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For many people living in the U.S., these are tough — and confusing — times.
On Friday, the Labor Department reported 263,000 new jobs in November, while the unemployment rate held steady at 3.7%. Layoffs remain low, despite mass job cuts in the tech sector. Average hourly wages have also risen 5.1% in the past year, but still lag behind inflation for many workers. And there were 10.3 million job openings in October — slightly down from the previous month’s 10.7 million.
Some people might see the latest economic data as both challenging and confusing.
“‘It’s just mind-boggling, the disconnect that we’ve seen.’”
Given all the conflicting signals, economists say it can be difficult for consumers to know exactly how to feel about the economy right now. “It’s not new, this disparity between the actual facts on the ground about what’s going on in the economy and the sentiment,” said Heidi Shierholz, president of the Economic Policy Institute, a left-leaning think tank.
“I remember this summer it was just unambiguously the strongest jobs recovery we’ve had in decades,” she added. “There’s just absolutely zero chance that we were in a recession — not only were we not in a recession, we were in just an extraordinarily fast recovery — and the polling, a huge share of people actually thought we were in a recession. It’s just mind-boggling, the disconnect that we’ve seen.”
“Going into the pandemic, more than seven out of every 10 extremely low-income renters were already spending more than half of their income on rent. And then the pandemic hits; we saw a lot of low-wage workers lose their jobs and see an income decline,” said Andrew Aurand, vice president for research at the National Low Income Housing Coalition. “Then in 2021, we see this huge spike in prices. For a variety of reasons, they’ve struggled for a long time, and since the pandemic, it’s gotten even worse.”
But we would like your help telling an ongoing story about the American economy, centering the experiences of everyday people. Our readers know better than anyone about how today’s economic conditions have impacted their daily lives.
The numbers: U.S. pending home sales fell 4.6% in October, the fifth straight monthly decline, the National Association of Realtors said Wednesday.
Economists polled by the Wall Street Journal expected pending home sales to fall 5.5%.
The index captures transactions where a contract has been signed, but the home sale has not yet closed.
Key details: On a year-on-year basis, pending home sales were down a sharp 37%.
Sales fell in three of the four regions, with the Midwest registering an increase.
Big picture: Sales have stalled as mortgage rates have jumped, making houses less affordable. Pending home sales are a leading indicator for the sector. Some economists think that buyers might return to the market as mortgage rates have plateaued.
The numbers: Existing-home sales fell 5.9% to a seasonally adjusted annual rate of 4.43 million in October, the National Association of Realtors said Friday. Compared with October 2021, home sales were down 28.4%.
Economists polled by the Wall Street Journal had expected an decrease to 4.37 million units.
The level of sales is the lowest since December 2011 excluding the 2020 pandemic.
This is also the ninth straight monthly decline in sales, the longest streak on record.
Key details: The median price for an existing home was $379,100 up 6.6% from October 2021.
But price gains are decelerating. Prices were up over 20% on a year-on-year basis earlier this year.
Housing inventory fell 0.8% to 1.22 million units in October. Unsold inventory sits at a 3.3-month supply at the current sales pace, up from 3.1 months in September and 2.4 months a year ago.
A 6-month supply of homes is generally viewed as indicative of a balanced market.
Sales declined in all regions of the country.
Big picture: Home sales have dropped as mortgage rates have risen sharply and affordability has dropped.
Softer inflation data in October have led to a drop in mortgage rates, which could lead for a floor on sales.
At the same time, Federal Reserve officials may pencil in a “peak” interest rate above 5% at the policy meeting next month.
Economists see home prices have further to fall in this market.
What the NAR is saying: Home sales have been very low and the softness could continue for a few months. But sales could pick up early next year if the mortgage rate has peaked, said Lawrence Yun, chief economist at the NAR.
My boyfriend owns a house with a 30-year mortgage balance of $150,000 on a 4% interest rate. He has $275,000 in cash and retirement accounts. He is retired.
My house is paid off. I have $50,000 in cash and retirement accounts. I would like to retire within one to two years.
We wish to cohabitate but have not been able to agree on a fair “rent” to pay. He is not willing to live in my house because it has fewer amenities.
