Real Estate Articles » Money & Finance

Retirement Investing

By: Will Barnard
Submitted: 12:08PM on Monday 01 September 2008

Retirement planning can be a bumpy road. Without the right investment vehicle, you may outlive your savings or suffer a lower quality of life to make ends meet. The government doesn’t make it easy, either. Taxes, Medicaid, estate planning, and a variety of other factors add to the uncertainty, putting your financial security in question.

Retirement is your opportunity to live your dreams. Don’t spend it on a modest income or, even worse, burdening your family financially. With the right assistance and vehicle, you can guarantee income for the rest of your life, so you can enjoy your golden years without worrying about the finances.

Finding the right advisors and vehicle to provide a secure financial future for retirement isn’t easy. However selecting competent and proven professionals for your team is a must. A word of caution on this subject: financial advisors are not legally obligated to place your interests ahead of their own. Simply put, it is not illegal for an advisor to put you into a fund that pays a higher commission to the advisor rather than a fund that produces better results for you.

It is hard to believe that our government would allow an opportunity for financial professionals to take advantage of the investor, but make no mistake, the opportunity exists. This is not to say that all of these advisors would operate in this matter, but simply to inform you of the risks. There are ways to reduce this risk by educating yourself, interviewing advisors, asking specific questions, and investigating their credentials.

Let us take a look at what the majority of advisors suggest you do with your retirement funds:

IRA’s and 401k’s Invested in Stocks or Mutual Funds:
A $250,000 IRA account receiving a 10% rate of return from stocks or mutual funds would yield $25,000 of income and subject to taxation when withdrawn. You would also incur fees from your fund manager or stock broker thus reducing your profits. If your account had a bad year and lost 10% of its value, you would have to gain slightly over 11.1% just to recover the loss. Investing in the stock market can produce positive returns and build wealth for your retirement, but it should not be the only vehicle used.

Mutual Fund Payouts for Retirement:
Placing your retirement on the guess work of a fund manager is not our idea of a sound investment strategy. Retirees must also choose which funds to withdraw and at what amounts. If you live longer, you could run out of money. If the market crashes, your payouts would be reduced. You also may be in trouble if you under estimate how long you need the money. All withdrawals are also subject to taxation.

Annuities:
These accounts give you guaranteed income streams lasting as long as you do, however, they are very costly and lock you into a contract. In addition, if you are passed a certain age, you may not have enough time to fund the annuity.

Now let us take a look at what the wealthy and informed do:

Your retirement accounts are NOT LIMITED to stocks, bonds, and mutual funds. You may “self-direct” your retirement accounts giving you 100% control over your financial future. You may then invest these accounts in real estate and loans secured by real estate.

Real Estate:
Purchasing real estate provides monthly cash flow, annual tax benefits (outside of an IRA), and appreciation. Real estate also provides a much higher return on investment (ROI). When you consider the ability to leverage your retirement accounts with non-recourse bank loans utilizing a self-directed IRA, your retirement account will grow much faster and can continue to grow while you take withdrawals after retirement. The same $250,000 IRA account referenced above but invested in real estate could receive over twice the return at half (5%) the rate utilizing leverage. A large majority of this return could also be tax deferred or tax free when withdrawn by using advanced legal tax strategies.

Non-Recourse Loans:
This is a loan in which you do not personally guarantee. Only the investment property itself secures the loan. In other words, the lender may only look to the property alone for repayment and not your personal assets such as your home, car or credit. When utilizing leverage in your IRA, you are not allowed by the IRS to personally guarantee the loan, thus, standard mortgage loans are not permissible. These loans require a minimum of 30% down on rental properties and may require more depending on the condition of the property and the cash flow.

I encourage you to maximize the earning potential of your retirement account by placing funds into a self-directed IRA. Then invest those IRA funds in real estate and watch your nest egg grow giving you the retirement of your dreams.