle, run a combine harvester and fed the corn sheller, reattached tin roofing, mucked out the birthing stall...
I can't speak to the area you're from, but where my mom's family is from, the median household income is about that same $65,000, but local tax burdens are quite a bit higher (2X+) because everything is older and harder to hold together, while still getting those same threadbare services. There've been at least 2 successive school district mergers since my mom graduated from high school out there, most roads don't get plowed, road maintenance is sustained mainly by a *huge* ongoing infusion of state tax money, there's an all-volunteer fire company with increasingly threadbare personnel coverage. A failed septic system, for most of my grandparents' peers, means "we sell up for what we can and live with one of our kids." And this is getting to be a crisis, to be frank; all the private infrastructure is at end-of-life with no clear path to replace it. Those neighbors who live in town get water and sewer service for more than I pay for it, and there is no money to maintain or modernize that either.
They're within the Harrisburg-Carlisle MSA, to be clear. 85% of counties in PA are part of an MSA; that doesn't always indicate that they have a dynamic labor market as some of the anchor cities for those MSAs are themselves small and undiversified.
I don't pretend to know whether most of the folks who grew up there want to leave or not. My mom probably would have preferred not to, but basically every cousin and second cousin who was born there left. My cousins left pretty happily, FWIW.
From my outside view of rural life in PA, it's very clear that many or most households are struggling, retirees particularly so, and the community as a whole is in a death spiral. That is true of most of rural PA.
From what you've said that seems to be less true of rural VA, which is more picturesque and had a far smaller legacy economy. That's great, but for many or perhaps most other rural locales in the US... Poverty is not *the* defining feature of rural life but it is definitely *a* defining feature of rural life.
This is kind of fair, but it's also the feeling I get when I read a lot of urbanist works and mutter "fucking tourist" under my breath. It goes both ways.
As I said: "But you don't see my urbanist ass endlessly talking about how great life is for the poor kid being raised in a barely-habitable rowhome 20 blocks into the city from me."
I also call out other urbanists who seem bound and determined to make life worse for the people who do live in those areas.
For me, the main difference I feel is that there's a clear set of policy prescriptions that exist to deal with urban problems in the US, and there is a lot of well-founded hope that city life can and will get better over time. If you demanded that I craft policy try to piece back together rural life in my mom's hometown or the area where my dad's family has a hunting camp I wouldn't even know where to start. In PA there are only two sorts of rural areas: "rapidly depopulating with disintegrating social and physical infrastructure" and "scenic and in the midst of being colonized into commuter/vacation areas for folks based in metropolitan economies." I guess the latter outcome is "better" in some sense, but it doesn't seem to lead to any kind of durable gains for existing residents.
Everywhere has property taxes, pretty much. They tend to be low for the majority of seniors, because older people tend to live in areas that have low taxes. Average is around $200 per month.
High property taxes are generally an issue in very dense urban areas and wealthy suburbs. They are NOT a major factor for most seniors.
I don't think it's true that seniors live in disproportionately low property tax areas. Additionally seniors are way more likely to own a home, meaning they actually pay property tax.
The one exception I would allow to the second half of your second sentence is that many states offer some form of homestead exemption to people 65 and over (my parents enjoy just such a cozy arrangement, now).
Seniors are less likely to live in cities and more likely to live in rural areas, exurbs, and suburbs. That is why those areas have a higher median age. Inner urban areas have a lower median age. Google it.
The average property tax bill in the US is under 250 per month.
True enough as a take, but a missed opportunity to talk about social insurance which does transfer income from the young to the old by borrowing from would be investors to pay the benefits. This means slower growth and lower incomes for future genertions. The social insurance defict is what we need to fix.
Years ago I was on my condo's HOA and we had recurring problems with some of the seniors who were upset about the costs of living in a condo and thought they should be exempt from these costs because they were on a fixed income. They would complain that they couldn't afford the extra dues to save up for a new roof. Which is bad for them, but the roof still needs to be replaced and we can't exempt people because they're "on a fixed income" and claim not to have the money. We also had people refuse to pay and then when we took legal action, were accused of forcing a vulnerable senior out of their home. The HOA could not legally exempt them and even if we had, other homeowners would have been angry at having to pay more because one of their neighbors who did not have to worry about losing their income fi they lost their job didn't want to pa for basic maintenance.
There were some cases where they had simply decided that now that they were 65, they were done paying into things, which doesn't work with property maintenance. There were other cases where they were spending mind boggling sums of money on stuff like shopping -- we would find this out when they'd submit financials to get hardship exemptions -- and it wasn't clear if they'd always been bad with money or this was part of their cognitive decline. It was always really unpleasant because we were painted as the bad guy for trying to get people to pay what they owed.
Every time I'd think of that scene in the Simpson where grandpa Simpson complains about people wanting a handout and then going to the social security office and saying "I'm old, give me money". I remember the boomers complaining about their parents not wanting to means test social security and now they're saying the same thing their parents used to say.
That transcends age groups, though; in the one case I'm familiar with, it was the parents with small children who couldn't possibly contribute to the mandatory additional assessment because they had young children.
“And it’s a reminder that we don’t need to go out of our way to worry about the economic problems of the old rather than the young.”
I understand the technical point you are making - but I just don’t know why you would make this kind of statement. For those who work in the social service field, there is a shocking level of unmet need among older adults. I know you are not denying that, but this is a very misleading take on a serious societal problem.
Because of the frustration that our social spending heavily skews to the elderly - who have already worked, have had a chance to build savings, and won't contribute more economically - as opposed to kids, who haven't had a chance to work and investments in them are investments in the future of our country.
This post ignores the major source of financial vulnerability for older adults and their families, especially boomers who will become octogenarians in huge numbers in a few years...exploding health care and long-term care needs and costs. The prevalence of Alzheimer's and other dementias, the most care-intensive of conditions, is projected to skyrocket over coming decades. Same with mobility disorders and frailty. Medicare offers little or nothing to offset these costs.
To become eligible for Medicaid long-term care, many such seniors will need to spend down their savings and off-load assets to become poor enough to access home care or a nursing home. Social security checks will then be taken to pay for expensive nursing homes. Family members of middle-class seniors that Matt tells us are doing just fine will quit jobs or reduce work hours to care for their loved ones, typically while at their peak earning years. Many will be women needing to work to support their own families or to enjoy a meaningful career, the same women who were typically available for delivering elder care "back in the day." The personal loss of income is also a loss to the overall economy.
So, yeah, we middle-class boomers have built up a reasonable investment portfolio over the years but are facing serious vulnerabilities, along with our families, when we become unable to perform basic activities of daily living.
The average 90-year-old today is LESS likely to suffer from dementia than the average 90-year-old in 1990. BUT - there are many more 90-year-olds today. "Incidence" is the first, "how many people have dementia" is the two multiplied together.
Basically, the best anti-dementia policy we know of is to encourage smoking. (Smokers very rarely live long enough to suffer dementia.)
Yes, incidence will grow due to more living with advanced age and with a lifetime of high blood pressure, metabolic conditions, etc. But prevalence will grow the fastest due to the sheer size of the boomer generation. Here's the study that most point to: https://pmc.ncbi.nlm.nih.gov/articles/PMC3719424/
If you only look at aggregate statistics, then yes, everything appears fine. But aggregate statistics hide a lot of churn and variability that shouldn’t simply be ignored or waved away. This is the same error from 2024 where some Democrats were asserting to people that wages largely kept up with inflation and therefore the “bad economy” sentiment was just vibes.
But once you dig below the surface of national averages in a nation of 330 million, things start to change. Inflation didn’t affect everyone the same. That goes for seniors too.
COLA adjustment lags and doesn’t account for location differences. Many seniors have fixed amount annuities or defined benefit pensions that aren’t indexed to inflation. Others are spending down assets and while the market has done well, increased costs can affect how long assets will last.
A couple living mortgage free in a house in a low cost area is going to be in a different situation that a single person paying rent in a market where housing costs are rising, yet they both get the same CPI adjustment.
In the case of my sister who was diagnosed with dementia at 65 and died of it last year at 72, her care was over $9k a month and her SS income was about $2k. She was lucky she had inherited some money for her predeceased husband and her Dad, and it was barely enough to last until she died.
Point being, “fixed income” is a thing for many, or close enough to a thing that annual COLA adjustments based on CPI do not necessarily reflect the actual increase in costs for many people, and for older generations, annuities and defined benefit pensions, and sometimes life insurance from a dead spouse are not protected from inflation.
I think the confusion stems from people believing (me until this morning) that fixed income meant you relied on income from a source which paid a defined amount (social security, pension), rather than on income you controlled, like wages (work more to earn more) or drawing down investments/individual retirement accounts (you choose how much to withdraw). I legit did not know old school fixed income was income fixed in nominal terms, and I suspect most people (including those on social security and other retirement programs with automatic CoL adjustments) don't either!
