How would you rather spend your retirement? Vacationing perhaps, absorbing fanciful sights, smells and tastes from all over the world. Even if your vision of retirement doesn’t have a lot of vacationing in it, I bet this period is one where you want to relax and enjoy your work-free years.
But there’s a catch: to have this utterly relaxed and laid-back life at your fingertips, you need to have enough money at retirement! Here comes the need for a pension plan that covers all of the living costs of retirement, and truth be told, this has become a nightmare for soon-to-be retirees.
Back in the day, companies were known to guarantee specific incomes for retirement of their workers (more like salaries), but most pension plans available today will only contribute pre-decided amounts to your pension account for you to live on in retirement. Is saving one’s money in a 401K account for retirement a smart choice?
The Drawbacks of Saving for Retirement
Setting aside money in a 401K account might seem like the least risky option, but it may not give you the life you want post-retirement.
Even if you save 15% of your income every month for 30 years (most people aren’t able to hit this mark), after adjusting for inflation, you’d be left with not much money! Certainly, this person would be unable to enjoy vacationing or the finer things of life in old age. Sadly, for this reason, lots of workers are pushing back their retirement and choosing to work for longer years.
A Wiser Retirement Model?
Some retirees consider investing in bonds and stocks as part of their retirement savings plans, but another wise alternative is to consider running a couple of rental properties as a pension plan. How do you manage rental properties as a savvy entrepreneur before retirement?
Creating a Workable Plan for Retirement: Manage Rental Properties
If you want to have enough passive income from rent, your plan should be to own $1.5 million in real estate apart from the home you’re living in, at retirement.
Let us assume you’re able to purchase your own home at the age of 25 and subsequently you buy the second, third, fourth and fifth properties at 5 year intervals i.e. at 30, 35, 40 and 45 years respectively; with each of them having an amortization of 25 or 30 years.
The money accrued from rent would cover all costs including property tax and maintenance, and the only thing you have to contribute from your own funds would be a small fraction of the monthly mortgage payments.
If you’re able to do this consistently, by retirement you’d own four rental properties (total value of $1.5M), and after taking out maintenance costs, you’d be left with an annual revenue of $50,000 (going by today’s value). You’d also have completely taken care of the mortgage and that means your revenue would be absolute (you don’t have to take a mortgage out of it). If you need any additional income, you can also sell off any of your properties.
While the process of setting up your real estate might be a bit rigorous, it’s always helpful to work with experienced residential realtors who provide cash back from their commission, as the total amount you’d spend would be way less with this approach.
Retirement can be an amazing period of rest and rejuvenation if you make requisite plans towards it. By owning a couple of rental properties, you can eliminate financial worries from your later years.