WSJ: A Retirement Wealth Gap Adds a New Indignity to Old Age

[Oz investor]

it might relate to cash conservation as well , some might not have a huge cash buffer

borrowing to update might not be the ( long term ) sensible way to go

 

[scrabbler1]

Correct! After working for small companies for the first 7 years of my career, I moved up to a 10K+ person company. I did not know that they were an ESOP company, or even what that was. 17 years later, I had nearly $0.5M in ESOP company shares, without paying a dime. I stayed with the company to earn more shares (not luck), but joining them was pure chance.

I 'earned' more than $120K in real estate holdings (buying and selling 3 condos), but I could have just as easily lost that much or more if my timing had been worse, or my judgement had been worse.

I was lucky to find my first job out of college in 1991, when almost no one was hiring (ok, some luck, some education, some experience).

Even if you work really hard, LBYM, invest wisely, getting to the point of FIRE before age 50-55 can more easily be done with some good 'luck'! Good luck!

My former company established an ESOP 12 years after I began working there. Like you, I was given a bunch of shares without paying a dime, and those shares grew to $300k by the time I left 11 years later. The share allocation was based on one's salary, and my peak earnings years in the late 1990s were the ones which got me the most shares. Then, in the 2000s, even when I received much fewer shares, the value of my existing shares exploded to the point where I could simply take the money and run.

This good luck, combined with some key life decisions I had made over the years, enabled me to retire 10 years ago at 45, several years earlier than I thought I'd be able to. Many coworkers had as much as or more than I had in ESOP value, but due to their making different life decisions (or they simply didn't want to) were not able to retire. Other people I know made the same life decisions as I did but didn't have the good luck to have a valuable ESOP behind them to enable them to retire. I had both, and was able to retire.

 

[pb4uski]

.... borrowing to update might not be the ( long term ) sensible way to go

While I agree, I have found many of the members in our Association to be very conservative (like the many members here who are totally opposed to having a mortgage in retirement).... I served on a clubhouse renovation committee and suggested a bigger project with modest financing and it was like I had 20 heads.

 

[samclem]

While I agree, I have found many of the members in our Association to be very conservative (like the many members here who are totally opposed to having a mortgage in retirement).... I served on a clubhouse renovation committee and suggested a bigger project with modest financing and it was like I had 20 heads.

I'd guess the resistance comes because $20/month saved in HOA assessments is a real, no-doubt-about-it difference, money they can use for whatever they want (or, money they already need for a real purpose). Any increase in property value is a long way off-- a delayed second marshmallow that might not even be paid out (overall drop in RE values) and/or might be given to somebody else (heirs). I can very well understand why many folks would rather keep those assessments/assessments low and find other ways to store up treasures.

A lot of friction can be avoided by a clear contract/set of bylaws that sets the ground rules. I'd favor a firm cap on fees--most costs can be anticipated and an escrow fund established. This takes discipline, and should be documented in black and white. Just like any other arrangement where people need to cooperate (marriage, employment, etc), if everyone understands and agrees on a common set of expectations, the chances of smooth sailing are vastly improved. In the case of a condo or "community" with an HOA, I'd want it all in writing and fairly specific, rather than depending on something "squishy" ("this is a luxury community"= "the sky is the limit on future amenities you'll pay for"). I would think a firm set of bylaws like this would also add value to the properties. If a prospective buyer sees that he is protected by a solid contract that will keep the roads paved, but won't subject him to the tyranny of the majority to force him to pay for a new pickleball stadium, I'd think it would be worth some money in the purchase price.

 

[pb4uski]

Well there is sort of a clear contract in our and most associations.... majority rules... so if the majority wants change (or not) then that prevails... if someone doesn't like it one way or the other then they are free to move.

 

[Fedup]

While I agree, I have found many of the members in our Association to be very conservative (like the many members here who are totally opposed to having a mortgage in retirement).... I served on a clubhouse renovation committee and suggested a bigger project with modest financing and it was like I had 20 heads.

I’m the one with mortgage in retirement and I wouldn’t approve of that either. In the last housing bubble, a lot of houses were in foreclosure by failure to pay HOA fees.

In my hood, the HOA make sure home owners paint their house exterior if it’s a little bit fade or chipped, you get a letter from them.
I’m now working on painting the exterior of my garage once I’m done painting the bathroom. They would want more but that’s all I’m going to do.

 

[pb4uski]

In this case, the loan would have been very modest... $1,000-$2,000 per unit... people were opposed to a special assessment and this would have prudently spread out the cost... about $15 per month.... financing a long-term improvement with long-term financing.