You’re not wrong, TIPS (inflation-adjusted bonds) are normally still considered “fixed income securities.” It just has multiple meanings depending on context.
I was curious on this.
Honestly, the framing that they are not living on fixed income feels a bit like someone pointing out someone isn't actually a gentleman, because that means land owner. Not wrong, per se, but not right either.
He just went to some trouble to explain why it's not merely a semantic point. The implicit argument in Kelly's tweet and similar invocations of "seniors on fixed incomes" is that seniors are more exposed to inflation than others. The fact that's entirely wrong and a lot of our policy thinking assumes it is right is a legitimate concern, not pedantic diction policing.
I thought this was a recent post, so got a bit lost. :D
I think it is fair to say that seniors are not unique in how they are impacted. I further think it is fair to say there is a lot of ignorance with regards to how these things go.
But, it is also true that a once a year adjustment can have a hard time taming the impact on populations that rely on it. It is not nothing, but it is not the same as people that have non fixed payments for the year.
Lol no that's my fault, I forgot I was two clicks deep from today's newsletter...doh. Cheers
How many working people can "work more to earn more"? Unless they take a second job, those on hourly wages don't often have an opportunity to increase their hours, and those on salary don't have that option at all.
Sorry for the inartful phrasing, but the wages you earn are more open to change if you choose to do so than receiving payment from a fixed payment system like Social Security, pretty obvious
But are they really? I certainly can't just decide to change my wages. I could maybe look for a different job, but the job market is pretty tight right now, not many companies are hiring.
"Hey boss I need more hours" is a pretty regular conversation at working class (i.e. hourly) jobs.
Sure it is... and when prices are going up and everyone is asking, no one gets them.
I mean you can prove to yourself that your cynical viewpoint is right as long as you just don't look at any evidence. In the real world, wages basically always rise alongside inflation. As Matt points out, there are frictions. But it's simply not true that it's impossible for workers to increase their nominal wages when an economy is hot enough to generate inflation.
Do you think retirees who no longer work and depend on defined payments in programs like social security have more or less control over their earnings than those who are still in the labor market?
About the same. Maybe a little more, maybe a little less, depending on circumstances. Healthy seniors do have the option of going back to work, active workers have the option of getting another job.
What seniors do have that workers don't is guaranteed income.
Ok but this whole article is about people who specifically are not in the labor market living on "fixed incomes"
This is absolutely the wrong question. It has nothing to do with how much *control* they have over what they make. It has to do with how much impact they see when prices change. And that's much less for seniors.
I feel like back in the day that Matt was talking about, there was more opportunity for factory and other hourly-wage workers to pick up optional overtime on demand.
To a point, yes. Though when prices are rising and everyone is asking — often at the same time demand is declining and employers are looking to save money — the answer is going to be “no” and maybe “sorry, I actually need to reduce your hours”.
The good side of “fixed income” is that you get it regardless.
I'm not so impressed. The fact that "fixed income" used to mean something slightly different isn't ultimately that relevant for the policy issues we face today.
It was never intended that people retire solely on SS, but many people do. Although a smaller proportion than previously, there are still people with pensions, and very few are adjusted for inflation. If someone has a annuity, that isn't adjusted for inflation. If someone is using CD's or bonds (other than TIPS or I bonds, which are a very small proportion of bonds) for income, those are not adjusted for inflation. In fact, in the investing world, things like CD's and bonds are literally called "fixed income". All of those are nominal. Matt seems to think it would be weird to have much of your assets in bonds at retirement, but Vanguard's capital markets model suggests that people should have 2/3 in fixed income at retirement. That makes sense as equities are too volatile to rely on heavily and should not be sold during recessions. Investments in equities are somewhat cushioned from inflation, but perform considerably worse following bursts of unexpected inflation (like we just experienced).
In addition, many workers do get more or less automatic inflation adjustments (e.g., public sector workers). In the private sector, asking for a raise or switching jobs is a hassle, but more effective than asking your annuity for an inflation increase. About a third of retirees end up going back to work part time to supplement their income.
Below, commenters make fun of how higher income people say they're living "paycheck to paycheck" because they feel obligated to make large retirement contributions. A general recommendation is that people set aside 15% for retirement, and that would cover half of your retirement needs, while SS covers the other half. (It's important to remember, again, that the first half, for those who have it, is not necessarily adjusted for inflation.) Without SS, people would have to put 30% of their pre-tax income aside.
It is true that, on average, retirees are more financially secure than young people, but many are not. The median American retires with $200k in retirement investments, yielding $8k / year by the 4% rule. That's not a lavish income. People tend to be better off when recently retired, but end up leaning more and more heavily on SS as they age. The claim that 65 year olds have a higher net worth than 25 year olds is true, but bizarre. While it's true that "fixed income" doesn't quite mean today what it meant in 1960, the claim that retirees are living on fixed incomes is more or less true.
I came here to make a similar point - I think this article is technically correct and thought provoking but misses how people colloquially use “fixed income” for seniors.
I think people use it to mean some combination of “unable to generate wage growth above inflation (by switching jobs, getting a promotion, adding more hours, etc) because they don’t have jobs” and “have put away money for retirement and are drawing down a relatively fixed amount each month without the ability to draw materially more if there’s a price shock.”
By that logic you do need to make special accommodation for seniors.
The same is true the other way around.
I always thought that fixed income means an income of "X dollars per month", where X is a fixed number that does not increase.
And I thought everyone else thought that, so this article is doing good work.
Precisely!
I think this branch of the confusion stems entirely from Hyman Roth in The Godfather Part 2.
He was just trying to live out his golden years.
I knew that but indexed income is still relatively fixed wrt to wages (or rent) that grow in real terms.
IMO, there are no interpretations that really add up to "fixed income == needs help." Fixed at what? Not only could a pension be generous, but I don't even associate "pension" with "low income."
Same
Seniors living on a fixed income is the same as millennials "living paycheck to paycheck": The number of people actually in that economic condition is dwarfed by the number of people who have placed themselves into that category based on vibes,
It is endlessly amusing to me when I see a Millennial or a Zoomer posting about their paycheck to paycheck budget and it's either "I don't have much left over after large 401k and roth contributions" or has some significant ongoing expense that is their fault like gambling debts or student debt for an MFA.
After rent, groceries, gas, dining out, newsletter subscriptions, contributing to my 401k, contributing to my taxable brokerage account, and my $1500-a-day Fabergé egg habit, I barely have anything left over to bet on five-way parlays so I can finally stop living paycheck to paycheck.
We need price controls on Fabergé eggs to make sure less Americans are living paycheck to paycheck.
Ben, I don't know how they talk in Taiwan but here in America we say "fewer Americans."
Well, tbh, less and less Americans are saying that.
Less and less Americans are asking the question: Is our children learning?
Ben's use of "less" is correct and one of the worst things is incompetent English speakers who are ignorant about correct English falsely asserting that long established uses are "wrong" and correcting the more educated Americans who know actual English rules.
This feels like half the posts on Reddit finance.
“Have you thought about not burning half of your paycheck every month?”
someone who is good at the economy please help me budget this. my family is dying
Hello fellow redditors, my takehome is $100k, but after door dash, OF, sperchats to Hasanabi, Funko pops, Bespoke Post subscription, weekends and the barcade, and $3000 rent on a trendy apartment (all human rights btw) I don't have anything leftover. I went to the doctor and had to pay a $25 copay! It should be free! Unbelievable! I'm living paycheck to paycheck. This is life in amerikkka. This is why we need socialist system like Canada or Sweden.
My friend was complaining about someone who refuses to treat a UTI (caused in part due to their refusal to take insulin) due to costs, but who spends lots of money going out the bars.
Some people are habitually negligent.
A lot of folks resist insulin because of needles, but blame the cost
That's just downright looney toons.
This used to be a common one in the WSJ about how hard it is to be rich.
After putting back the median household income for retirement, upkeeping two HCOL homes, sending the kids to private school, and leasing a horse or two, there’s scarcely anything left for your average junior vice president!
Up the spend on the parlays to have more disposable income when you hit.
Spend less on candles.
It's a sign of being too internet-brained that I expected someone to use this line, despite it being an obscure microdrama pan-flash. Up there with "no one needs 27 pencils", which also didn't catch on. Sad! Or perhaps, Not Great, Claude!
You may want to cut back on the newsletter subscriptions.
One that really gets me is “most Americans are just 2 missed paychecks away from homelessness”. It just does not make sense and yet whenever I push back people start yelling t ‘em about “data”
It would be interesting to know how many (say) sixty year olds have been through at least one period of unemployment longer than two months. I bet it's a lot of them!
