There’s A Self Evident Truth Most Boomers Haven’t Recognized — They’ve Lost A Friend

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In well over four decades of experience in the business, I’ve seen many stats that’ve stopped me in my tracks. Things like an FHA interest rate of 16.5%. A one year appreciation rate of just under 50%. Or, more recently many of the stats related to the recent bubble. However, the most recent stat riveting my attention has been the velocity of Boomer generation retirement. They’re retiring at about 10,000 every 24 hours, and will continue to do so ’til around 2030!

Don’t gloss over that fact. Ponder it for a few moments, and let it sink in. Every month about 300,000 Boomers are retiring. That’s over 3.6 million a year, and it’s been happening for awhile now. Thing is, for the most part, I’d guess maybe 80% of ’em — and I believe that’s being hospitable — aren’t retiring ‘well’ as Grandpa used to say.

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Not retiring well?

Let’s look at some facts.

  • 74% of those currently working in America fully expect to keep working in retirement. In other words, retirement apparently doesn’t mean stop working. Some will be by choice, most won’t.
  • 56% of Americans will retire with unpaid debt. Gotta believe that wasn’t part of the ‘plan’.
  • 88% of Americans are almost resigned to retiring at a level of income they never believed would happen to them. Far to little.
  • 83% of Boomers expect to have to work in retirement.

I could go on for another page, but you get the picture. One of the stats I uncovered in researching this was a shock to me. Were you aware that approximately 75% of all Americans claim their Social Security income at age 62?! Holy freakin’ cow! That’s 3 outa 4 of us perceiving the need to grab the lower income at 62, instead of waiting for the higher income a few years later. Wonder where their plan went awry?

Why are these stats the new reality?

First off, that subject is a thick book, right? I get that for sure. But let’s be real, ok? Boomers have been heavily relying on Wall Street and their expert advice in the building of their retirement via the employer sponsored 401k. Normally I’d be a smart aleck at this point and ask how’s that been workin’ out for ’em so far, but they — and likely you — already know. They’re now feelin’ the pain and constant anxiety that accompanies the realization that retirement has become a pipe dream.

The average 58 year old American male has less than $100,000 in their 401k at work. So can we please stop the embarrassingly stoopid debate about how great Boomers have done in the stock market compared to real estate? It’s a bad joke, people. It simply hasn’t worked, which doesn’t mean it couldn’t with better advice. What it does mean is that listening to the experts provided by employers has proven toxic to the average American worker — period. 🙂 A real estate investor throwing darts at a local map of small rental properties while blindfolded would retire infinitely better than the typical American has listening to the experts re: the stock market.

The other reason is that Boomers, when confronted with the reality of a bad or even indefinitely postponed retirement, suddenly come to the stark realization that time is no longer their friend. With 10 years or less ’til retirement, real estate becomes less and less attractive as a vehicle. Why invest in real estate, even at 50% down — IF that much capital is even available — if you know there’s no way imaginable the debt could be eliminated in time? And there it is yet again. Extending the day of retirement in order to take the additional years paying off income property debt. For most it’s a no-brainer pass. So what’s the alternative?

Notes at a discount, that’s what.

On the practical side there’s no debt incurred, therefore no debt to pay off. What that creates is what I’ve come to call a Positive Catch 22. That is, not only will you have avoided a monthly payment goin’ out, you’ll have one comin’ in. Instead of sending money into a black hole every month, you’ll enjoy monthly payments into one of your bank accounts. Let’s take a 57 year old with $200,000 in their retirement plan. If they cash it out, they’ll not only pay a buncha income taxes, but a penalty too. Let’s be draconian and say that amount is halved by the government, leaving them just $100,000. (For the record, there are times when the option of taking the money and payin’ the consequences isn’t an option.) Here’s what’s likely to happen.

NOTE: Before I go on, it’s crucial to understand I’m definitely not advising everyone to eschew real estate for notes. That would be foolish on its face. I’m dealing here with a specific demographic, Boomers, who’ve for the most part simply ignored everything but their employers’ 401k plans. I’m still very strong on investing in real estate AND notes for those with enough time to make multiple strategies yield the synergistic results time allows. Most Boomers don’t have the luxury of time.

If they buy a ‘first position’ note secured by real estate, at say, 55¢ on the dollar, they now own a $180,000 note. The income will vary, of course, but let’s say it brings in $13,000 yearly, principal and interest. That’s 13% cash on cash. If you’d left the $200,000 in the retirement account, that’d be a 6.5%  annual return. Studies done the last 20 years show empirically that the average American doesn’t even do 4% annually over the long haul.

But let’s keep goin’ here. Let’s say this note does what the typical note does, which is get paid off in roughly nine years. Let’s say the after tax note payment boils down to approximately $750 a month. If our guy has $150,000 left on his home’s loan, at 4%, with a payment of around $955/mo., and he adds that $750 each payment, what might happen?

