Did you sacrifice your retirement plan for the house?

From Times staff writer Walter Hamilton:

The national housing obsession in recent years may have dulled the urge to invest in 401(k) retirement plans.

After expanding strongly throughout the 1990s, participation in 401(k) and other employee-funded retirement plans has grown more slowly in recent years, according to data released today by a Washington-based research group. (PDF of report highlights.)

The number of people investing in 401(k) and similar plans climbed from 42.2 million in 1995 to 50.9 million in 2000, the Employee Benefit Research Institute said. From there, though, participation rose only to 52.2 million through 2004, the institute said.

There are several reasons for that, including fewer small companies offering plans and lingering investor concerns about the stock market after the bursting of the technology bubble in 2000, said Craig Copeland, author of the study.

But the preoccupation with housing played a role, Copeland said, as some people earmarked cash for new or remodeled dwellings as home prices surged instead of funding retirement accounts.

People considered housing to be "the big investment," he said.

Of course, for some people, their home is their retirement plan. But with prices now sliding, the long-term payoff may be a lot less certain.

As for 401(k) plans, the mean annual contribution amount inched up from $4,607 in 2001 to $4,993 in 2005, according to the study.

Plan participation rates are likely to pick up in coming years because the government has given companies legal clearance to automatically enroll workers in 401(k)s.

Nevertheless, the study showed that many people still fail to put enough emphasis of retirement saving, Copeland said. "It shows that people aren't getting the message that they're going to have to do more to plan for their retirement," he said.

Comments

[Brahma]

There is a reason that people direct funds into the Real Estate they own rather than fund 401(k) accounts. And that reason is that most people know intuitively, if not explicitly, that investing in the stock market is a fool's errand, even after you take into account the extra level of indirection present when you're contributing to a 401(k) and from there into one or more mutual funds.

The Wall Street Journal reported on 26 Mar 2007 that the stock market, as measured by the S&P 500, was trading exactly right where it was nine years previous. When taking inflation and the fees you pay to support your fund manager's Bolivian marching powder habit into account, that means you lost money. Most mutual funds lose money, Louis Lowenstein wrote a whole book about it.

Even taking into account the declines in Real Estate value over the past two years, does anyone seriously think that property values are going back to where they were in 2001? No? That tells you which one was the better investment, long term.

[Jeff]

What a joke Brahma.

Look at one seriously distorted period of history and generalize.

Let's see, 9 years ago was a bubble peak in the stock market.
Now we are just coming off a bubble peak in real estate.
And you want to compare the returns in this 9 year period.

That is NOT the long term and it just shows your ignorance.
Does anyone expect real estatte prices back to 2001. Oh yeah! Especially in areas where real estate has ridiculously outperformed the market.

Investing in the stock market is not for fools. Over time you can expect 13% returns (the average return over the last century.)

Real estate generally returns 8-10% although the studies show more variability.

There are plusses and minuses to both. Your home is mostly exempt from cap gains tax as a resident but you have to pay property taxes and more important must spend money to maintain the investment.

Stocks cost nothing to maintain but have a cap gains tax (which is a low rate these days) at time of sale.

They are both reasonable investments but only fools think the current situation is sustainable. 9 years from now you will be lucky if Real Estate has gone up a single percent from now.

By the way, you want to play with numbers? Fine. If you invested in 2002 in the S&P you are up 75%.

[Robert Laughing]

Can any article/research piece ACCURATELY cover either property, or the stock markets? Real estate is very local, and let's face it, buy beach property, limited availability like Lake Tahoe, Aspen, Pebble Beach, and you have a gold mine, when you time it well. Buy Michigan, Oklahoma (non-oil!), Florida, etc, and you got lots of dirt....maybe. Many folks HAVE made, and HARVESTED, a small-to-large fortune in R.E. Many have been fattened like a flock of sheep and have been eaten alive. Some learn, many don't; Life appears to be not much more than the child-like game of musical chairs....you don't wanna be the last ones to the Party.

[jeff]

Agreed timing is important but the biggest thing about "making a fortune" in real estate is it is one of the few investments where people are comfortable using leverage. If people bought stocks on margin to the degree they do with real estate there would be a lot more fortunes made (although a lot more fortunes lost).

[Rocky]

When it comes to real estate investing, people in the major coastal metro areas of California have been spoiled since around 1975. Restrictive zoning and Proposition 13 have contributed to very strong residential real estate markets in these areas during this period. But if you had been a resident of Detroit instead, your real estate returns would have been much lower, maybe even negative in some neighborhoods. A few months ago, I saw an Internet listing for a mansion in Detroit for under $1million. The 16,500 sq. ft. house had been commissioned by a member of the wealthy Fisher family (as in Body by Fisher) around 1916. The same house in Beverly Hills or San Francisco's Pacific Heights would go for well over $10 million.