“‘He believes I should pay half of his monthly cost at his nicer, more expensive house. He could pay off his mortgage and save $600 a month, but he likes to have cash. ‘”
He believes I should pay half of his monthly cost at his nicer, more expensive house. He could pay off his mortgage and save $600 a month, but he likes to have cash.
I have forgone that luxury and paid off my mortgage. I am now working on building my savings. I don’t feel it is fair for me to pay half of the mortgage interest expense.
I don’t know what repair and maintenance costs should be expected from me, if I have no equity in his house. There are many points of view, none of which feels fair.
These are the options he set forth:
· I live in his house and thus get to rent mine out. Pay him half of what I net from that rental.
· Pay half of the actual costs of living expenses and upkeep on his house while I live there.
· Pay him what I pay to live in my current home for taxes, insurance, and utilities: $800/month.
What say you, Moneyist?
House Owner & Girlfriend
Dear House Owner,
I’m sure your house is just as nice. And just because he believes you should pay half his costs, does not make it so. If you are paying no mortgage on your own home, I don’t believe you should pay one red cent more to live in his home.
That is to say, you should not come out of this arrangement paying more, just because (a) he would like you to live in his home and (b) he would like you to help him pay off his mortgage, or his tax and maintenance.
You both made different choices: Yours was to have a home that’s free-and-clear of a mortgage, so you can spend this time building up your savings for retirement and/or a rainy day.
You have worked hard to pay off your mortgage, and you have $50,000 in savings, less than 20% of your boyfriend’s savings. He has $150,000 left on his mortgage, and that’s his choice.
“If his aim is to find help to pay off half of his mortgage, he can find a tenant to do that for him. ”
You are not the answer to his long-term financial plans, you are his partner in life. If his aim is to find help to pay off half of his mortgage, he can find a tenant to do that for him. What do you expect of you? Forget what he expects.
By the way he is approaching this arrangement, it seems like he wants the equivalent of a detergent and a fabric softener — a girlfriend and a tenant in one handy bottle to keep his financial plans smooth and clean.
Bottom line: You should not compromise any plans to build your nest egg. The lady’s not for turning. Only acquiesce to his plan if — with the help of an actual tenant in your home — it helps you too.
In other words, the desired outcome for you is more important than the suggestions he has put forward. He could save $600 a month! That’s his business. Not yours. What do you want to have in your pocket every month?
Figure out what you want, and then work your way backwards based on that goal. For instance, if you can pay him $800 a month, charge $1,600 rent for your home, and put $800 towards your savings, do that.
You’ve come a long way. Don’t let these negotiations scupper that.
Check out the Moneyist private Facebookgroup, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Co., the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
NASHVILLE, Tenn. — A mortgage industry group is expecting a recession to hit the U.S. economy.
“We’re forecasting a recession for next year,” Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, said Sunday during the industry group’s annual conference in Nashville, Tenn.
“The upside of that potentially for the industry is, that’s the thing that’s likely going to bring rates down a little bit,” he added.
In a statement, Fratantoni said the MBA’s forecast calls for a recession in the first half of 2023, and predicts the unemployment rate will rise from 3.5% to 5.5% by the end of next year.
“We’re beginning to see some significant signs of softening in the labor market,” Frantantoni said.
He expects companies to no longer be scrambling to fill job openings, and that hiring will eventually cool off.
On average in 2023, expect the economy to lose 25,000 jobs per month, he said, and end the year with employment at 5.5%.
“So a very, very different job market to today,” Frantantoni said. “I do expect the next couple of months are gonna be a pretty abrupt transition.”
With a recession on the horizon, expect mortgage rates to come down to close to 5.4% at the end of next year, he said, versus the 7%-plus rates that the market is seeing today.
“We are holding to our view that this is a spike right now, driven by financial-market dislocation, heightened level of volatility in the market and this global slowdown we’re about to experience, the likelihood of recession in the U.S. will begin to pull this number,” Fratantoni said.
Mike Fratantoni, senior vice president and chief economist for the MBA, speaks in Nashville on Sunday.
AARTHI SWAMINATHAN
Given the massive rise in rates this year, with the 30-year fixed rate averaging 6.94% last week as compared to 3.85% a year ago, many potential home buyers have decided to wait as their projected monthly mortgage payments have become unaffordable.
As a result of the slowdown, the MBA is expecting total mortgage origination volume to fall to $2.05 trillion in 2023 from the $2.26 trillion expected in 2022.
