Retirement At 58?

Let's start with Ben Steverman from Bloomberg doing some personal calculus on whether to buy a house or rent. As I read the article, it seems like Steverman might be in his early 40's, has never purchased a house (or condo) and has mixed feelings about it. I don't sense regret, I think he is genuinely unsure, leaning toward being ok with not having bought up to this point. 

It was of course always a no brainer to buy a house if possible but along the way, the no brainer argument eroded some. In many places now, if you run the numbers on buying versus renting, renting appears to be cheaper. 

Part of the argument against homeownership is that the total costs far exceed the price of the house. With a 30 year mortgage, the total interest paid over the loan term will exceed the price of the house. Invariably, there will be things that need to be fixed and things that need to be upgraded or replaced. There is of course property tax and insurance. Renters don't need to directly incur any of those costs. 

Rent will go up at some rate that is probably close to the rate of price inflation whereas a mortgage payment stays the same (in terms of principal and interest). In 2005, the US median home price was $232,000 and the prevailing 30 year mortgage rate was 5.8%. Assuming 20% down back then, the homeowner's payment would be $1322/mo. The median home price today is $410,000. Google says that the median rent in 2005 was $694 and now it is $1700.

I'm not big on everyone should either way, but this is a blog and I share opinions. A non-religious sort of parable that I think fits; a middle-aged guy tells a friend he's interested in learning Italian but he thinks it'll take five years before he could actually be proficient. The friend tells him that the five years are going to go by no matter what. 

Someone who made a decision about buying versus renting in 2005, well the 20 years went by and using the 2005 example, the mortgage balance is down to $96,000 so the equity is $314,000 that they wouldn't have accrued from renting. There's an argument about renting allowing people to save/invest more (extra) money which I have trouble believing this is something that people do, somehow investing extra money. Please leave a comment if you are on the other side of that idea. 

That equity is optionality. Regardless of the dollar and cents of the buy/rent decision 20 years ago, the homeowner has $314,000 or optionality on top of what is hopefully a healthy 401k balance. 

Now to the affordability problem in big cities which Allison Schrager touched on with her own personal account from about 20 years ago coincidentally when she was faced with talking her way out of moving from New York City to Austin. Her article was more about whether large cities are too expensive for people irrespective of buying a house or condo. 

I have no idea whether the "era of the big city might be over" as she asserts in the title as she admits that she might have been better off moving to Austin 20 years ago. I've never been to Austin, but looking at a couple of cost metrics, it appears to be a second tier city in terms of cost of living (not making a value judgement, this is simply dollars and cents). It has a big population but the average home price is just a fraction of places like Boston or the Bay Area. 

As someone who has lived in very small city for most of my adult life, there are advantages and disadvantages. It used to be very cheap here to buy a house but that is no more. The way the internet has evolved it has become much easier to make a living remotely than when we got here in 2002. Our population growth has sort of overwhelmed the road system, there is now a lot of traffic in Prescott and Prescott Valley but it's nothing like a truly big city. The population of our county is only 250,000 but it's heavily concentrated in the Prescott area. 

Even if not true of Prescott anymore, there are plenty of medium and smaller cities where homeownership is far more accessible. If someone can enjoy a smaller and less expensive city and make a good living thanks to remote working, buying versus renting might be less of a dilemma. Places like Chattanooga and Tucson often show up favorably on lists of desirable places to live and average home prices in both places are in the $300's. Where are two, there must be others.

Now, connecting all that to a Tweet from Unusual Whales about a CNBC survey that concluded "retirement age should be 58." The comments were fantastic, ranging from very smart to very dumb, it should be easy to retire (financially) to people believing they will never have enough, retirement should be earlier to we should never retire for several different reasons, there were assumptions about whether Social Security would or would not start at that age and of course comments about loving what you do being akin to already being retired. 

Again, no everyone should from me but for people who do want to retire, the optionality created by building up home equity over the course of 20 or 30 years makes whatever they have in mind easier. Maybe the best plan for someone is to stay put. Ok, that mortgage will be paid off at some point dropping their cost of living. 

My comments about Chattanooga and Tucson create a path to downsizing working out pretty well, financially. To Schrager and working in NYC. Someone working there in 2005 might have bought in Hoboken, NJ and paid a median price of about $300,000 back then. Maybe that was a bit of a financial stretch and now in 2025 they don't have a ton saved in 401ks but they have some. If this person is now of retirement age, they could sell for a median price of $920,000, downsize to Chattanooga for $337,000 and have a good bit left over to fund retirement. 

If this person had been renting in Hoboken the whole time, they'd have started paying $822 in 2005, they'd now be paying $3800 and not have all that retirement optionality with that equity. 

Weigh in if you disagree but I think the discussion between renting versus buying is more of a shorter term issue, appearing to be cheaper...for now. A gap in my thinking would be people who expect to move frequently but I don't know the prevalence of that cohort, is that common? If someone expects to move in five years then buying a house/condo may not make sense but I'm hard pressed to see where someone is better off 20 years later by having decided to rent. 

All the numbers I pulled for this post were from Google Gemini and the mortgage calculations were from mortgagecalculator.org. That was a fun one!

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