Michael Green was out with Part 2 of his much discussed and somewhat controversial look at the poverty line in the US. We looked at the post here and then discussed some of the reaction here. Here's Part 1 from Green.
Most of Part 2 turned out to be point/counterpointing with some of the critics, most notably, Scott Winship whose article we also dissected. From there, Green pretty much said home ownership is a scam, 401ks are a scam and so is higher education. There's more nuance which we'll get to but my reaction was pretty much...
With owning a house, he said price appreciation is actually just inflation. If you buy a house for $200,000 and it goes to $1 million, what then? If you sell it, you'd just be trading into another $1 million house. Home value appreciation is just an illusion that is encouraged to make people feel wealthier without any actual wealth he said.
He touches on trading down but seems to dismiss the possibility. If someone needs to access the equity in their house for retirement, having the house gives them optionality to downsize, assuming it's paid for. It will take some work to find the right downsize situation but it is possible.
Green refers to the 401k mirage, noting that only the wealthiest benefit, the wealthiest own the majority of the stocks (true) and that typical 401k participants own target date funds. I am certainly not a fan of target date funds but they can work.
That goes back ten years. It assumes starting with $1000 and putting in $1000 every month (so no raises along the way) and both funds have created a decent retirement balance, not enormously wealthy but pretty good for ten years. Testfol.io had clearly incorrect data but Copilot said that starting with $1000 in 2007 when the funds launched, adding $1000 every month the balance now would be;
Again, I don't think target date funds are optimal but they are valid. This doesn't seem like an illusion to me.
Green correctly sounds a cautionary tone about private equity eventually making its way into 401k plans. He said what we've said, they need more suckers.
The last thing I will mention is his taking down of the "great wealth transfer." I've been hearing about this since the late 80's with money going to boomers back then from their parents. Did it happen? Hard to quantify but Green says the money that millennials and Gen-Z expects to get will instead pay long term care bills. If you google it, you might find that the health department says 70% of older American will need long term care.
Anecdotally, that seems absurdly high. I asked Copilot to dig deeper. The 70% includes family helping their parents and grandparents. Copilot says 35-40% will need to go into a nursing home with only 10-15% staying more than two years. Ok but copilot says there are now 1.3 million Americans in nursing homes but the population of people 70 or older is 37 million. Yes there will probably be growth in the number of people who need nursing home care but 35-40% is still way too high.
I think counting on an inheritance makes for a terrible retirement plan for several reasons but the healthcare angle the Green takes is far more pessimistic than the reality.
Green in both essays (a Part 3 is coming) paints a bleak picture. The internet is falling all over itself trying to debunk and bash what Green has written thus far. It's kind of odd actually. If you want to delve into the details of Green's numbers, go for it but it is hard to look at the big picture of the questions Green is asking and feel optimistic.
I'm always going to bang the drum of taking matters into our own hands to minimize reliance on other people figuring it out for us. If "they" (the government) figure it out great but that is clearly not their top priority and in meantime we're living our lives now while "they" spend time not solving any problems.
Live below your means, take care of yourself physically and stay curious/engaged.
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