They’re also expecting purchase originations to drop 3%, and refinances by 24%.
Fratantoni also expects delinquencies to rise from 40-year lows.
The numbers: The National Association of Home Builders’ (NAHB) monthly confidence fell 8 points to 38 in October, the trade group said on Tuesday.
It’s the tenth month in a row that the index has fallen.
Outside of the pandemic, the October reading of 38 is the lowest level since August 2012.
A year ago, the index stood at 80.
The index’s ten-month drop is a new record. The index last fell for 8 months straight in 2006 and 2007.
Key details: All three gauges that underpin the overall builder-confidence index fell.
The gauge that marks current sales conditions fell by 9 points.
The component that assesses sales expectations for the next six months fell by 11 points.
And the gauge that measures traffic of prospective buyers fell by 6 points.
All four NAHB regions posted a drop in builder confidence, led by the south and the west.
It’s also likely that this year will be the first time since 2011 that single-family starts see a decline, the NAHB added.
Big picture: Builders continue to struggle to find buyers with the current rate environment.
Now they’re saying they’re worried about that depressed demand impacting supply moving forward.
Specifically, they’re concerned about housing affordability worsening, with potentially fewer new homes being built in the future.
Mortgage rates have doubled from last year, now exceeding 7%, which has considerably cooled buyer demand.
Home price growth is moderating, but prices have not come down substantially — yet.
The median sales price for a new home was $436,800 in August, according to the U.S. Census Bureau.
What the NAHB said: Builders are expecting single-family starts to fall for the first time in 11 years — and expect additional declines through 2023, said NAHB Chief Economist Robert Dietz, due to the Federal Reserve’s projected rate hikes to control inflation.
“While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates, and ongoing elevated construction costs continue to price out a large number of prospective buyers,” he added.
“This situation is unhealthy and unsustainable,” Jerry Konter, a home builder and developer from Savannah, Ga. and the NAHB’s chairman, said in a statement. “Policymakers must address this worsening housing affordability crisis,” he added.
What are they saying? “The housing sector – sentiment, building activity and sales – is collapsing under the weight of a rapid increase in interest rates and elevated prices, which are crimping affordability and demand,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note.
So expect building activity to be depressed, she added.
Market reaction: The yield on the 10-year Treasury note TMUBMUSD10Y, 3.989%
fell to 3.98% on Tuesday morning.
While the SPDR S&P Homebuilders ETF XHB, +2.15%
traded slightly higher during the morning session, and the big home-builder stocks, from D.R. Horton Inc. DHI, +2.90%
to Toll Brothers TOL, +1.87%
to Lennar LEN, +2.97%,
edged higher.
Rent growth is beginning to cool. But it’s descending from a heck of a peak.
Rental prices climbed 7.2% between September 2021 to September of this year, the largest annual increase since 1982, according to consumer price data released Thursday. Overall, shelter costs were also among the most significant drivers in rising consumer prices, along with the cost of food and medical care, the Labor Department said.
Still, it’s not all bad news for tenants. A new report from Realtor.com out Thursday found that nationwide, median rental prices in 50 large metros grew at their slowest annual pace in 16 months in September — at 7.8%. That marked the second consecutive month of single-digit year-over-year growth for 0-2 bedroom properties, and it meant that median asking rents fell by $12 in a month, Realtor.com said.
Housing inflation in the Consumer Price Index lags trends in the rental market, though, meaning the slowdown in rent growth might not register in the data for a while.
While median rental prices are still nearly 23% higher than they were two years ago, they’re no longer climbing at breakneck speeds with no end in sight. These days, economists say, that counts as a silver lining.
“After more than a year of double-digit yearly rent gains and nearly as many months of record-high rents, it’s especially important to see consistency before we confirm a major shift like the recent rental market cool-down,” Realtor.com Chief Economist Danielle Hale said in a statement. “But September data provides that evidence, as national rents continued to pull back from their latest all-time high registered just two months ago.”
“This return of more seasonal norms indicates that rental markets are charting a path back toward a more typical balance between supply and demand, compared to the previous year,” Hale added. “We expect rent growth to keep slowing in the months ahead, partly driven by the impact of inflation on renters’ budgets.”