Well son of a gun, in just eight years and nine months he’s paid of his home’s loan in full. Will wonders never cease? He did that with over a year to go before his scheduled retirement. That’s almost $1,000 a month he’ll NOT be spending in retirement. A few months later his first note investment pays off, puttin’ roughly $155,000 in his Levis, give or take, before taxes. He’ll pay taxes at the cap gains rate of around 15%. This nets him around $147,000 or so. He then rinses and repeats, buyin’ another discounted note. This one might cost him a bit more, let’s say it’s 58¢ on the dollar. It yields him just over $19,000 yearly, before taxes, a pre-tax raise of over $6,000. 🙂

For those keepin’ score, that’s a 46% raise. Not bad, eh? ‘Course, he’s gotta pay taxes on that money, which yields him in the neighborhood of $13,000 annually, or what he used to make before taxes. In the nine years to that point he’s collected $117,000 in pre-tax payments.

Oh, and he paid off his freakin’ home loan. He certainly wouldn’t of done that with his employer’s 401k, that’s a lock. In retirement he’d of eliminated at least one payment of $1,000 monthly, forever. His after tax income from the note portfolio is over $1,000 a month. That’s an effective $25,000 a year in his pockets directly due to gutting his so-called qualified retirement plan. When it pays off, and who knows when that’ll be, he’ll get yet another raise. That’ll happen over and over, predictably, though randomly.

Even if he ended up doubling his $200,000 over that same 10 year period, something which history says is highly unlikely, what would Wall Street yield him in retirement? Using their own info, that’d be about 4% yield, or around $16,000 a year, pre-tax, roughly $11,000 after tax.

Here’s the huge difference. That figure won’t change much, if at all. Furthermore, his $400,000 will remain static. Well, not really. See, the gubmint will show up shortly after he turns 70, tellin’ him he’s not takin’ enough out of his retirement plan, forcing him to begin eatin’ into his principal. Oops. At that point he’ll find himself in the race nobody enters intentionally. The race between what comes first, death — or runnin’ outa money? There’s no winner in that race that I can discern. You?

Tax wise this example is just about the worst I could manage. If he’d found a way to make use of either a Roth IRA or a Solo 401k, he’d of done FAR better in terms of spendable after tax retirement income. But even though we made him completely naked in terms of taxation here, look how much better off he was, even though we had him slaughtered on Day 1 by halving his nest egg.

The takeaway here isn’t that notes rock, though they clearly do. 🙂

Boomers need to come to terms with the deadly reality of how worthless most of their work based 401k plans are to them. ‘Til that reality hits them, their retirement will not be what they envisioned, and that’s being kind. They’ve been sold a bill of goods that simply hasn’t worked. Hasn’t worked? That’s about as watered down as I can put it. Here’s how a physicist might say it —

“You’d be attached to another object by an incline plane wrapped helically around an axis.” (Credit: Sheldon Cooper 🙂

Photo Credit: Adventures with my dogs

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Great article! What I was surprised to find was that my audience members are usually in their 40s,50s,and 60s, looking to figure out real estate at a good price point before retirement. I was surprised to see that demographic information, but everyone is waking up! Be it notes, or houses in working class neighborhoods, they are gravitating towards real estate investing as the way to protect them.

    This IS a book in itself, as I see my parents who are baby boomers losing money in their 401k, and their union pension obligations not being paid, its coming really fast, and everyone needs to have a safety cushion a 401k just can’t provide. Good article, more of these open stats like this I think are motivating this important demographic to think on finances differently.

  2. Jeffrey Gordon on

    Greg, you better register that quote!

    Great article Jeff, I forwarded it on to several close friends who are concerned about that
    very issue–outliving their resources! How time flys as we all get older.


  3. Jeff,
    Thanks for the very timely article—and for the giggles through out.

    I, too forwarded it to some friends—I’ve been nagging them to WAKE UP before they go to sleep forever.

    A friend of mine just invited me today to work with him in the note biz; said he would train me and that it’s not that hard. I know some bits and pieces but I am wondering if you recommend a book that gives a sound overview & direction—you know, like notes for dummies : ) Actually maybe you wrote one!!

    Thank you Jeff

    • Jeff Brown

      I don’t recommend any note books for a good reason. Those who ‘do’ notes using the DIY approach have a pretty poor batting average. I’d suggest you take a look at Dave Van Horn’s site at PPR. He’s also a writer here, and also a note expert. His firm is the fund manager of my note fund, which specializes in first trust deed discounted notes.

  4. I’m 29 and have about $15000 in a 401k and another $8000 in an IRA, would i be able to consolidate these accounts into a self directed account and invest in notes? This has intrigued my for a while.
    Would I lose a portion of my 401k, either my contributions or my employers?

    • Jeff Brown

      If the IRA isn’t a Roth it can be rolled into a Solo 401k. Roth IRAs can’t. If your 401k is from a previous employer, it also can be rolled over. If it’s from your current employer it’s highly unlikely they’d allow it to happen.