I was unemployed for an entire year during the latter end of the financial crisis era and I'm only in my 40's.
If I can max out my 401(k) and Rothschild contributions every year, while bagging groceries for a living in notoriously low-COL San Francisco and still juggling student loans...I don't know what their excuse is? And my annual net takehome is under $40k! Yeah, this doesn't leave *much* left over...but my life is already filled with enough baubles and gewgaws that there's not much excuse for profligate spending either. No, I don't need to buy another pair of Air Jordans out of boredom, or drop $70 on delivery (always tip nicely) because >tfw too lazy to boil pasta. And as Matt often says, entertainment is basically free and infinite these days. Suze Orman was full of shit when she said Millennials can't afford houses because of Starbucks and toasted avocados, but it's not wrong in spirit.
How do you do that? That math don’t math, as the kids say. You put 3/4 of your take home pay towards retirement?
33% or so gets taken directly from paycheck for company 401(k). The Roth I manage on my own, can contribute to that whenever's most convenient. Unclear where the discrepancy is?
That’s really, really impressive. I mean, insanely so. But maxing out your 401k is like 23,000/yr which is half your salary.
Maybe it's confusing to use the net amount rather than the gross. I'm counting the amount actually left over after pre- and post-tax deductions, insurance premiums, state and federal withholding, etc. Total gross receipts would be more like...$60k, inclusive of the 401(k). So 60 - 23ish = less than 40. I think it's weird to consider company match to retirement as a form of "compensation", but admittedly it's not *impossible* to early withdraw that money, just unwise.
I do have a bit of non-wage income (TIPS sends me a couple bucks every few months, tremendous!), and I guess including both refunds, that amounts to like an extra 1.5 paychecks per year? Cancels out with student loan payments though, thanks Trump for kicking me off forbearance two years early. Despite this, net worth broke six figures around my 35th year, just as this post's chart predicts. I guess it does sound pretty crazy in retrospect...dunno how else to avoid the "fixed income" trap though. If I'm gonna die alone, it'll damn well be on my own dime, not the government's.
> after large 401k and roth contributions
But without these, you'll be stuck on a fixed income in retirement!
(No self-respecting millennial expects to see more than a dime of the social security we're currently paying into, given Congress' approach to fiscal responsibility in the 21st century.)
We better, even if we have to completely soak future generations and other countries to do so
I think you may be in trouble tbh. Gen X is up against it first, and there are so few of us that that’ll be seen as a window of opportunity to do a fix that screws us over — along with subsequent gens, of course.
I’m down to completely soak Gen Z
you have my sword
Economic myths are bad! https://www.slowboring.com/p/this-economic-myth-needs-to-go-away
What’s weird is that people have believed this my entire life but with different moral valences.
These days, it has a left-wing spin. But, when I was younger, it was definitely a story about irresponsible people not saving money.
The fun thing is that some myths are useful to both left and right!
I was trying to remember what article Freddie was being a total asshole to you and your writing. It was the paycheck to paycheck one, I'll keep that in mind.
> Freddie being an asshole
Do you know how little that narrows it down
You have many battle medals in that regard!
I would like it if Matt did an article on the decisions people make that wind up in the
10th/25th/50th/75th percentiles of the income distribution.
The NY Times articles on the finances of ordinary families are just wretched. They assume greater frugality and industry than often appear to be present, I think they often just accept people’s self justifications without pushing on them.
I’ve spent plenty of time with data, but I would like narratives of how people wind up different places. Now that teenage pregnancy has declined, far fewer women are stuck in low skilled jobs because of children.
My most Dave Ramsey coded opinion is that the vast majority of people complaining about “capitalism” or living “paycheck to paycheck” just need to set and stick to a budget
my most Republican coded opinion is that if you're 1) from America, 2) have no debilitating health issues, and 3) are at least roughly average in intelligence and conscientiousness, then you've already won the lottery so stop complaining
I agree with this, but what if you are American and are in the 15th percentile of intelligence and the 30th. percentile of conscientiousness ?
I don’t want to overthrow capitalism to help out the left tail, but I’m not sure this particular dude gets a better outcome than in France, and not offering variable paths to the somewhat below average is maybe the worst feature of the American system.
The bottom 5% and especially the bottom 1% are something close to utility monsters. They create massive quantities of unhappiness for normies.
yeah I think it's clear that Europe is a more comfortable place than America for the severely untalented
Isn't that what prisons are for?
Ok Scrooge 😜
Ironically, Republicans complain more on this stuff than anyone I know.
Now... leftists online? Back to irony, a silly large number of those voices are not from America.
oh yeah Republicans are very annoying about this. Obama was totally right about the gun clingers
There are a substantial number of people who choose to fail at 2) in part due to their failures at 3)
(Super myopic self destructive behaviors and who refuse to follow doctors’ guidance. Think of 20 something diabetics who continue to drink alcohol and not take a full course of antibiotics for UTI…. I might know physicians.)
Doesn't "roughly average in intelligence and conscientiousness" mean you have *a lot* of people below this threshold (assuming "roughly average" is the middle 20% tier, that means you're talking about 40% of the population being below this threshold)?
Very true! And I believe in a robust safety net to help these people specifically.
But go on any reddit comment thread and see how often you find people who consider themselves both very smart and a helpless victim of American capitalism.
This is a category error. Someone in the 40th percentile of talent doesn’t need a safety net. He needs truckers and phlebotomists to draw good wages or the economy to be good enough that 50th percentile dudes become assistant managers at walmart and he can be an assistant manager at a fast food place.
Someone in the 20th percentile needs a dignified job as a cashier or a stock boy or a warehouse worker or a nursing assistant.
Yeah it's hard not to sound all "kids these days" but I'm only in my early 40s and it feels like I can remember a time when people just better accepted material constraints as a part of life.
I've had the "it's too expensive and I'm not having kids" conversation with people and I'm just like, my dad, a lawyer (!), heated our house in Northern Minnesota by chopping wood by hand. In the 1990s!
My dad was a philosophy professor and also chopped wood! We had a wood stove in the dining room that wasn't the sole source of heat, but we sure used it a lot in the winters and especially during power outages (and speaking of the gold ol 90s, a lot of times these lasted for days, and you sure couldn't go online to check the ETA on a fix from the power company. They really have their shit together these days.)
And yet luxuries are edifying and kids reduce your ability to consume them. That’s a tradeoff, and it’s only fun having kids if you enjoy them more than luxuries or can afford both.
I think this is reversed. Kids are edifying. Most luxuries are not. The difference is that luxuries are easy, while kids are not. Given the choice, many people will choose the easier option even if the long term payout is much lower.
Yes, I guess what I was trying to say was, people should stop lying and and just admit they don't really want kids that badly instead of implying or stating that it's impossible because times are so hard.
Normies cling to respectability narratives far more tenaciously than I.
I think the difference is that living standards are not growing as fast as they used to in the mid-late 20th century (although they also have not stagnated, and overall we are wealthier than we were then). A larger % of people are poorer than their parents were. I think that is the bigger issue
I think what makes people think that our economy is worse off now is the fact that the "middle-middle" class has disappeared. There used to be decent paying as well as distinguished jobs available for non-college white people - like my parents - that disappeared around the turn of the century (think secretary or old-school salesman).
The people from the younger generation of this class like myself that pursued college (with a marketable degree) or advanced training of some kind ended up graduating to the upper middle class. People like my brother didn't do this and now stuggle financially and developed resentment from being relegated to the working class.
A lot of these white people displaced from the middle-middle to the working class are a core constituency of the Trump regime.
As someone who dislikes careful budgeting (I’ve tried), I’ll throw in a recommendation for the “stick a chunk of money in automated savings every paycheck, don’t sweat the details with what’s left” strategy.
This may not work so well if you are seriously cash constrained or if you’re not habituated to a level of general mindfulness about spending (and pay off credit cards every month etc.). But it works well if you have a decent income and are reasonably conscientious, and is way less stressful than tracking every last dollar.
Or audit their existing budget and just say it out loud. Can be a humbling exercise to actually look at where you've sent a lot of money.
The one that always gets me, is folks will complain and complain about taxes. But then have more subscriptions than they can even list without consulting their bills.
Worse, how many elderly out there have multiple phone bills that they setup and didn't get canceled correctly.
My most Charles Murray coded opinion is that the income distribution maps quite closely onto the intellectual talent distribution
I doubt 'quite closely'. I'm not in the weeds of the whole IQ discussion field, but I remember reading that the correlation actually breaks down above a given score (let's say 110, I could be a bit off). Lots of high-IQ workers choose to work in intellectual but not especially high-paying jobs (academia, research, etc.) Especially as neurosis seems to increase with higher IQ, so some (obviously not all) highly intelligent people are quite neurotic/anxious and wouldn't fare well in a highly demanding job.