(Realtor.com is operated by News Corp NWSA, +1.64%
subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)
A Redfin RDFN, -3.55%
report out Thursday, meanwhile, said rents grew 9% year-over-year in September — the slowest pace since August 2021. Rents were still way up year-over-year in cities like Oklahoma City (24.1%), Pittsburgh (20%), and Indianapolis (17.9%.)
Most financial planners advise young people to start saving early — and often — for retirement so they can take advantage of the so-called eighth wonder of the world – the power of compound interest.
And many advisers routinely urge those entering the workforce to contribute to their 401(k), especially when their employer is matching some portion of the amount the worker is contributing. The matching contribution is – essentially – free money.
New research, however, indicates that many young people should not save for retirement.
The reason has to do with something called the life-cycle model, which suggests that rational individuals allocate resources over their lifetimes with the aim of avoiding sharp changes in their standard of living.
Put another way, individuals, according to the model which dates back to economists Franco Modigliani, a Nobel Prize winner, and Richard Brumberg in the early 1950s, seek to smooth what economists call their consumption, or what normal people call their spending.
According to the model, young workers with low income dissave; middle-aged workers save a lot; and retirees spend down their savings.
Source: Bogleheads.org
The just-published research examines the life-cycle model even further by looking at high- and low-income workers, as well as whether young workers should be automatically enrolled in 401(k) plans. What the researchers found is this:
1. High-income workers tend to experience wage growth over their careers. And that’s the primary reason why they should wait to save. “For these workers, maintaining as steady a standard of living as possible therefore requires spending all income while young and only starting to save for retirement during middle age,” wrote Jason Scott, the managing director of J.S. Retirement Consulting; John Shoven, an economics professor at Stanford University; Sita Slavov, a public policy professor at George Mason University; and John Watson, a lecturer in management at the Stanford Graduate School of Business.
2. Low-income workers, whose wage profiles tend to be flatter, receive high Social Security replacement rates, making optimal saving rates very low.
Middle-aged workers will need to save more later
In an interview, Scott discussed what some might view as a contrary-to-conventional wisdom approach to saving for retirement.
Why does one save for retirement? In essence, Scott said, it’s because you want to have the same standard of living when you’re not working as you did while you were working.
“The economic model would suggest ‘Hey, it’s not smart to live really high in the years when you’re working and really low when you’re retired,’” he said. “And so, you try to smooth that out. You want to save when you have relatively high income to support yourself when you have relatively low income. That’s really the core of the life-cycle model.”
But why would you spend all your income when you’re young and not save?
“In the life-cycle model, we are assuming you are getting the absolute most happiness you can out of income each year,” said Scott. “In other words, you are doing your best at age 25 with $25,000, and there is no way to live ‘cheaply’ and do better,” he said. “We also assume a given amount of money is more valuable to you when you are poor compared to when you are wealthy.” (Meaning $1,000 means a lot more at 25 than at 45.)
Scott also said that young workers might also consider securing a mortgage to buy a house rather than save for retirement. The reasons? You’re borrowing against future earnings to help that consumption, plus, you’re building equity that could be used to fund future consumption, he said.
Are young workers squandering the advantage of time?
Many institutions and advisers recommend just the opposite of what the life-cycle model suggests. They recommend that workers should have a certain amount of their salary salted away for retirement at certain ages in order to fund their desired standard of living in retirement. T. Rowe Price, for instance, suggests that a 30-year-old should have half their salary saved for retirement; a 40-year-old should have 1.5 times to 2 times their salary saved; a 50-year-old should have 3 times to 5.5 times their salary saved; and a 65-year-old should have 7 times to 13.5 times their salary saved.
Scott doesn’t disagree that workers should have savings benchmarks as a multiple of income. But he said a high-income worker who waits until middle age to save for retirement can easily reach the later-age benchmarks. “Savings for retirement probably is more in the zero range until 35 or so,” Scott said. “And then it is probably faster after that because you want to accumulate the same amount.”
Plus, he noted, the home equity a worker has could count toward the savings benchmark as well.
So, what about all the experts who say young people are best positioned to save because they have such a long timeline? Aren’t young workers just squandering that advantage?
Not necessarily, said Scott.
“First: saving earns interest, so you have more in the future,” he said. “However, in economics, we assume that people prefer money today compared to money in the future. Sometimes this is called a time discount. These effects offset each other, so it depends on the situation as to which is more significant. Given interest rates are so low, we generally think time discounts exceed interest rates.”
