The recent announcement that Warren Buffet at the age of 94 would resign as CEO of Berkshire Hathaway, should remind us all that many people are choosing to continue to work much, much longer than historical norms. Twenty Ceo's of Fortune 500 companies are 70 years or older. I'm hearing and reading a consistent drumbeat of people either choosing to work much later in life, or being compelled to do so. This is bound to impact residential real estate in multiple ways.
Here are some thoughts on the subject:
1. There is a vast difference between wanting to work longer, or being compelled to do so because of insufficient retirement savings or the reality that many people are living much longer lives.
2. While some wish to continue working at a full pace, others are choosing a slower pace with less income. Some work purely for the fun of it.
3. Those who don't have to be in an office have the greatest freedom to move. Many are opting for a home office with separation.
4. Many who are retired (or work from home), miss the relationships and interactions of an office and are choosing to be in an office all week or part of the week/day. They prefer short commutes. They love the office but hate long commutes. Flexible hours are equally important.
5. When markets drop (as they did recently), it reminds all that those annual returns one becomes acclimated to can shift. Is a 7-8% growth rate every year sustainable? What if you experience a 20% drop in one year? That can take several years to recover. This recent reminder has many to fear that major shifts happening right now encourage exercising caution and conservative thinking around financial planning and working.
6. Elevated inflation reminded all that inflation exists, and has forever. So while inflation may not be at 9.1% (as it was for a brief moment in June, 2022), 2% annual inflation adds up. Retire with $500,000 today and you'll need over $672,000 for the same buying power 15 years from now with 2% annual inflation compounded. Some localized inflation in hyper growth areas remains elevated. Many areas of the US that were relatively cheap 10 years ago, are no longer as many have gravitated to warmer weather locations with lower local taxes.
7. Lower local/state taxes can offset reduced income. Many move for this reason alone, as well as preserving the value of their estates in areas that don't have local/state estate taxes. Or lower rates.
8. In a hyper-competitive world being an expert matters more than ever. Doing something part time and being best at it is extremely difficult, if not impossible.
9. I know of people in their 70's working full time jobs because they must. Insufficient savings, health shocks, financial shocks, etc can be debilitating. Recovering from one is often impossible, especially with a health/physical limitation.
10. Many continue working either for 'fun money' or a 'travel fund' or a fund to help kids buy a home or simply to have social interaction.
11. Maintaining a big fancy home in a fancy neighborhood costs lots. And costs more each year. Combining that with a fancy lifestyle that you may not wish to quit often compels people to keep working to maintain this lifestyle and keep up appearances.
12. Those obsessed with longevity (or extending quality of life) are seeing daily research proving that a stimulated mind may be the biggest driver.
13. Those with a paid off mortgage on a home usually have the most financial freedom. But often their ability/desire to relocate is restricted by their fear/disgust of paying big capital gains taxes or the inability to find an equally affordable housing alternative. Those in rent controlled homes will never be able to replicate that housing cost elsewhere. Opportunity exists when kids take over these homes.
14. Around 17% of NAR members are 65 years or older. Often real estate brokerage/advisory is the perfect way to keep working without the stress of a 24/7 career demand, especially if part of a team.
Each year I see new societal patterns and shifts. Being aware of them allows me to help my clients navigate their real estate lives.