On the flip side, being an electrician or a plumber pays reasonably well. Lots of not super-high IQ but driven blue collar guys & gals out there. Sales is another example- absurdly lucrative at the high end, doesn't require a high IQ
You don't have to be super-high IQ, but a stupid fabricator isn't going to last long. You need maths and problem solving skills. Same with millwrights. I expect the same is true of many plumbers and electricians. The dum dums get stuck sweeping the shop or just doing what the journeyman tells them to do when they're out on the job.
Trust me, there's a world of difference between a lot of the people I meet on the factory floor and the people that I worked with in a fab shop.
My thoughts are that the IQ test is fairly flawed at testing real life problem-solving skills. It’s a paper test (well, probably computer these days) with puzzles. It is very good at testing academic ability and the ability to manipulate symbols, but you could be a brilliant mechanic or carpenter without necessarily having a “high IQ”
I dunno, not sure at what point they actually start testing IQ in school and for what reason. I didn't get tested until 4th grade.
Wouldn't surprise me if your average fabber is around 110-115.
Insert wojak IQ distribution meme here: spend less than you earn / nooo tax the rich and people shouldn't have to job hop and housing is a human right under late stage capitalism / spend less than you earn.
(I'm not really sure what to put in the middle because it's such a large potential bin of foolishness. Very fine horseshoes on both sides, they're not sending their best economists.)
The majority of Americans live paycheck to paycheck because a majority of Americans get paychecks, and in between, they live.
The fact that we have socialists repeating a self-dealing number put out by LendingClub is so stupid.
Matt is totally right on the actual technical details here (of course). OTOH, I sort of think he's missing the whole point of people using the phrase "seniors on a fixed income."
Similar to using the phrase "death tax" or "pro life," talking about seniors on a fixed income evokes emotions that everyone intuitively understands and relates to despite the technical inaccuracy. Real median income increases substantially as people age up until around age 50 or so. After that, and especially after retirement, median real income decreases substantially. This is mostly due to an intentional shift away from labor income, as people age. This shift is often heavily influenced by ever increasing physical limitations. The reality is that older households usually have much less ability to increase income if needed. So while it's technically true that SS income is automatically adjusted for inflation and stock portfolios can keep up with inflation over long periods, most people face a transition from flexible, labor-driven income to largely predetermined (and "fixed") income streams in retirement.
This is the dynamic people are thinking about when they use or hear the term "fixed income." The dynamic is less about inflation eating away at nominal income and more about higher exposure to things like sequence-of-returns risk, the possibility of reduced withdrawal capacity if markets underperform, and increased risk of unexpected expenses (especially health related). People intuitively get that this dynamic is at work for many retirees. The phrase "fixed income" works well as a proxy to capture the fact that unlike younger people, most older people are in a phase of life with almost no income flexibility and often have lots of concern about rising expenses relative to what they can sustainably draw from their resources.
I think Matt is correct that the phrase started out as a literal meaning of "fixed nominal income," and the latter meaning you describe is more of a reverse engineering of a phrase that doesn't apply as straight forwardly anymore.
That said, the stock market and inflation relationship is complicated by both time and interest rates. The market had its worst year in a while when interest rates were hiked to bring inflation back down to earth, which was terrible timing of you were drawing on it for incomes.
Overall, however, we need to be more clear eyed about the relative affluence between generations given our aging population
If you have to sell down stocks to match your spending then yeah, owning stocks during inflationary periods is tough—stock prices will often go down in nominal terms while the price of everything else is rising. If you’re able to live off dividends it’s not nearly as bad; dividends tend to increase even in inflationary periods like the ‘70s and early 2020s. (They can get hit hard during deflationary recessions though.)
So long as they leave it to us, we shouldn’t cut a dime to seniors. We should, however, make long term care and nursing homes free so that our money doesn’t get stolen by those places.
More accurate to say "fixed assets" but that's also not quite true. They're playing with a money pot that income no longer supports. Hopefully by that time in one's life the pot is big enough for it not to matter. If it is too small, like it is for many, we'd be better off just being honest and advocating for programs and benefits for poor seniors rather than pretending it's all fixed assets that are open to the same market turbulence as anyone elses investments.
Funny how many people are against UBI because it would give money to rich people but our social security programs give money to all elderly people regardless if wealth. And often the wealthier receive more because they contributed more during their working years!
Because UBI is coded as a handout while SS is coded as a reward for hard work. This is why the EITC is probably our best hope politically to make redistribution to less productive non-retirees.
SS pays a lot more to poor people and less to higher earners relative to their contributions
Ie SS has a progressive payment structure already
Is it progressive? AARP says that higher earners receive more money (up to a point). But also there's a cap on how much high earners contribute to SS. I feel progressive system would do the opposite. Though maybe what you say is true for "relative to their contributions". I'd be interested in learning more.
https://www.aarp.org/social-security/faq/how-much-will-i-get/
Very, it's heavily progressive. The calculation starts with average monthly earnings, indexed to today's dollars. The first ~15k per year you get 90%; beyond that to ~100k per year you get 32%; above that up to the cap you get 15%.
https://www.ssa.gov/oact/cola/Benefits.html
Also, at higher income levels, SS payments are taxed.
It's heavily progressive *in a way.*
Like, it's very progressive in a sense that poor people receive a lot more than what they put in, but it's not very progressive in a sense that rich people don't get far less than what they put in.
It's also running out of money. I wonder if those things are related at all.
Honestly yeah we already have UBI for seniors it's where most of our tax dollars go
I mean that’s the point
of UBI?
Of social security. Is to be a UBI for seniors
But in the example Matt is citing, it is literally used to mean "seniors are especially hard hit by inflation", which doesn't really seem to be true.
I’d disagree:
-seniors dependent solely on social security are in a bad place period. Matt said this and I think the number was 25% of seniors? I’d argue inflation makes it worse since any savings or $100 from friends/relatives go a shorter distance.
-seniors with very large bond portfolios are hit hard by inflation as Matt said. Typical financial advice is 40-60% bonds as a senior (since the stock market can go down). Matt seems to have waved his hand and said the stock market will provide—I believe the 70s were particularly bad for both inflation and stocks.
-seniors with actual fixed pensions (likely certain school districts and state/local government workers) do exist-Arizona might have more of them.
-Matt also did no analysis of how the goods/services used by seniors are different and might be differently impacted by inflation.
In contrast he has working people job hopping or having uncomfortable conversations with their boss—which I agree is painful, annoying and bad (I make less now than 2021 in real dollars, I think). Working people, however, do have those options, and they likely are saving some of their income, so their overall financial picture is rosier year over year.
I found the whole analysis today rather scattershot and unconvincing.
What is this “ability to increase income if needed”? Is that a thing people think in terms of? I’ve seen several people in this thread suggest that “fixed income” is about not having that ability, but I’ve always heard it as meaning the thing Matt is talking about with nominal pay that doesn’t respond to inflation.
I agree with you that that's how people normally use it. Because that's the only usage of it that I ever knew until today.
However, that you should just wrong too.The vast majority of people can't just go out there and get new income. Their income is relatively fixed
I don't really think this is true -- every person I've talked to about inflation and "fixed income" seniors was under the impression that they were on a fixed nominal income every month (generally talking about a pension or SS), and that inflation was just decimating it.
Not that they had less income flexibility because it was investment/entitlement income rather than wage income.
Otoh, we have a reasonable facsimile of a nordic welfare state for senior citizens. If you run out of money medicare pays for long term care. If you plan a bit, you can have a self settled trust to pay for luxuries during this stretch.
Medicare does not pay for long term care.
medicaid
You don't want to live in Medicaid-funded LTC facilities.
I can attest to this statement
I don’t want to forgo fun travel to pay for future diaper changing. Swiss euthanasia at 10,000€ plus airfare may be the Schelling point.
I don't think that's what "Schelling point" means.
Watching my parents slowly die a few years ago only convinced me more of the joys of voluntary euthanasia.
Obviously, I'm not for some of the excesses like suicidal teenagers using it, etc. But for anyone over 70 or with a terminal condition, I'm totally for it.
What do you mean by this? Put your money in trust so you can get Medicaid to pay for your nursing home?
yes. it’s called a medicaid eligible supplemental needs trust. it’s not hard to do
I thinks it's also worth mentioning that SS increases are done after the fact--so if you have a 9 percent inflation year like during post-covid you lost that 9 percent because the raise in SS benefits comes later.
Isn't that the same with wages?
