Understanding What’s Important About Retirement Income — Besides Actually Having It
Posted @ 7:16 pm - Filed under 401(k)'s & IRA's, Depreciation, EIUL, Goals, IRS, Purposeful Planning, Real Estate Investing, Retirement Income, Tax Shelter
The subject of retirement is so overdone in so many parts of our culture, confusion reigns supreme — or so it seems to me. The horse is put before the cart so often, no wonder false ‘truths’ remain staples in so much of what Americans read on the subject. Words like ‘prudent’, ‘cautious’, and one of my all time favs, ‘diversification’ are thrown around as if they’re the equivalent of magic fairy dust.
Folks retiring well — defined as measurably superior — with and through real estate vastly outnumber those who’ve retired in all other ways. ‘Course most Americans have bought the weak, and frankly, illogical concept of 401s and IRAs. Take a step back and ask yourself why on earth you’d save a little over $100,000 in income taxes over 20-35 years for the privilege of paying 100-200% of that amount before you reached the 5th year of retirement? That’s insane. Yet it’s the mainstream approach — one that in my view will result in millions of Boomers working well into their 70’s.
Yes, real estate has its dark days the same as Wall Street. That’s not the point. But we all need somewhere to lay our heads at night — some will own that ’somewhere’ and some will rent it. Business needs the same thing — a place to do their thing, whatever it is. Though I’m not a fan of narrowly defined commercial property, much preferring residential income, history shows that long term, real estate is clearly more reliable when it comes to regular folk than anything else ya wanna mention.
So — what’s important about retirement income?
RESULTS — that’s what. Show me the income from any investment vehicle whose value has gone through the floor. Show me the ongoing tax benefits of anything else but real estate over the long run.
Reliable after tax income — predictably so — is what’s most important to retirees.
Nobody could’ve predicted all of what’s happened in the last 10 years or so. Though I’ve been right a heckuva lot more than I’ve been wrong, I’ve been wrong many times. But not when it comes to the foundational principles. Compare two couples ready to retire later this year. One relied upon the 401(k) plans at work, while the other was content to patiently invest in real estate and EIULs over a 35 year period.
How’s it workin’ for them? I’ll be short and to the point.
Even if we grant the ‘Wall Street’ couple a million bucks before the melt down, optimistically those accounts now add up to about $600,000 or so. Hardly retirement type money. If they sell all that stock the capital gains taxes will do even more damage. Income from dividends? Don’t make me laugh, as I’m tryin’ to be serious here. They’re in deep, long term trouble, and they know it.
The other couple has been at it for around 35 years. Even with the incredible hit real estate values have taken, their net equities easily total over $3 million. They’ve amassed silly amounts of unused depreciation — a fact which will, in their case, turbo charge their retirement about 10 years in. If they generate about 8% cash on cash on only 65% of their current equity, it will result in an approximate annual income of $160,000 — most if not all of which will be tax sheltered. The remaining equity will be turned into mostly cash (80% or so.) and immediately put into one or two EIULs. In 10 short years it will begin generating well over $100,000 in tax free annual income — for life.
Oh, and due to long term Planning, much if not all of the capital gains from the sale of said properties will be offset. They will pay little if any capital gains taxes. Remember, it’s about doing things on Purpose.
Both couples began their Plans in 1984. They were both 30. Both spouses worked. The only difference was how they viewed retirement, and which road they chose to get there. One will be working into their 70’s, while the other will be using their Social Security checks for pocket change.
Like most of life, gettin’ started, takin’ action is often the difference in the end. Over time, consistent action on your part will indeed make the difference for you too. Ask yourself though, if the couple who opted for their employers’ qualified retirement plans were negligent or not. In my opinion they were not, ‘cuz they were told by everybody in government, the tax code, and their professional advisors to do what they did. They worked hard, and sacrificed in order to make that plan work.
Bottom line? As I’ve been sayin’ since forever — long term real estate investing with a Purposeful Plan will prevail through thick and thin. The key phrase is ‘long term’.
Gimme a call at 619 889-7100 and we’ll talk about it. Have a good one.
This entry was posted on Tuesday, April 28th, 2009 at 7:16 pm and is filed under 401(k)'s & IRA's, Depreciation, EIUL, Goals, IRS, Purposeful Planning, Real Estate Investing, Retirement Income, 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.