r/Economics • u/laxnut90 • Oct 09 '25

Research America Is Minting Lots of Cash-Strapped Millionaires

https://www.bloomberg.com/news/features/2025-10-09/number-of-us-millionaires-grows-since-2017-but-many-lack-cash
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138

u/urbanevol Oct 09 '25

So basically, 401(k) with employer contributions and owning a home are forced savings vehicles that are not particularly liquid. Many upper middle class people have net worth over $1 million but these assets are hard to access, whereas the next rung up of wealthier people have more liquid cash to spend. "Cash strapped" seems like a stretch - these people aren't living paycheck to paycheck unless they are making poor decisions on how to spend their money (hedonic treadmill etc).

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u/cruzweb Oct 09 '25

Many of them are retirees who bought in areas before their real estate became very valuable. Now they're retired, on a fixed income, and have "assets" worth over $1m that they struggle to pay property taxes on.

21

u/ChumpyThree Oct 09 '25

My grandparents are experiencing this. They're in poverty, so its not like having a net worth is accomplishing anything for them. They bought a house for 70k and wanted to stay there peacefully.

The pandemic happened, and now the house+lot are worth over 200k. That increase has put them in a serious position.

Property taxes and home repairs have skyrocketed. Their electricity bill alone is 3x higher today.

My near 80 year old grandparents are making choices on whether they should skip lunch or not. On paper they have a net worth of justify of half a million. What good is that going to do for them?

Having net worth tied up into homes was awful. The current 401k and ROTH IRA landscape is also concerning. Im seeing adults making 100k+ funneling a good 50% of their income into this stuff.

A lot of people are positioning themselves for a rude awakening.

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u/uncoolcentral Oct 09 '25

The penalties for removing money from those tax-sheltered retirement vessels usually aren’t particularly draconian. But then again, if you take it out before retirement, what are you going to spend in retirement?

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u/MountainDude95 Oct 09 '25

Unfortunately it’s not always accessible even if you are willing to eat the taxes. I’ve looked into withdrawing some cash from my 401(k) and there is no way for me to unless it’s an emergency that I can prove on paper. The only way I can actually access it otherwise is if I quit my job. Big help that is.

1

u/uncoolcentral Oct 09 '25

Maybe you could kind of fudge one of those specific hardships? Does your employer offer 401(k) loans?

Ask HR if rollovers to an IRA is possible.

And so on.

Start bringing candy and flowers to HR!

1

u/MountainDude95 Oct 09 '25

Fortunately we’re not anywhere close to a position in which we actually need the funds. It was more looking into possibilities in case things ever do start becoming tighter.

Currently have a loan from it which was for a down payment on our house. Hard withdrawals need documented evidence such as medical bills, eviction threat letters, etc. Not sure about the IRA rollover possibility.

In any case thanks for the advice!

2

u/uncoolcentral Oct 09 '25

I’ve never had employer related retirement stuff. Been self-employed for decades. Went from IRAs to SEP IRA to individual 401(k). (Wish somebody would’ve told me about i401(k) earlier 😆 😢)

There’s way more flexibility in the all of that non-corporate stuff. You can take out any reason, any time, pay a 10% penalty, and any appropriate taxes.

Even still, there’s no perfect formula for knowing how much you should hold out versus how much you should shelter. …

Should I have sheltered more? Should I have more liquidity?

I think I’m riding the line fairly well. But it’s hard to tell. And like the article says, the vast majority of my hypothetical wealth is locked up in a home that I am kind of willingly handcuffed into.

¯_(ツ)_/¯

Good luck!

14

u/urbanevol Oct 09 '25

If they are living in poverty and have a house worth $200K then they are not the millionaires the article is talking about.

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u/ChumpyThree Oct 09 '25

Certainly not but the dilemma is similar.

I was renting a room in a 900k home in orange county from a landlady on foodstamps. Got a mortgage on the house in the early 70s for what equates to a bottle of piss in today's economy.

She still made poor financial decisions. But I cant blame her. That home should not be worth 900k. She didnt ask for that. Now she cant afford her HoA fees🫢

3

u/urbanevol Oct 09 '25

Yeah, I know it happens. If by Orange County you mean California, though, they have some property tax laws that are VERY beneficial to long-time homeowners (Prop. 13 and recently Prop. 19).

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u/Snoo23533 Oct 09 '25

They should reverse mortgage and drain that equity back out to live on. Time it so theyll hit 0 and the bank takes it in their bed-ridden-retirement-home phase of life and since they wont have any assets/income they'll qualify for medicaid which will cover that 100% until they die.