But, the concern re "fixed income seniors" is the dramatic decline in their purchasing power over time. A series of 9 percent inflation years followed by a 9 percent increase each year leads to a 9 percent loss in purchasing power. Compare that to the ~35 percent decrease at 3 percent per year for 10 years.
And then if there’s a 1% inflation year after that, you make up the 9%.
Don't think it works that way, inflation doesn't go backwards (you're talking about 'disinflation' where prices stop going up but don't regress to the original prices---you would have to have deflation to come out ahead).
If you’re always getting the cost of living adjustment based on the previous year’s inflation, then if there’s a 9% year followed by a 1% year, you get a 9% adjustment even as inflation only increases prices by 1%. The post I was replying to suggested that one is always behind by the biggest amount of inflation that happened, but in fact you’re always just behind by the most recent year’s inflation, which is sometimes below average and sometimes above average.
Which is why, duh, we need a triple lock like they have in the UK!
Yeah, relying solely on SS isn't for the faint of heart!
We could also try to get more empty nesters to rent out their spare bedrooms. This has been banned in many places, and YIMBY should be pushing to repeal those rules. It used to be very common for empty nesters to rent rooms to young people, and bringing that back would create a lot of cheap rental housing.
This seems like pretty low hanging fruit because it's not like it will lead to any visual changes to the neighborhood.
It will change the character of the household!
I'm always seeing Facebook posts about "how come there's no kids riding bikes in the street anymore?" Well, there would have to be kids in your neighborhood in the first place for that to happen.
This week I saw a Facebook post complaining that the kids were playing in the streets instead of their backyards.
Damn kids! GET ON MY LAWN!!
Really? Ok. Complaints from the 1950s.
Thankfully it wasn’t for my suburb.
It's probably from Bubble parents. The same ones who watch and call the cops if your kid walks half a block on their own.
My neighborhood is largely older than we are, but there are ~20 households with kids almost exactly the same age as ours and another 20 or so with kids who are a bit older, and our seniors must be odd because they seem to derive actual joy from watching the kids run around and play, even when they're screaming at the top of their lungs at dinnertime.
I don't have data on this, but I would GUESS that Vancouver has more kids per capital than the other Portland-area suburbs. There are enough that Halloween is lively.
We don’t have that many kids, but man do they hit our neighborhood on Halloween. Our houses are close together so it’s like candy candy candy.
I think anyone who has kids or has had kids loves to see them running around and having a good time. I think there's some serious stereotype going on here.
And when people live in cul-de-sacs full of SUVs and everyone drives their kids to school, the few kids that are there find it isn't safe to ride bikes anymore.
Yes, smart alec, but often for the better.
Agree but I'm pretty confident if you tried to do this in a lot of places it would be be labeled "legalizing flop houses" and angry oldsters would show up to city council meetings to scream about "being forced to live with drug addicts" and the idea would die. And parking Ben, what about parking!?!?!?!?!?
Such is the nature of local politics in much of America.
Legalizing flop houses is precisely the point.
I moved to New Zealand recently, and am renting what I think would be an accessory dwelling unit in US parlance. A huge portion of houses here have a small guest house that might host a young adult child or grandparents, but can also be rented out. Mine's basically a studio apartment but freestanding with its own parking space. It's been a much more pleasant place to live than the suburban apartment I used to rent in the states, with more natural light, no noisy neighbors, and much easier to carry groceries in.
IMHO, this would basically require the complete dissolution of renter-protection laws, at least for that class of rental. Whether you think that's a net good outcome is an interesting discussion.
We had two different questions in the mailbag about the step-up basis, and one reason that seniors hold onto too-big houses (especially in HCOL areas) is that they want to avoid the capital gains tax by waiting for death.
What is the rationale for these bans?
A lot of them were passed in the 1950s to keep poor people and black people out.
I thought it was to keep hippies out (banning unrelated adults sharing single family homes).
Ah of course.
So many of our laws have their roots in trying to keep poor and black people out.
In the past ~10 or so years, this issue has become part of the Airbnb/hotel-industry wars and gotten caught up in attendant municipal regulations.
The Airbnb wars are mostly about using whole units as short-term rentals, which is seen as taking units away from long-term residents. Renting individual rooms on a long-term basis is different from the short-term Airbnb model.
There are a number of cities, including my hometown, that have erected significant legal barriers to renting out single rooms due to Airbnb/VRBO/hotel fights.
This is a great idea, and is used very often where I live. All you have to do is go on one of the sites for finding roommates and you'll find lots and lots of advertisements for roommates (rooms to let), quite a few from people that are older. In fact, the best deals are from people who are older, probably partly because their homes are older and so not quite as attractive to younger people. There are also quite a few young professionals who don't have children yet but wanted a house, generally high wage immigrants, but haven't started a family yet.
I despise with a purple passion most of the yimbi stuff, but this is one strategy I think is great and the more things that could be done to make this easier or more attractive, the better life would be for everyone.
But the current zeitgeist is that people should be able to afford their own home. Not that they should have cheap housing. :(
Renting a room is obviously less desirable than owning your own house or renting an apartment, but it’s also obviously a huge upgrade over homelessness, and cheap rentals make it easier for young people to save for a down payment.
Probably not that many empty nesters will be eager to rent to people who otherwise would be homeless and on the street.
They don’t need to - they can rent to a student who would otherwise occupy a run-down studio apartment, and the homeless person can rent that run-down studio apartment.
People who are at risk of homelessness are a lot less disreputable than the currently homeless. Also, the prospect of earning $500 a month per room will overcome a lot of reluctance for many people.
So long as they have few tenant protections, I can’t imagine renting a room out *in my house* to someone I couldn’t kick out, even if they looked great on paper. And in Seattle, you can’t.
Absolutely! My frown there is that I think the focus on detached single family homes is misguided. Affordable housing is different from affordable homes. And I think a better goal.
>>But if affluent boomers were to sell their homes, realize large capital gains on the transaction, and move into smaller dwellings and live off their financial windfall, that would be a fine outcome for the country.
Looking at my local RE market the difference in price between a 4 bedroom and a 2 bedroom is not large enough to live off, especially after taxes.
A lot of the home price is tied to the land value, and a house with fewer rooms still needs a roof, boiler, kitchen, etc. and those are needed no matter how many bedrooms you have.
At least in MA, this only works if you move out of state or way west.
It’s a problem in the low cost Midwest, too. Downsizing housing does not result in much, if any, release of capital. Most 2 bedroom condos are close in price to 4 bedroom homes.
I live in a moderately priced city. Some convenient apartments were built a few blocks from me. I took a look at them, and the rental cost for a studio is higher than my monthly utility and tax bill in a high tax city in NY for my 3 bedroom, 1500 square foot house. The house is paid off. It wouldn't make financial sense to move there.
Huh, I would have thought that if rent costs just a bit more than utility plus taxes, then that’s a huge discount, because you no longer have a huge amount of capital tied up and it can earn money for you in other ways.
Well, sort of. But we would be living in a studio apartment vs. a 1,500-square-foot house, and the monthly out-of-pocket would be higher. Plus we would still have to pay utilities, so I need to check on the cost of those. Presumably, they would be less in an apartment, but we have solar panels, so electricity costs are negligible in the house. You are correct, though, that we wouldn't have to pay for maintenance, which is hard to predict. (This is all a moot point right now because there are three of us living in our house. I was going to look at the price of a two-bedroom, but stopped when I saw the price of a studio.)
Note that he didn't say it's just a little bit higher, just higher.
How long would the sale price of the house cover the monthly difference?
One of the more common ways to downsize is to sell and move into a continuum of care retirement community. So they sell the house, use that and other proceeds to buy into a place that has both a high buy in but also a significant ongoing payment need.
That actually is not very common as a downsizing step, because continuity of care places are so extremely expensive and assisted living is generally not needed for decades after kids leave. It would be a good way to run out of money.
If you are wealth constrained, you move from a high cost area to a low cost area. Most of florida, most of arizona, and basically all of mississippi and south georgia are low cost. There are plenty of warm, low cost places for retirees to live.
"Pick up and move household to Mississippi" does not seem highly compatible with "Wow, it's really bad that nobody knows anybody and everybody lives and dies alone in front of their screen".
This is sort of the dog that didn't bark of the whole article. "....And all you have to do is be willing to totally uproot your life, dissolve any community ties or location-based social capital you've accumulated, and quietly wait to die somewhere cheap."
Not really. Most communities offer condos or small townhouses or are near places with those sort of options. Moving a half dozen miles often permits downsizing.
That's true, but
A) Most people don't want to leave their friends and family behind and only do so because of need
B) Matt specifically mentioned affluent people. For them it makes little sense
I mean, for them it kind of makes the most sense. Assuming you don’t leave your social ties, difference in price between your $3m brownstone in Manhattan and the 2 bedroom Manhattan condo is pretty substantial. Or the difference between your 4000sf house in a wealthy Memphis suburb for a nice 2000sf place in the same suburb - pretty substantial. For more middle class people, the price difference of downsizing is not so dramatic and gets eaten up by closing costs
Me thinks you have not looked at Florida housing prices lately.
