Planning Your Way To A Retirement Between A Rock And A Very Hard Place
Posted @ 10:48 pm - Filed under Real Estate Investing, Purposeful Planning, Retirement, Retirement Income, Investment Lessons, Depreciation, BawldGuy Axiom, Tax Shelter
Though I touched on Grandpa Economics yesterday, there’s something begging to be added to the mix. This afternoon I had a very interesting conversation with a house agent from the midwest. He told me of an investor who’d retired at 39 after he’d paid of the last of his five local duplexes.
The agent commented he should have done the same thing, and expressed regret he hadn’t. I replied he wouldn’t be even considering that approach if he worked with us, which he is strongly considering. What? Huh? Why not?
Hint: Would you plan on putting yourself between a rock and a hard place on Purpose?
Simple — The man’s 39 years old, quit his job, and is now living on whatever net income he can squeeze from his five free and clear duplexes. The duplexes weren’t pups when he bought ‘em, so imagine what they’re gonna be 10-30 years down the road. Talk about some high maintenance costs. Also, he’s owned these units for about 8-13 years. His depreciation (read: tax shelter) will begin disappearing forever when he’s only 53 or so. Before he’s 60 his income will be essentially defenseless against the annual onslaught of April 15th.
Can anyone, or everyone scream Purposeful Planning is missing here?
What are the chances the increase in rents over the years (an optimistic assumption for this region) will overcome simultaneous increases in his repair and maintenance costs? Between his unprotected tax status and ever increasing operating expenses, his so-called retirement income will become a constant struggle. If, down the road, the neighborhood goes south because of any downward local trend, he’s doubly in peril.
Even if we give him the best of all scenarios, he has so thoroughly and expertly put himself between a rock and a hard place, it’s only a matter of time before he realizes his precarious position. The real question?
Will it be too late?
Sure, he’s retired at 39 with what is at most $70,000 a year net income — before taxes. Only about 40-50% of that figure is currently sheltered, which will end as mentioned above — and way too soon for his liking.
Do I have an alternative? Of course. Do I have a mid-course correction for this investor? You bet.
Here’s the first step of my answer for you readers who are embarked on this ‘buy income property and get it free and clear approach’.
Stop! The results will have you living in the Land of Eternal Regret when you least need to find yourself there.
BawldGuy Axiom: The words ‘Free & Clear’ have no magical powers. In fact they’re often the central figures in Grandpa Economics’ ‘Rock and a Hard Place’ Plan.
It’s a sucker bet, with unintended consequences that will break your heart just as you’re ready to head happily into your retirement sunset.
Contact me and find out what you should be doing instead. It’s those conversations that make my days so worthwhile.
Uh, hhelllooooo? Yer not clicking the Contact BawldGuy thingy! It works every time, I promise. 
This entry was posted on Monday, April 28th, 2008 at 10:48 pm and is filed under Real Estate Investing, Purposeful Planning, Retirement, Retirement Income, Investment Lessons, Depreciation, BawldGuy Axiom, Tax Shelter. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