  5. “A real estate investor throwing darts at a local map of small rental properties while blindfolded would retire infinitely better than the typical American has listening to the experts re: the stock market.”

    LMAO!! That was priceless and I appreciate the great laugh. Your statement is also very true. As I near 50, your articles are definitely convincing me that I need to consider notes as well as REI in my portfolio. Good stuff, Jeff!!

  6. Hi Jeff,

    “75% of all Americans claim their Social Security income at age 62?!” That is an amazing statistic to me. I wonder if Boomers really need that income at 62, or is someone like government employees giving Boomers “free advice” to keep the payouts lower.

    So nice to see you on BP again!

    • Sadly, many people do simply need that income. I will use my Dad as an example. He lost his job when he was 62. I wish he would’ve found another job and delayed drawing his SS, but he decided he had worked long enough. (He started working when he was 12 in the family business.)

      He was making more money not working at age 62 from SS and unemployment benefits than he had made at a job! Try convincing ANYONE to go find a job with those circumstances.

      Also, I knew he would not live as long as a I typical retiree. (He probably knew it too.) Although he had quit smoking years earlier, he was a 40 year smoker, and he drank more than he should too. His father died in early 60’s and mother in mid 70’s – family history was not on his side. (or mine!)

      He died a couple of months ago at the age of 71 (4 years longer than I thought he would…). Working the numbers, he came out tens of thousands of dollars ahead by taking his benefit at 62. Each person should let his individual circumstances dictate when to take benefits.

      FYI, the breakeven point for taking benefits at 62 vs FRA (full retirement age) is about 77 years of age. Use your family medical history and your personal health situation to make the best financial decision for you! Waiting until 70 for delayed benefits almost never benefits you unless you live well into your nineties.

      Plus, DO NOT underestimate the government’s ability to reduce (or eliminate!) SS payments in the future. Remember, you are talking about potentially 30 years in the future…

      • Jeff Brown

        All excellent points, Jason. Sounds as if your dad made the best decision available. The break-even numbers, as is often the case with income vs time, is a difficult topic. This is due to the fact that if the recipient doesn’t need the money at the earlier age, no matter how much longer they live after they begin taking a larger amount, it remains a larger amount. Make sense. I know a few people in my life who were also force to take it at 62, and it was a no-brainer for them, as it was for your dad.

  7. Jeff can you please source that stat on SS being taken by 75% of people at 62? Everyone I forwarded your article to was stunned by that revelation!

    How do Folks start looking into your note fund? can you provide a URL to Dave’s site if that is the place to start?


  8. Jeff, I am a boomer, one of the first as a matter of fact. I took SS at 62 and am happy I did. I was licensed just after you in 1971 and a broker since 1975. I have done most everything there is in this business and learned a lot of hard (and expensive) lessons along the way.
    I don’t want to rain on your parade, but I think some of the young people who have commented need to understand the risks associated with buying notes. These notes are not from a bank or insured by the Fed. These are seller carryback financing notes that are being sold at a steep discount by the seller of a property. There are reasons that a seller carries a note for a buyer: the house won’t appraise (for many reasons), the buyer has no credit, and many other reasons. When you buy a note from a broker, you must be assured that he has done his and your due diligence on this note. What if you are in AZ and the note is in IL. The payments stop in year two. What do you do now? Who is going to foreclose? who is going to evict the owner occupant? Do you know the foreclosure law in that state? What if the house has a serious material defect that has now become clear to the buyer and he cannot afford to fix it? (bad roof and rotted joists, there is no foundation, the owner just got mad, wrecked the house and walked away and the market has dropped below his note amount (2007-2011).
    I have personally been in each of the above cases and we lost money in every instance.
    The last issue is the if the buyer of the note gets a good stable note, he has to make sure that that $750 monthly goes directly into his payment account and not into his general checkbook. I have done this with too many clients, when after 12-18 months, they needed to spend that $750 and not pay down their own first t.d. That is just human nature, especially if you are older, retired and just want to have a little extra money.
    Other than that, it is a good plan.
    By the way, if the note buyer lives in CA, the state takes 10% cap gain on top of the fed. Other states have similar tax laws, so the buyers need to check with their accountant before embarking on this venture.

    • Jeff Brown

      Hey Steve — Not sure to what you’re referring as it relates to notes, but ALL of these notes about which I’m referring were originated by institution lenders, NOT private carry back notes. Furthermore, they’re first position notes, not second or any other sorta junior note.

      I’ve done notes since my first one in 1976, a 4th trust deed note on which I did quite well. My experience tells me that anyone who’s mostly lost on notes needs some expert advice. Though anyone who’s invested in many notes over many years will tell ya foreclosure happens, it has been for me, and should be for any other expert, or expert advised note investor. The first 35 years of my note investing sojourn was with nothing but private seller carry back notes, and I’ve done just fine. It’s about real knowledge, experience, and expertise. It always is.

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