I just bought a house out in the boonies in a cookie cutter neighborhood and it cost me just under half a mil. Inside the popular urban area it would have been $700K for the same house. In the actual trendy neighborhood it would be in the millions.
Florida is quickly becoming flat and swampy California.
>Looking at my local RE market the difference in price between a 4 bedroom and a 2 bedroom is not large enough to live off, especially after taxes.
That seems surprising, given data like this: https://www.myseattlehomesearch.com/blog/seattle-house-prices-versus-the-number-of-bedrooms/
I'll admit this is a bigger difference than my impression. Still not fully convinced, I wonder if factors like location are impacting this (are there more small houses in less well off areas? What about same town comparisons?)
Yes, I thought something similar re location. It was surprisingly difficult to find data by bedrooms.
For rentals, there is a useful comparison here, though there are no 4 beds. https://www.parklabrea.com/floor-plans -- not sure how that translates to purchase prices.
We need to float more debt and juice inflation further to transfer more income from workers to nonworkers (who are not future workers.)
I got so angry at the tax deduction for people over 65 in the OBBBA while doing taxes. It’s a break for like three years. Then there was a huge exclusion for capital gains income under like $90k AGI.
And what do people raising children get? A few bones, rising costs, and a deliberately sabotaged economy.
I do my parents' taxes, and while I was generally aware of the terms of the OBBBA, it was still striking to see that handout show up in real dollars. With a $2T federal deficit. In addition to state and local giveaways for seniors/retirees. It all is a little blackpilling. And so many people have no idea the extent of this.
When I was self-employed for a while I was shocked at how much lower my taxes were, and how many ridiculous writeoffs there were for me. The Trump 1 20% LLC writeoff, the whole S Corporation 'distributions versus minimum salary' thing which is kind of a scam, etc.
I guess it depends on the tax situation you're comparing it to. Like, paying double FICA can hurt at the lower income levels. Although I suppose we all indirectly pay both halves of FICA. But yeah, between those changes and small businesses being more aggressive with write-offs given a slackened IRS posture, I'm sure it's a real windfall for a lot of the GOP faithful.
The no taxes on overtime was pretty nice, I got a few hundred bucks back from that. Though I wouldn’t say it’s good policy
It's not, and it's going to be politically painful to roll back. The only thing that'll soften the blow is that a bunch of people tipped with true cash don't report it all anyway.
According to a relative in the restuarant industry this used to be the case, but nowadays 98% of all checks are paid with a card, so they DO end up being reported.
Between increased opportunities for tipping and tips shifting to credit cards, I wonder how much reported tip income rose over the last decade or so. Maybe the current tips deduction is a wash if you weigh it against those trends (still a deficit hit on its own, of course)
Oh, but I’m happy for you personally! Don’t go spending it all on some fancy record player.
Long-term capital gains tax has always been 0% as long as I remember for couples under $90k or so total AGI; that wasn’t from OBBBA (OG FIRE people brought this factoid up a lot).
When my mother died, and we sold her house, I had enough money to pay off my mortgage. I have been in the same home since 1999. So now my bills include a small HELOC, taxes, and insurance, plus ever-increasing maintenance costs. In 2012, I paid $12,000 for a new HVHC system. I am told today that the cost would be $25,000. Should I need a new septic system due to newer regulations or a sand dome, I can expect to pay upwards of $40,000.
I live in NJ, which has the highest property taxes in the nation. There are programs to pay up to $6500 of seniors' property taxes. There are towns near me where smaller homes than my center hall colonial pay $25,000 a year. Property taxes go up every year in NJ. My dilemma is that I could sell my home for a bundle, but to buy in NJ, anywhere where you would want to live, would cost a bundle. Downsizing is not that easy. I could move to Indiana, but I would be alone as my wife would stay near our two girls. I would swap out outdoor expenses for an HOA fee; they also go up. Same with condo association fees.
Owning a home is expensive if you choose to keep up the maintenance. Living on well water is expensive. You need pumps, a soft water tank, salt, and filters. I needed a new system last year, and it was $12,000. Do I get to choose where I live? Partially. We could leave the girls and go somewhere where I know no one, nor the area. In my case, I’d have to find about 5 new doctors. It took me 6 months to see my cardiologist two years ago.
I think is quaint that Matt thinks I should just move to a state with lower costs so a younger family can move in. Would they be prepared for all the costs associated with a home? My wife gets a $1250 teacher pension after 19 years of service. She only got 16 years worth of service as she was a pregnancy leave teacher for three years and the Union pension only accepts someone on the tenure track. We pay about $850 a month for our Medicare Part B, which is why her pension is that small. Her SS is only about $2000, less her part B. She retired at 65.
If she were alone, trying to live in NJ on less than $4,000 a month, things would be very tight, and she would likely not have a home or own it. I dispute his assertion that seniors don’t have very tight budgets and are living some kind of life of luxury.
I don't think he's saying "seniors are living a life of luxury" but rather "on average, seniors are doing fine" which still allows for some seniors to be struggling financially
Yup, the plural of anecdote is not data!
Except on the internet.
Yeah, anecdotes can be trusted, unlike data
Matt’s right, you’re out of your mind, pipe down.
When you're letting contractors take you for a ride, everything is expensive.
$25k is pretty close to what it costs to install a standard central air and heating system *including ripping the house open to replace duct work* in our area.
How can you not, if you don’t know how to do the work yourself? I’m not being snarky, I’m asking legitimately. That shit feels hopeless, considering I didn’t have a dad that could teach me anything handy. Every time I’ve tried to do anything more complicated than, say, install shelves or a new faucet or mount a TV, despite all the YouTube videos in the world I hit a breaking point where I call someone
4+ quotes, call a buddy for a gutcheck, have a local handyman tell you what'd it'd take for him to half-ass it under the guise of another quote.
Eventually you develop a feel for what things should cost.
Installing a central air + gas furnace unit (or a heat pump, or central air with resistance heat, or central air + oil furnace) in the place of an existing central air unit requires the unit itself ($4-10k), roughly $500-1k of materials, and about 3 person-days of labor, 1 of them skilled.
Not sure what breaking point you'd be running into but in my experience there're basically only two tasks that require genuine skill to do well: place tile, and mud drywall.
Everything else, sufficient rigor and patience can substitute for skill.
Thanks
"I think is quaint that Matt thinks I should just move to a state with lower costs so a younger family can move in. Would they be prepared for all the costs associated with a home?"
Yes? If you live in an area where nearby homes are paying property taxes of $25k, that sounds like a fairly desirable area. The person buying your home would be in a position to afford upkeep. I am literally a young father with plans to buy a home in the next two years, and that $6.5k handout for seniors is (indirectly) making it more expensive for me to do so.
All of the upper middle class NJ towns have a trend. The people who've been there forever? Nurses, cops, teachers. The people who can afford to move in, given limited inventory? Lawyers, doctors, executives. The town changed. Can't afford to maintain a home in an extremely expensive area? You aren't entitled to it. Cash out.
This is an especially frustrating complaint given that NJ has lots of 55+ housing at below market rates. I saw a 2 bedroom for $200k in Monroe -- a very nice town.
One of the significant undercounted transfers is Medicare. Looking at my parents last ten years, the level of spending on medical was significantly higher vs the amount sent by Social Security. This healthcare spending is really taken much of the worry about rising prices out for many in a real way but not in a psychological way.
The second thing I would say is although they were very well off, they had a very transaction view about being owed their Social Security. I doubt that they paid in enough compared to what they took out. So here was for them a program that they very much did not need but viewed as owed to them even though they had already taken out all their contributions very early.
Some seniors understand they will take more from SS and Medicare than they put in (true on average, not true for the 1%, who pay more than they take out).
But most of them do not understand this fact because political rhetoric, like the statement from Mark Kelly that Matt highlighted, has *deliberately misled* them for decades. I know you can't "take the politics out of politics", but the way politicians communicate with the populace is distasteful.
Most people keep a running balance on their credit cards. How would they ever be able to figure out whether or not they're getting more from Social Security than they put in? Even I don't know, and I'm the smartest person on the planet, or so my mother told me.
I didn't realize your mother was a politician. Very cool.
Well, not her, but her father was a low level person in the Cleveland Democratic machine. She remembers being held by her father's arms as a four year old to see Al Smith when he worked the crowd during the 1928 (!) campaign.
And then in 2012 she briefly met Joe Biden during a campaign rally in Florida and he just loved that story when she related it to him.