And second, Scott said, “early saving could have a benefit from the power of compounding, but the power of compounding is certainly irrelevant when after-inflation interest rates are 0% – as they have been for years.”
In essence, Scott said, the current environment makes a front-loaded lifetime spending profile optimal.
Low-income workers don’t need to save either
As for those with low income, say in the 25th percentile, Scott said it’s less about the “income ramp that really moves saving” and more that Social Security is extremely progressive; it replaces a large percentage of one’s preretirement income. “The natural need to save is not there when Social Security replaces 70, 80, 90% (of one’s preretirement income),” he said.
In essence, the more Social Security replaces of your preretirement income, the less you’ll need to save. The Social Security Administration and others are currently researching what percent of preretirement income Social Security replaces by income quintile, but previously published research from 2014 shows that Social Security represented nearly 84% of the lowest income quintile’s family income in retirement while it only represented about 16% of the highest income quintile’s family income in retirement.
Source: Social Security Administration
Is it worth auto-enrolling young workers in a 401(k) plan?
Scott and his co-authors also show that the “welfare costs” of automatically enrolling younger workers in defined-contribution plans—if they are passive savers who do not opt-out immediately—can be substantial, even with employer matching. “If saving is suboptimal, saving by default creates welfare costs; you’re doing the wrong thing for this population,” he said.
Welfare costs, according to Scott, are the costs of taking an action compared to the best possible action. “For example, suppose you wanted to go to restaurant A, but you were forced to go to restaurant B,” he said. “You would have suffered a welfare loss.”
In fact, Scott said young workers who are automatically enrolled into their 401(k) might consider when they’re in their early 30s taking the money out of their retirement plan, paying whatever penalty and taxes they might incur, and use the money to improve their standard of living.
“It’s optimal for them to take the money and use it to improve their spending,” said Scott. “It would be better if there weren’t penalties.”
Why is this so? “If I didn’t understand that I was being defaulted into a 401(k) plan, and I didn’t want to save, then I suffered a welfare loss,” said Scott. “We assume people figure out after five years that they were defaulted. At that point, they want their money out of the 401(k), and they are optimally willing to pay the 10% penalty to get their money out.”
Scott and his colleagues assessed welfare costs by figuring out how much they have to compensate young workers at that five-year point so that they are OK with having been inappropriately forced to save. Of course, the welfare costs would be lower if they didn’t have to pay the penalty to cash out their 401(k).
And what about workers who are automatically enrolled in a 401(k)? Are they not creating a savings habit?
Not necessarily. “The person who is confused and defaulted doesn’t really know it’s happening,” said Scott. “Maybe they’re getting a savings habit. They’re certainly living without the money.”
Scott also addressed the notion of giving up free money – the employer match — by not saving for retirement in an employer-sponsored retirement plan. For young workers, he said the match isn’t enough to overcome the cost of, say, five years of below-optimal spending. “If you think it’s for retirement, the match-improved benefit in retirement doesn’t overcome the cost of losing money when you’re poor,” said Scott. “I’m simply noting that if you are not consciously making the choice to save, it is hard to argue you are making a saving habit. You did figure out how to live on less, but in this case, you did not want to, nor do you intend to continue saving.”
The research raises questions and risks that must be addressed
There are plenty of questions the research raises. For instance, many experts say it’s a good idea to get in the habit of saving, to pay yourself first. Scott doesn’t disagree. For instance, a person might save to build an emergency fund or a down payment on a house.
As for the folks who might say you’re losing the power of compounding, Scott had this to say: “I think the power of compounding is challenged when real interest rates are 0%.” Of course, one could earn more than 0% real interest but that would mean taking on additional risk.
“The principle is about, ‘Should you save when you are relatively poor so you can have more when you are relatively rich?’ The life-cycle model says, ‘No way.’ This is independent of how you invest money between time periods,” Scott said. “For investing, our model does look at riskless interest rates. We argue that investment expected returns and risks are in equilibrium, so the core result is unlikely to change by introducing risky investments. However, it is definitely a limitation of our approach.”