 

[samclem]

Well there is sort of a clear contract in our and most associations.... majority rules... so if the majority wants change (or not) then that prevails... if someone doesn't like it one way or the other then they are free to move.

So it's an unlimited liability for a person who buys a property there. If 51% of the people want something, I have to take on the monthly bill, and the new fee also links to my property, so it may reduce the price I get when I sell.
I suppose it is no different in principle from a city/county, but the population size is an issue: It's just more likely with a smaller group that you can get a non-normal distribution of attributes. It doesn't take many vocal, active folks to make changes. I'd be a lot more comfortable with a hard cap with supermajorities required for extraordinary expenditures.

I'm probably not cut out for condo life.

 

[MichaelB]

A homeowners association has by-laws and rules & regulations. The by-laws are set by the builder and establish basic property rights, creates an association, defines it's limits and empowers the board. The board then establishes rules and regulations.

An HOA board is not omnipotent, but it does have a great deal of authority to write and enforce rules, and also to spend money on behalf of the members. As long as it stays within the by-laws an HOA board can do pretty much what it wants. It also has broad powers of enforcement; it can put a lien on a unit for non-payment of monthly fees or special assessments.

 

[pb4uski]

Our HOA Board has a lot of authority for maintaining what we have as long as HOA fees don't increase more than 15% a year.

For material alterations and improvements they have limited authority ... $10k/year ($69/unit/year) without membership approval... unlimited with majority approval of the members.

 

[jazz4cash]

Our subdivision is 17 homes that were built 20 yrs ago. The builder failed to properly set up the HOA before leaving. We have a storm water pond that needs to be maintained so most of the original owners banded together and chipped in to pay for mowing the area 3x per mo. It’s $85/yr for each homeowner. As newcomers arrive it has become increasingly difficult to get them to voluntarily pay. The alternative is to establish a legit HOA which I think would cost 1200/yr due to legal and admin costs. The collection is coordinated by a volunteer. I think the collection rate is around 70%. After a few years of being treated rudely the volunteer generally quits and it’ll probably be my turn next. . A few folks just hate to pay (including the homeowner that benefits most by living right next to the pond.

 

[samclem]

Our subdivision is 17 homes that were built 20 yrs ago. The builder failed to properly set up the HOA before leaving.

Who owns the land in which the pond sits?

 

[Teacher Terry]

WE are glad to not be a part of a HOA anymore. They would make everyone stain their fence every 2 years which it didn't need and was a big job as the lots were big. They would drive by and if they saw a week in your front yard you would get a nasty letter and would need to have them come back and check it was pulled or get a fine.

 

[jazz4cash]

Who owns the land in which the pond sits?

I can’t recall if it is community property or if it was gifted to the county. The county is supposed to mow a narrow portion of it 2x per season but that would result in an overgrown jungle. The HOA is responsible for anything beyond that. We don’t have any other need for the HOA because the county takes care of everything else.

 

[John Galt III]

This is why we have different communities of development. Some have labels as luxury, some are not. Rich retirees should buy in the luxury village. .... snip....

My mother lives in a very expensive retirement community, and can afford to do so. The staff there are not too ethical and overcharge her for things all the time. Whenever I mention it to the staff, I get treated like I am an embarrassing *poor person* who is ruining their day. I get the impression most of the residents (also very rich, apparently) just can't be bothered to check for overbilling, and wouldn't want the embarrassment of mentioning it to the staff. edit to add: I agree with your statement, fedup.

 

[Mdlerth]

What goes around comes around

the article itself... focuses on a 55-and-over community in a wealthy area of California where there appears to be fierce conflict between newer, well-off residents who want to upgrade by adding expensive amenities (e.g. a "tournament-quality pickleball complex") and those who bought in early, whose finances tend to be more limited. The level of hostility is extremely high...
...I can't help thinking that in 5 or 10 years the well-off newcomers will have the numbers to get whatever they want, which means the limited-income group will be in trouble.

I can't help thinking that the same struggle will repeat. In 20 years, when today's newcomers are the oldtimers, will they face an influx of younger, wealthier residents who want them to share the cost of fresh, expensive amenities (e.g., a "tournament-quality hoverboard complex") they have no interest in using?

I'd wager that the irony will be lost on them.

 

[Fedup]

My community has no pickle ball court, but I have no problem finding courts to play. There are so many communities out there with pickle ball courts and lessons. Some are free and some charge $3 per day or something like that. I’ve been investigating this sport to add to my exercise routine, that’s how I know. As long as I can drive, I have no problem.