Whenever I read stats like "28 percent of America’s large homes with 3+ bedrooms are owned by empty-nesters" I remind myself that the definition of a 'bedroom' has little to do with what a room actually is or is used for. If you buy a house, a bedroom is whatever the person who built the house told the town planning board was a bedroom, and they get the best selling price by maximizing it. OTOH I'm planning on building a house soon, and the more bedrooms I say I have, the stricter the requirements for my septic and other systems, so I'd rather minimize that and call an office an office than a bedroom.
A 3BR/1BA often just means you've got two offices or an adult couple that prefers sleeping apart. Not the most efficient use of real estate maybe, but it ain't the Soviet Union.
Agreed. My current situation *is* probably pretty close to the most efficient use of real estate - two adults living and working in an RV, ~240 sq. ft. But it's not the best setup for productivity. After 5 yrs mobile, we will be moving to a 3BR setup soon.
My sister’s old bedroom became the dog’s “I am going to bark out the window and nap room.” My bedroom became the office.
That may be a state by state thing. Here in CA a bedroom has to have a window and a closet, and if it doesn't then it's an office/utility room/bonus room/etc.
You can decide how many bedrooms to have when you're building new, but you can't change the actual count up or down without a remodel.
Good point. If they applied such a simple, natural definition to old homes in the Northeast, some would have zero bedrooms :-) OTOH less strict rules leave a lot unclear. For example, I've been told you can really stretch the square footage limit on ADUs in NH by labeling an open loft as "storage."
When my wife first ranted about this it redpilled me like never before. Even the term makes no sense -social security gets a guaranteed raise matching inflation. No one working a regular job gets that - our income goes down over time by default! We are LUCKY to have a fixed income that doesn't go down. Plus obviously their house and stock values only go up.
"obviously their houses and stock values only go up" has an ominously 2006ish feel to it.
seems like buying a house in 2006 still would have ended up being a good decision in the longterm
No? Having to move in 2008-2012 would’ve likely meant a short sale, keeping the house 20yrs probably lead to some appreciation, but smaller than VTI/VOO and you’d have been tied to one place during the recession.
It’s not the worst outcome and someone who currently owns a house they bought in 2006 is probably in a good position, but if I were a time traveler that wouldn’t be my decision.
*in the longterm* was in my comment. Buying a house in 2006 and then selling it just a couple years later is not really a longterm housing investment
But the claim was that even holding onto it for 20 years would leave you behind someone who rented and put that downpayment into stocks instead.
I remember in the Obama days we even had a fight about whether or not to tie it to a more conservative inflation measure (chained CPI), and the seniors won.
Our fiscal path is now a bipartisan agreement to transfer money from the working-age people (who can still have children) to the retirees. Paul Ryan and the GWB-era Republicans who tried to reform Social Security are never coming back and Democrats have 50 years of muscle memory advocating for a more generous SS and Medicare.
Matt and his comment section recognize the economic decline across much of Western Europe and the UK as their economies have lost competitiveness and dynamism. But we seem to have chosen the same path, just a decade or two removed.
Matt is fond of saying 'the UK isn't going to make it' on X, but there seems to be overwhelming pressure to just ramp up benefits and increase sclerotic regulations all over the world. There seem to be more and more hard boards out there, and Matt's crappy little drill will not suffice.
The biggest situation where I encounter seniors struggling with expenses increasing faster than incomes is about property tax. If you're one of those boomer empty nesters, then your house has probably appreciated a lot over the past decade, much faster than inflation. This leads to significant pressure by said boomers on local and state governments to cut property taxes.
The right solution is for our famously productive financial industry to figure out how to make this windfall profit get used to pay the tax bill, but that unfortunately hasn't happened yet.
This has been mostly solved without Proposition 13 nonsense.
You let the tax bill go up by market rates, the *amount that has to be paid* is constrained, and the *difference* gets put on the property as a non-foreclosable lein earning interest at a modest rate.
A community can tap this wealth with normal financial instruments.
It really seems like there should be an easy way to just defer payment of increased property taxes until sale or transfer of the property. Especially if you only do it for increases above a certain amount, or for people above a certain age, so that you can’t end up deferring more than the sales price of the property.
Boomers, on average, are unlikely to live in dense urban centers and are even less likely to move towards dense urban centers. Property tax for the average Boomer is not a major expense.
Property taxes for rural areas are not generally low *relative to the incomes of people who actually live in them.*
Actually they generally are, because the services provided are typically minimal. Basically sheriff, schools, and fire/rescue. No public water, no public sewer, etc.
I'm welllllllll past being out of patience, so I will say this once:
You are a professional class resident of a prosperous and growing exurb, not a rural "good ol' girl." You have less insight into the realities of rural life than basically anyone because your blinders are far too large; stop thinking about the world in which you live and go look at actual rural life lived by people doing the sorts of work that rural economies center on and those who retired from such work.
My grandparents receive somewhere between $10 and $15k from Social Security each year and draw down some savings from the sale of their small farm to make ends meet. They pay $1,500 in local property taxes for a property with, as you note, no sewer or water service and in a state of generally poor repair.
There are more retirees in their town in a similar boat than there are not, by a whopping margin, and each successive generation has seen fewer kids stay for lack of any better prospects.
Please spare us your cosplaying bullshit. You are no more a typical rural resident than I am, and in some ways you're far less attuned to the realities of rural life precisely because you *want desperately to live there*. Most folks who live in rural areas didn't have a choice in the matter, anymore than most kids born into inner-city poverty in Baltimore or Philadelphia did.
But you don't see my urbanist ass endlessly talking about how great life is for the poor kid being raised in a barely-habitable rowhome 20 blocks into the city from me.
Get over yourself.
Actually, I am a native of Appalachia whose family has farmed in very rural southwest Virginia for around 250 years. I grew up spending considerable time on my family’s rural Appalachian farms, and my extended family still lives there.
My parents, grandparents, and so forth on back to the literal 1700s were born and are buried in rural Appalachia. My grandparents (and quite a lot of my aunts and uncles) were rural farmers as well as often having side businesses. One grandfather worked in coal mines during the Great Depression to earn enough to hold onto his land.
I lost a cousin by marriage, someone I knew my entire life, to a gruesome farm equipment accident. I literally lived in a barn (barn apartment, such as it was) when I first graduated from college, swapping chores for rent while I figured out what I wanted to do when I grew up.
I have unloaded hay, fixed fence, wormed livestock, turned manure piles, and broken ice on stock tanks until I couldn’t feel my hands. Those are not glamorous cosplay jobs done in a floaty dress.
I am not originally from central Virginia, and the central Virginia county I live in was hard rural, not exurban, when I moved here well over 30 years ago. I picked it because it was then within an hour’s drive of a city where I could get a job, and I wanted to have animals and a big vegetable garden. Given a choice, I would have preferred my county stay a lot more rural and a whole lot less exurban, but no one has to ask my permission before they move out here. Given a choice, I would have stayed a lot closer to where I was born in the first place. This is not a rare sentiment.
Most of rural Virginia is either in an MSA or within an hour of an MSA. Even tiny Highland County is within an hour or so of Staunton and Harrisonburg. That proximity to MSAs is a factor of geography and historic settlement patterns, not something I made up. It’s true for much of the east. It’s not the same settlement pattern west of the Mississippi - but about 2/3 of US rural residents live east of the Mississippi. The west has a lot more land, but a whole lot fewer rural people. Look it up.
My comment re taxes and services was after I double checked the most rural county in the state, Highland, which is also in Appalachia. Average home value 200k, average household income 65k, tax rate 0.48 per 100, which would average 960 per year. That is low relative to the average household income of the people who live there. That fact does not preclude rural poverty for people who make a lot less than the average.
I'm tempted to write, "Oh, so you should know better" and walk away, but I won't.
I'd like to point out a couple of details here: you left the area you were born in to move to somewhere where you'd have access to a knowledge economy job market. That shift happened a generation earlier for my family but it happened in the same way. I spent a lot of summers up there doing that same sort of work; I have slung hay bales, helped load cattle, run a combine harvester and fed the corn sheller, reattached tin roofing, mucked out the birthing stall...
I can't speak to the area you're from, but where my mom's family is from, the median household income is about that same $65,000, but local tax burdens are quite a bit higher (2X+) because everything is older and harder to hold together, while still getting those same threadbare services. There've been at least 2 successive school district mergers since my mom graduated from high school out there, most roads don't get plowed, road maintenance is sustained mainly by a *huge* ongoing infusion of state tax money, there's an all-volunteer fire company with increasingly threadbare personnel coverage. A failed septic system, for most of my grandparents' peers, means "we sell up for what we can and live with one of our kids." And this is getting to be a crisis, to be frank; all the private infrastructure is at end-of-life with no clear path to replace it. Those neighbors who live in town get water and sewer service for more than I pay for it, and there is no money to maintain or modernize that either.
