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> A) pensions don’t exist so people need cashflow to retire. You either save enough capital that you can build an annuity for yourself or you have cash flow inv

by throwaway2037 6d ago

> A) pensions don’t exist so people need cashflow to retire. You either save enough capital that you can build an annuity for yourself or you have cash flow investments and the lowest effort one is rental properties. First, I assume that we are talking about the United States here. "pensions don’t exist": This is certainly untrue, especially for retired people today. Private pensions only started to disappear enmass in the late 1990s. Public pension certainly exists. It is called Social Security, and it pays about 25K USD (on average) per year, per retired person. "so people need cashflow to retire": Sure, they can do that with a 401k that holds bonds. For those unaware, 401k plans really took off in the 1980s. Retired people today most likely have one, plus their 401k was growing during an incredible time. From 1985 to 2015, the S&P 500 grew 12+% per year. That is crazy compounded results! "you have cash flow investments and the lowest effort one is rental properties": I don't know where this myth started of "rental properties are low effort", but it needs to die. It is much more work that managing a 401k. Also, the ROI for rental properties is rarely more than 5%. Frequently, lower. So, the 401k looks much better and more consistent. Sometimes rental properties are vacant for months at a time. Then you have negative yield/carry because you still have expenses.

fnordpiglet 6d ago
Bond yields aren’t comparable to property cash flow; especially leveraged property. Additionally they are highly susceptible to rates and capital risks. It’s also technically a lot harder for most people to juggle a 401k annuity structure. I did however discuss structuring your own annuity earlier. Bonds are much lower than 5% typically for anything other than the worst credit possible. For better than 5% you need to be a relatively active trader, and manage the cash disposition well. Owning property is typically less risk and less effort for the average person, and most they can offload to a property manager. They can of course hire a financial advisor. Most people having had a rental at some point understand the concepts a lot better than bond trading and investing writ large. They also can’t convert their basis in their home appreciation into their 401k, and my point was on basis rolling of property capital gains and how to convert your family home appreciation into a tax deferred vehicle with cashflow. Personally, I agree with you; I would do a self managed annuity structure and hire an advisor for my later life when I may not be able to manage it. However, I’m just explaining the typical thinking. And the capital appreciation basis roll is a real problem for retirees whose home appreciated over their lives. I think you misunderstand what happened in the 80’s - pensions were raided and they were stolen. In the 90’s the defense was to not offer them any more. There do exist some pensions, mostly governmental, and some rare corporate pensions that escaped raiding, but the survival of private pensions wasn’t great even for those that had them. Social security is below poverty rates, and is not a retirement plan but supplemental. It was designed with the private pension system existing in mind. I’m fine with expanding social security by lifting income caps and other fixes, including a sovereign wealth fund. The status quo isn’t tenable.

fnordpiglet 6d ago

Bond yields aren’t comparable to property cash flow; especially leveraged property. Additionally they are highly susceptible to rates and capital risks. It’s also technically a lot harder for most people to juggle a 401k annuity structure. I did however discuss structuring your own annuity earlier. Bonds are much lower than 5% typically for anything other than the worst credit possible. For better than 5% you need to be a relatively active trader, and manage the cash disposition well. Owning property is typically less risk and less effort for the average person, and most they can offload to a property manager. They can of course hire a financial advisor. Most people having had a rental at some point understand the concepts a lot better than bond trading and investing writ large. They also can’t convert their basis in their home appreciation into their 401k, and my point was on basis rolling of property capital gains and how to convert your family home appreciation into a tax deferred vehicle with cashflow. Personally, I agree with you; I would do a self managed annuity structure and hire an advisor for my later life when I may not be able to manage it. However, I’m just explaining the typical thinking. And the capital appreciation basis roll is a real problem for retirees whose home appreciated over their lives. I think you misunderstand what happened in the 80’s - pensions were raided and they were stolen. In the 90’s the defense was to not offer them any more. There do exist some pensions, mostly governmental, and some rare corporate pensions that escaped raiding, but the survival of private pensions wasn’t great even for those that had them. Social security is below poverty rates, and is not a retirement plan but supplemental. It was designed with the private pension system existing in mind. I’m fine with expanding social security by lifting income caps and other fixes, including a sovereign wealth fund. The status quo isn’t tenable.