 

[Dtail]

My community has no pickle ball court, but I have no problem finding courts to play. There are so many communities out there with pickle ball courts and lessons. Some are free and some charge $3 per day or something like that. I’ve been investigating this sport to add to my exercise routine, that’s how I know. As long as I can drive, I have no problem.

It is a great sport for retirees. If you have played racquetball, or Table Tennis or Tennis before, you should have no issues.
It is a deceptive workout, great social fun and can be competitive too.
I usually play 5x per week.

 

[redduck]

Yes this is already happening in our area. The condo complex down the street is about the same age, similar oceanfront location, etc., but has done major upgrades to their common areas and security, while our building hasn’t yet. The units down the street are about 20% smaller but are now selling more quickly and for higher prices than our building, despite their HOA dues being over 15% higher.

It’s hard for me to understand why owners in our building aren’t demanding that our HOA keep up with the competition. I guess they don’t see how this directly affects the value of their property.

If we hadn’t invested in a major remodel 3 years ago, we might consider moving, but we did and we love it so we are trying to motivate other owners to support positive changes.

I think, for many, including us, this is our "last home". We do not care what the resale value will be when we pass on.

Simply what Souschef said. He doesn't care about the competition or re-sale. Doesn't see his home as an investment. If you and the richer, more competitive residents want to be competitive with other HOA's why not invest your own money in upgrades? How much money would it cost to replace or repair the outdoor furniture?

 

[redduck]

I can't help thinking that the same struggle will repeat. In 20 years, when today's newcomers are the oldtimers, will they face an influx of younger, wealthier residents who want them to share the cost of fresh, expensive amenities (e.g., a "tournament-quality hoverboard complex") they have no interest in using?

I'd wager that the irony will be lost on them.

Interesting: A post that's amusing, foreboding and probably accurate. How did you do that in just three sentences?

 

[pb4uski]

Simply what Souschef said. He doesn't care about the competition or re-sale. Doesn't see his home as an investment. If you and the richer, more competitive residents want to be competitive with other HOA's why not invest your own money in upgrades? How much money would it cost to replace or repair the outdoor furniture?

If the Association improves common facilities then every member benefits... so every member should ante up. Just because some members are too myopic or short-sighted to see it doesn't mean that they get a free ride.

 

[Scuba]

If the Association improves common facilities then every member benefits... so every member should ante up. Just because some members are to myopic or short-sighted to see it doesn't mean that they get a free ride.

Absolutely. That is the entire concept of an HOA in a nutshell. Very dangerous to start “cherry picking” IMO. The HOA Board is elected to decide what is best for the HOA and execute it. If owners don’t like changes, or want to push for more changes, they can run for the Board and try to influence the direction of the building, move, or just accept the situation. In my case, I’m tired of being on the Board and don’t plan to run again in the foreseeable future. For now, we’ll enjoy our remodel and forget about all of this turmoil. If the common areas deteriorate too much, we’ll move.

Friends of ours told us about their condo building in San Diego. It’s beachfront but is an older building with lots of long term owners who don’t want to spend money. Apparently rather than replacing their common area lobby furniture en masse, they are doing it one piece at a time, with no coordinated plan. If our building ever resorts to that, we will definitely be out of there, hopefully before that even starts to happen.

 

[HI Bill]

the frontal lobes don't really kick in until age 25 or 27

I grew up fairly poor in the 1980s. In 1984, I went to the career center to research professions. I found out I didn't have the GPA to get into veterinarian school, to work as a marine biologist, you need a doctorate and won't get paid much, journalists don't get paid much, and geologists can generally get a decent-paying job with a bachelor's. I went with the latter career, and am now making low six figures. Went to a public college. Did terrible in math until I went to college. Seems like common sense is what's missing today with college and major choices...0?

 

[samclem]

A close friend of mine was the head of his condo/ timeshare board. It was a big building with elevators, (needed expensive repair or replace), curtain wall windows ( failed seals, leaky frames, needed replacement), etc. Nobody wanted to pay, it was very hard to even get agreement to fund work that was safety related or would save much more $$ later. A thankless headache for him. I would NEVER take that on.

 

[Souschef]

If the Association improves common facilities then every member benefits... so every member should ante up. Just because some members are too myopic or short-sighted to see it doesn't mean that they get a free ride.

+1
I was treasurer of my HOA for 25 years. The main reason was I did not trust anyone else to do the job. People do not grasp the fact that whatever facilities there are in the common areas, they are for everyone whether they use them or not. A swimming pool is a good example.