They're within the Harrisburg-Carlisle MSA, to be clear. 85% of counties in PA are part of an MSA; that doesn't always indicate that they have a dynamic labor market as some of the anchor cities for those MSAs are themselves small and undiversified.
I don't pretend to know whether most of the folks who grew up there want to leave or not. My mom probably would have preferred not to, but basically every cousin and second cousin who was born there left. My cousins left pretty happily, FWIW.
From my outside view of rural life in PA, it's very clear that many or most households are struggling, retirees particularly so, and the community as a whole is in a death spiral. That is true of most of rural PA.
From what you've said that seems to be less true of rural VA, which is more picturesque and had a far smaller legacy economy. That's great, but for many or perhaps most other rural locales in the US... Poverty is not *the* defining feature of rural life but it is definitely *a* defining feature of rural life.
This is kind of fair, but it's also the feeling I get when I read a lot of urbanist works and mutter "fucking tourist" under my breath. It goes both ways.
As I said: "But you don't see my urbanist ass endlessly talking about how great life is for the poor kid being raised in a barely-habitable rowhome 20 blocks into the city from me."
I also call out other urbanists who seem bound and determined to make life worse for the people who do live in those areas.
For me, the main difference I feel is that there's a clear set of policy prescriptions that exist to deal with urban problems in the US, and there is a lot of well-founded hope that city life can and will get better over time. If you demanded that I craft policy try to piece back together rural life in my mom's hometown or the area where my dad's family has a hunting camp I wouldn't even know where to start. In PA there are only two sorts of rural areas: "rapidly depopulating with disintegrating social and physical infrastructure" and "scenic and in the midst of being colonized into commuter/vacation areas for folks based in metropolitan economies." I guess the latter outcome is "better" in some sense, but it doesn't seem to lead to any kind of durable gains for existing residents.
I don't understand what dense urban centers have to do with anything. Suburbs have property taxes too.
Everywhere has property taxes, pretty much. They tend to be low for the majority of seniors, because older people tend to live in areas that have low taxes. Average is around $200 per month.
High property taxes are generally an issue in very dense urban areas and wealthy suburbs. They are NOT a major factor for most seniors.
I don't think it's true that seniors live in disproportionately low property tax areas. Additionally seniors are way more likely to own a home, meaning they actually pay property tax.
The one exception I would allow to the second half of your second sentence is that many states offer some form of homestead exemption to people 65 and over (my parents enjoy just such a cozy arrangement, now).
Yes, this is true although it is usually a fixed amount and thus doesn't really reduce the impact of increases.
Seniors are less likely to live in cities and more likely to live in rural areas, exurbs, and suburbs. That is why those areas have a higher median age. Inner urban areas have a lower median age. Google it.
The average property tax bill in the US is under 250 per month.
True enough as a take, but a missed opportunity to talk about social insurance which does transfer income from the young to the old by borrowing from would be investors to pay the benefits. This means slower growth and lower incomes for future genertions. The social insurance defict is what we need to fix.
Old Age Security in Canada that is very generous to even high income retirees is starting to get more attention for doing just that.
Australia's Superannuation scheme seems like a smart way to do things. Mandatory contributions and it's in the market.
More and more people saying this
Literally a pyramid scheme
Years ago I was on my condo's HOA and we had recurring problems with some of the seniors who were upset about the costs of living in a condo and thought they should be exempt from these costs because they were on a fixed income. They would complain that they couldn't afford the extra dues to save up for a new roof. Which is bad for them, but the roof still needs to be replaced and we can't exempt people because they're "on a fixed income" and claim not to have the money. We also had people refuse to pay and then when we took legal action, were accused of forcing a vulnerable senior out of their home. The HOA could not legally exempt them and even if we had, other homeowners would have been angry at having to pay more because one of their neighbors who did not have to worry about losing their income fi they lost their job didn't want to pa for basic maintenance.
There were some cases where they had simply decided that now that they were 65, they were done paying into things, which doesn't work with property maintenance. There were other cases where they were spending mind boggling sums of money on stuff like shopping -- we would find this out when they'd submit financials to get hardship exemptions -- and it wasn't clear if they'd always been bad with money or this was part of their cognitive decline. It was always really unpleasant because we were painted as the bad guy for trying to get people to pay what they owed.
Every time I'd think of that scene in the Simpson where grandpa Simpson complains about people wanting a handout and then going to the social security office and saying "I'm old, give me money". I remember the boomers complaining about their parents not wanting to means test social security and now they're saying the same thing their parents used to say.
That transcends age groups, though; in the one case I'm familiar with, it was the parents with small children who couldn't possibly contribute to the mandatory additional assessment because they had young children.
This is a bit hard to take:
“And it’s a reminder that we don’t need to go out of our way to worry about the economic problems of the old rather than the young.”
I understand the technical point you are making - but I just don’t know why you would make this kind of statement. For those who work in the social service field, there is a shocking level of unmet need among older adults. I know you are not denying that, but this is a very misleading take on a serious societal problem.
I think the key, as in other cases, is to emphasize the policy focus on economic class rather than age and other identifiers.
As compared to child poverty in the US? Which is higher than in most (maybe all) OECD countries?
Because of the frustration that our social spending heavily skews to the elderly - who have already worked, have had a chance to build savings, and won't contribute more economically - as opposed to kids, who haven't had a chance to work and investments in them are investments in the future of our country.
This post ignores the major source of financial vulnerability for older adults and their families, especially boomers who will become octogenarians in huge numbers in a few years...exploding health care and long-term care needs and costs. The prevalence of Alzheimer's and other dementias, the most care-intensive of conditions, is projected to skyrocket over coming decades. Same with mobility disorders and frailty. Medicare offers little or nothing to offset these costs.
To become eligible for Medicaid long-term care, many such seniors will need to spend down their savings and off-load assets to become poor enough to access home care or a nursing home. Social security checks will then be taken to pay for expensive nursing homes. Family members of middle-class seniors that Matt tells us are doing just fine will quit jobs or reduce work hours to care for their loved ones, typically while at their peak earning years. Many will be women needing to work to support their own families or to enjoy a meaningful career, the same women who were typically available for delivering elder care "back in the day." The personal loss of income is also a loss to the overall economy.
So, yeah, we middle-class boomers have built up a reasonable investment portfolio over the years but are facing serious vulnerabilities, along with our families, when we become unable to perform basic activities of daily living.
"The prevalence of Alzheimer's and other dementias, the most care-intensive of conditions, is projected to skyrocket over coming decades."
?
https://hsph.harvard.edu/news/dementia-incidence-declined-every-decade-for-past-thirty-years/
It's a measurement/definition thing.
The average 90-year-old today is LESS likely to suffer from dementia than the average 90-year-old in 1990. BUT - there are many more 90-year-olds today. "Incidence" is the first, "how many people have dementia" is the two multiplied together.
Basically, the best anti-dementia policy we know of is to encourage smoking. (Smokers very rarely live long enough to suffer dementia.)
Yes, incidence will grow due to more living with advanced age and with a lifetime of high blood pressure, metabolic conditions, etc. But prevalence will grow the fastest due to the sheer size of the boomer generation. Here's the study that most point to: https://pmc.ncbi.nlm.nih.gov/articles/PMC3719424/
Winning!
Thank you.
If you only look at aggregate statistics, then yes, everything appears fine. But aggregate statistics hide a lot of churn and variability that shouldn’t simply be ignored or waved away. This is the same error from 2024 where some Democrats were asserting to people that wages largely kept up with inflation and therefore the “bad economy” sentiment was just vibes.
But once you dig below the surface of national averages in a nation of 330 million, things start to change. Inflation didn’t affect everyone the same. That goes for seniors too.
COLA adjustment lags and doesn’t account for location differences. Many seniors have fixed amount annuities or defined benefit pensions that aren’t indexed to inflation. Others are spending down assets and while the market has done well, increased costs can affect how long assets will last.
A couple living mortgage free in a house in a low cost area is going to be in a different situation that a single person paying rent in a market where housing costs are rising, yet they both get the same CPI adjustment.
In the case of my sister who was diagnosed with dementia at 65 and died of it last year at 72, her care was over $9k a month and her SS income was about $2k. She was lucky she had inherited some money for her predeceased husband and her Dad, and it was barely enough to last until she died.
Point being, “fixed income” is a thing for many, or close enough to a thing that annual COLA adjustments based on CPI do not necessarily reflect the actual increase in costs for many people, and for older generations, annuities and defined benefit pensions, and sometimes life insurance from a dead spouse are not protected from inflation.