Scott agreed there are risks to be acknowledged, as well. It’s possible, for instance, that Social Security, because of cuts to benefits, might not replace a low-income worker’s preretirement salary as much as it does now. And it’s possible that a worker might not experience high wage growth. What about people having to buy into the life-cycle model?
“You don’t have to buy into all of it,” said Scott. “You have to buy into this notion: You want to save when you’re relatively rich in order to spend when you’re relatively poor.”
So, isn’t this a big assumption to make about people’s career/pay trajectory?
“We consider relatively rich wage profiles and relatively poor wage profiles,” said Scott. “Both suggest young people should not save for retirement. I think the vast majority of median wage or higher workers experience a wage increase over their first 20 years of working. However, there is certainly risk in wages. I think you could rightly argue that young people might want to save some as a precaution against unexpected wage declines. However, this would not be saving for retirement.”
So, should you wait to save for retirement until you’re in your mid-30s? Well, if you subscribe to the life-cycle model, sure, why not? But if you subscribe to conventional wisdom, know that consumption might be lower in your younger years than it needs to be.
The numbers: Mortgage rates continue to march towards 7%, continuing to pressure potential homeowners looking to buy a home.
The 30-year fixed-rate mortgage averaged 6.7% as of Sept. 29, according to data released by Freddie Mac FMCC, +0.75%
on Thursday.
Mortgage rates are up as the Federal Reserve pushed key interest rates up to deal with the worst inflation the country has seen in 40 years.
That’s up 41 basis points from the previous week — one basis point is equal to one hundredth of a percentage point, or 1% of 1%.
The rise in rates is bad news for prospective buyers, as it potentially adds hundreds of dollars to their mortgage payments.
Mortgage rates are now at highs last seen since mid-2007. To put the latest rate in perspective: A year ago, the 30-year was at 3.01%.
“Mortgage rates are now at highs last seen since mid-2007. To put the latest rate in perspective: A year ago, the 30-year was at 3.01%.”
Bloomberg’s chief economist Michael McDonough said a $2,500 monthly mortgage payment — with 20% down — would have gotten a buyer a $758,000 home last year.
This year? You’d get a lot less house — with $2,500 per month, you’d only be able to afford a $476,000 home, he wrote on Twitter TWTR, -1.12%.
The median price of an existing home in the U.S. was $389,500 in August, down from $403,800 the previous month, the National Association of Realtors said.
The average rate on the 15-year mortgage also rose over the past week to 5.96%. The adjustable-rate mortgage averaged 5.3%, up from the prior week.
“The uncertainty and volatility in financial markets is heavily impacting mortgage rates,” Sam Khater, chief economist at Freddie Mac, said in a statement.
Khater added that Freddie Mac’s survey of lenders revealed a large dispersion in rates, so home buyers should shop around with lenders to find a good quote.
Mortgage applications also fell in the latest week, as cautious buyers continue to pull back as rates march towards 7%.
The yield on the 10-year Treasury note TMUBMUSD10Y, 3.784%
rose slightly above 3.8% in morning trading on Thursday.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com
Money manager Matt Patsky stood at the window of his hotel on the Portuguese island of São Miguel in March last year, looking out over the Atlantic, and thought: I’m not sure we can retire here after all.
He told his husband, “I don’t know [if] we could live here. It looks like the people are crazy. There are people going in the water, swimming in the ocean. How crazy do you have to be to go swimming in the Atlantic in March?”
Patsky, 56, mentioned this to a local real-estate agent later that day. The man didn’t understand the issue. The water, he said, was probably no cooler than 65 degrees.
How these Americans save money in retirement: They live in Spain
As Boston-based Patsky adds: In New England you’re lucky if the water gets that warm in August.
It’s “one of the great selling points of the Azores,” he says. “It is rarely below 60. It is rarely above 80. And the water temperature tends to be steady between 65 and 75 degrees.”
Patsky says he and his husband, a retired businessman who’s 66, are “80%” sure they are going to live outside the United States when they retire. They are tired especially of the politics and the racial tensions.
The No. 1 thing that attracted them to the Azores — which lie barely more than twice as far from Boston as from Lisbon — wasn’t the weather. It was the emigration.
Portugal, they discovered, offers the all-round fastest, cheapest, easiest way to get a so-called golden visa, putting the recipient on a fast track to permanent residence and citizenship.