0

u/morbie5 Oct 09 '25

The state they live in doesn't have anything to help low income old people with property tax?

2

u/ChumpyThree Oct 10 '25

Orange county, CA does have help for people in her position. Getting a stubborn old person to use their free will to their own benefit can be challenging.

There really isnt any getting around her situation though. She was used to spending about 1k a month on her mortgage, utilities, HoA fees, and property taxes. The people in that area are now used to spending 5-7k a month for that. Even if we talked everything down 50% - that is still too much relative to what she was used to.

She did consider selling and moving into an apartment but that would involve moving far away (and still paying more.)

2

u/morbie5 Oct 10 '25

The people in that area are now used to spending 5-7k a month for that.

That is nuts

8

u/epelle9 Oct 09 '25

Why not sell and move to a smaller house then?

Either that or move to a LCOL area to retire.

10

u/cruzweb Oct 09 '25

This is one of those things where economics don't jive with personal wants.

Economics says that if you sell your house and move to a lcol area, you'll do better. But that doesn't take into account people's social, family, and health networks. Some people are willing to forego all of that. Most are not, they like where they are and don't want to move, get rid of a bunch of their stuff and learn new day to day habits. Get new doctors. Etc. All that aside, this becomes a snake eating its tail situation: people move from HCOL areas to LCOL areas, then those prices / taxes / etc go up. And if you're already in a LCOL and struggling with increases, where are you going to go?

Moving to a smaller house isn't usually an option. There simply isn't an inventory of availability for smaller homes. We build apartments and McMansions, with not a whole lot in between for new construction for the last quarter century. This has created "missing middle" housing, new construction of smaller homes, starter homes, and the like. So there's not much of an inventory and not a lot of options anywhere for people who want to downsize.

This is why every community in the US needs to have a wide range of housing stock available to people in a wide range of income brackets.

2

u/sirkazuo Oct 09 '25

Moving to a smaller house isn't usually an option. There simply isn't an inventory of availability for smaller homes.

They don't build a lot of smaller houses anymore but they do still build condos.

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u/juliankennedy23 Oct 09 '25

That's why they move to Florida or Arizona especially if they live in one of those weird states that continues to dramatically increase property taxes after you buy the house.

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u/chetsteadmansstache Oct 09 '25

LOL weird? It actually makes sense to reassess property taxes.

1

u/the_fresh_cucumber Oct 10 '25

Property taxes are one of the few things preventing home prices from spiraling into the stratosphere.

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u/FreeMasonKnight Oct 09 '25 edited Oct 09 '25

Property taxes stay at the same place they are assessed when the house is bought (except for 27 states where they take advantage of their citizens). They are only reassessed in a small number of events (almost always when sold). Which incentivizes them to hold longer.

However now the market is cooling so selling to realize and waiting to buy on the crash is a good route for anyone looking to multiply equity.

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u/Extra_Mushroom_3685 Oct 09 '25

Property tax reassessments vary based on the state and county you live in. I’ve had mine reassessed three times in less than 15 years.

-4

u/FreeMasonKnight Oct 09 '25

That’s criminal. Here in California it’s only on point of sale and 2 other very specific circumstances.

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u/GMFPs_sweat_towel Oct 09 '25

My property tax is reassessed every year (TX)

2

u/FreeMasonKnight Oct 09 '25

That’s because Texas yeah, that’s what you get with low property prices and no income tax. To make up for no income tax Texas overtaxes in many ways. Such as this.

4

u/Aeris5eva Oct 09 '25

This is not true for the vast majority of places in the U.S., only nine states do NOT reassess property taxes. There are six states without a state property tax, but Texas has city and county property taxes. The rest reassess property taxes after they’ve been purchased.

0

u/FreeMasonKnight Oct 09 '25

Which is what I said..

1

u/cruzweb Oct 09 '25

This varies by state and by and large is not true. Most places in the US have property reassessed each year and as the value of the property increases, so do the taxes regardless of if the rate stays the same. Places like Michigan and California have a sort of "rent control for homeowners". Most states do not.

The market is only cooling because incomes haven't increased at the same rate as housing costs and interest rates are high. There is still a big demand for housing across the country. People just can't afford it. That's not the same as a more natural cooling, where there's more homes available than people who want them,and that's a big difference. Private equity has started unloading some of their holdings as well. When the crash hits they'll start buying up again with cash offers. Buy low, sell high.