Real Estate and Retirement Planning (2024)

FAQs

How do I use my real estate as a retirement plan? ›

Rental real estate can be a good source of retirement income. The relative inefficiency of the real estate market can produce bargains that offer strong returns. Do so before you retire if you have to borrow to buy a rental property. Choosing a good location is more important than finding the cheapest property.

It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

Simply divide the amount of monthly income you need by the cash flow each property generates. For example, if you need $2,000 per month to get by in retirement, then you'd need four properties that generate $500 each. That's an easy calculation to make on paper, and one that ignores a whole lot of real-world wrinkles.

Here are some of the key pros of investing in real estate to fund your retirement: It generates passive income through rental properties. Diversifies your retirement portfolio, reducing reliance on stock market volatility. Potential for property appreciation over time, contributing to retirement wealth.

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

In more than 20 U.S. states, a million-dollar nest egg can cover retirees' living expenses for at least 20 years, a new analysis shows. It's worth noting that most Americans are nowhere near having that much money socked away.

Housing. Housing—which includes mortgage, rent, property tax, insurance, maintenance and repair costs—is the largest expense for retirees.

However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.

In fact, if you were to retire even 15 years from 2021, $53,600 would be about $79,544 in 2036 dollars, assuming a 2.5% inflation rate from now until then. Using that as your annual expenses, you could retire for about 25 years on $2 million.

How long will 500k last in retirement? ›

Yes, it is possible to retire comfortably on $500k. This amount allows for an annual withdrawal of $20,000 from the age of 60 to 85, covering 25 years. If $20,000 a year, or $1,667 a month, meets your lifestyle needs, then $500k is enough for your retirement.

While retiring at 55 with $1 million may be possible, it requires planning and a watchful financial eye. "Most people are living into their 90s, so the $1 million will have to last 35-plus years," says Aviva Pinto, managing director of Wealthspire Advisors in New York City.

It's definitely possible, but there are several factors to consider—including cost of living, the taxes you'll owe on your withdrawals, and how you want to live in retirement—when thinking about how much money you'll need to retire in the future.

Retiring at 40 with $2 million is possible, though it is a lofty goal, especially if you don't have a large inheritance or some other windfall. But it can be done if your income is high sufficient and if you are aggressive with your savings strategy.

Real estate investing offers distinct tax advantages.

This benefit alone can save you a significant amount of money in taxes. Your taxable income is further reduced by being able to deduct things like mortgage expenses as well as property taxes and maintenance costs.

But staying put doesn't mean you can't leverage your home's value in retirement. After paying off your mortgage or building up equity in your home, you may wish to consider renting it out or tapping its equity to support retirement, especially in a hot housing market.

There is another path to early retirement that doesn't involve a bridge account, and that's investing in real estate. Real estate investing isn't for everybody, but if done the right way, rental properties can provide you with a steady flow of income.

SEP IRA. A Simplified Employee Pension (SEP) IRA can be established by a business or sole proprietor. It's often used by a small business of real estate agents with few or no employees. A SEP IRA allows you to make higher tax-deductible contributions than a traditional IRA.