9. Don't Retire Poor
Brooke and Dan discuss some assumptions and pitfalls of the standard retirement model. But maybe there's another way outside of your standard retirement model to get to your goals. You can even retire sooner or gain financial independence faster with the help of real estate.
Have you thought about your retirement? I mean, have you REALLY thought about and planned for your retirement? If you’re the average american worker, you know that saving money is good, too much debt is bad, and saving for retirement in an IRA, 401k, or other vehicle is important too but you probably don’t put enough away. Maybe you’ve even thought about how much you might need to save out of every paycheck and dutifully put that money away. Then over the years, your retirement assets grow tax free until you reach an age where you’re eligible to take them out. Then you can hang up your hat, pick up your golf clubs and march off into the sunset of your golden years living happily ever after. I mean, that’s what we’re all told, right?
This is episode one of a multi part series on retirement
In this episode, let’s take a look at how real estate can augment or even replace the traditional retirement model
Let’s take a look at some assumptions regarding retirement and see if common sense tells us that we might need another plan:
-Your house is paid off and you no longer need as much income to pay a mortgage.
-But what if you refinanced 10 years ago to put the kids through school? Pay medical bills? Or put new siding on the house? You’ll still need to cover that refinanced mortgage in retirement.
-Your retirement savings and social security (if it’s still around then) will be enough to support you.
-Did you put enough into your retirement? What if your retirement accounts took a big hit as the market dipped right as you retired?
-You’ll be in a lower tax bracket because you won’t be making as much money
-Sure, but who wants to retire poor? Doesn’t everyone want to live their life more when they’ve retired? Also, that 401k and IRA money you’ll be pulling out will be taxed at the higher earned income rates. That money went in tax free and grew tax free but the government still wants its share when you withdraw!
-You’re required to become an adept investor in charge of your own retirement investments.
-In the industrial age the company you worked for provided you with a pension that was supposed to take care of you- as long as the pension was managed well. Those don’t exist anymore. Now your employer signs up for a retirement plan with a large company and you get to pick from one or two dozen mutual funds. You have absolutely no control over those mutual funds and they will probably underperform the stock market as a whole throughout their life. There’s a multitude of investment choices out there that you can’t even touch with your employer sponsored plan.
-Ever know someone who retired and promptly moved into a smaller house, sold the boat, sold the RV and whatever other expensive toy they had since they didn’t have the income to support them any longer? Common sense tells me that I’d want to use the Boat or RV MORE in retirement!
Oh yea, and all that money you put away can’t be touched without penalty until you’re 59 and a half. But what if you want to retire early and socking money away you can’t touch is of no use to you? Or what if you want to rely on something other than Wall Street for your retirement?
Clearly, this is a Real Estate podcast so we are going to tell you how to tackle this issue with Real Estate, but of course, there’s more than one way to reach your goals outside of wall street.
Let’s consider some advantages of real estate over Wall Street:
-You can invest with cash OR your retirement money (we’ll cover that in the next episode)
-You can share the cost of buying the property with the bank by getting a loan on the property. The cool thing is you only pay 25% down, but you get to keep all the tax advantages, rents, and maintain complete control of the asset. You can’t do that with your wall street retirement portfolio, can you?
-You can benefit from a real estate investment now. You don’t have to wait until 59 and a half.
-The real estate market can and does fluctuate. But nowhere near as dramatically as the stock market. The real estate market is also much harder if not impossible to manipulate compared to the stock market. Real Estate is a hard asset just like gold or silver. It will always have value since everyone needs a place to live and do business.
-There are many tax advantages to owning real estate. The IRS even allows you to sell your property and buy another of greater value without paying capital gains tax. We’ll have another episode on that as well.