You have to have means, but this is not purely for Rockefellers. If you want to get Portuguese residency, and a passport, you need to buy a home in the country and generally to put at least some money into fixing it up, and spend at least seven days a year in the country for the next five years.
After six months, you get a residency card. After five years, a passport.
The threshold prices vary, depending on the type of home you buy and where you buy it, but they start at €280,000 (about $310,000).
As part of the deal, says Patsky, you have to buy the home with cash. You can’t take out a Portuguese mortgage. But you can always raise the cash by remortgaging a U.S. home. The money thresholds are lower than in many other countries. And the seven-day requirement lets Patsky continue his job in Boston, as the CEO of socially responsible investing company Trillium, during the five years.
Europe is by far the most popular destination by continent, with about a quarter of a million U.S. retirees, based on Social Security direct deposits. That includes nearly 13,000 in Portugal.
“Portugal has been so welcoming to the LGBT community, that you are seeing a huge number of LGBT couples looking at Portugal,” reports Patsky. On their trips to the Azores, Patsky says he and his husband have been bumping into other LGBT couples from the U.S. looking at golden visas as well.
On a recent trip they overheard four American women at the next table in a restaurant. It was “two lesbian couples from Philadelphia, looking at the ‘golden visa’ and looking at property in the Azores. We ended up sitting with them with my iPad open looking at property.”
You can see the islands’ attraction. There are regular flights from various North American and European cities, Patsky says. “It’s a 4½-hour flight from Boston, and, because of our large Azorean population [in New England], there are actually daily flights,” he says.
Pretty much everyone on the island speaks some English, which is taught in schools as a compulsory second language.
“It’s like living in a Portuguese fishing village,” Patsky says of Ponta Delgada, the main city on São Miguel. “It has a lot of the same feel as Provincetown [on Cape Cod], in terms of being a fishing village. It’s quaint.” The population is about 70,000. “It’s a good size, and it’s got a very vibrant economy.”
Thanks to some spectacular cliffs, São Miguel — one of the nine islands that the Azores comprise — has hosted the Red Bull World Cliff Diving World Series on several occasions, including last year.
Patsky and his husband love the island’s natural beauty. “January, we were swimming, we were at the hot springs. Incredible. This really is nice weather year round. There is no traffic. There is no rush hour.” The longest distance you could drive on the island, from one point to another, would take you an hour, he says.
And unlike in Boston, he adds with a laugh, you don’t see snow.
Both members of the couple are equally eager to retire abroad, Patsky says, in no small part to flee America’s rising racial tensions and poisonous politics. Last year Patsky’s husband, originally from the Philippines, was run over at a pedestrian crossing in Boston, Patsky recalls, and was left lying on the pavement with multiple fractures. When a policeman arrived at the scene, he asked the prone 65-year-old for his Social Security number to determine whether he was in the U.S. illegally, Patsky says.
“My husband and I want to make sure that our retirement is spent in a country that respects the dignity of every person,” Patsky says, “and that treats access to health care as a human right.” Portugal has a public health service, modeled after Britain’s National Health Service, which is available to all residents.
They are hardly alone in looking at the Azores. This is starting to turn into a well-trodden exit route. “There are hotel chains that are selling villas at exactly the price point you need to get the golden visa,” Patsky says. They’ll even rent the villa out for you to tourists, to generate income, and say they’ll buy it back after the five years are up.
Patsky says the couple won’t be moving for at least five years. Patsky’s remaining at the helm of Trillium following its takeover by Australia’s Perpetual Ltd. PPT, -1.13%.
He says one of the key appeals of Portugal’s visa program is that he can carry on working full time in the U.S. while at the same time completing the steps needed to get his Portuguese passport.
Naturally, there are forms to fill out. You’ll need the usual financial and employment records. You’ll also need an FBI report to prove you have a clean rap sheet. (Pro tip from Patsky: Don’t get your fingerprints done at the police station on card. Get them done electronically at the post office and apply online. It will save you weeks.)
As for that major retirement headache, health care, you will need to prove you have health insurance in your home country every year during the initial five years, Patsky says. Medicare counts.
And when you finally retire to the country full time? After your five-year period you’ll have a Portuguese passport. And that means an EU passport. And so you can move anywhere in the EU, including those places with the most lavish, generous public health insurance.
“You can pick wherever you want to retire because it’s the EU,” Patsky says.
