I’ve learned over the years that most folks consciously opt for a retirement ‘plan’. This usually occurs to them as a good idea whenever they’ve reached a milestone — which to them signals a pivot point in their lives. With some it’s an age, usually between 30-45. For one client it was when their first born started high school. For a large minority it’s not wanting to retire as their parents have, which I can completely understand. Many investors have told me they’re their parents’ ‘Social Security’. Let that one simmer awhile.
So now they’re focused on Purposefully generating a generous retirement income. But where they generally begin is where they also stop. They begin with the choice of investment vehicle. Some like their employer’s 401K (an almost guaranteed loser), while others, who ‘know the stock market well’, opt to invest on their own account. Then there are those whose research convinces them to take the real estate investment route. Whatever vehicle(s) they choose, once they pull the trigger, their ‘plan’ then calls for time to take care of the rest.
That’s not planning. It’s barely better than hoping.
Besides the normal questions requiring real answers, the real estate investor lookin’ to retire on the fruits of their efforts must also pay close attention to their menu. It’s my experience most of those contacting me are unaware of some of the options on their retirement planning menus. Though we all don’t have access to the same number of options, we should at least know what they are, right? It should be noted that the questions needing to be asked are surprisingly easier than coming up with solid answers.
Let’s get the easy ones outa the way first.
- How old are you now?
- How many years ’til you want to retire? Be semi-reasonable with this one, ok?
- How much initial investment capital can you access within 1-6 weeks or so?
- How much is left over each month in the family budget? (Can it be increased?)
- Do you already own investment real estate? How much, etc.
We now know the ‘window’ of time available to make things happen. We know if your goal is at least semi-reasonable. We know with how much capital you’ll be able to begin. We have a decently reliable idea of how much money is available each month, if any, from the family budget to be used to enhance the Plan.
Here’s some good news. You’ll be surprised to learn that many people have underestimated what’s possible, given their circumstances. It changes from year to year, but anywhere from 30-50% of my conversations reveal this to be true. Sometimes the difference between perception and reality is stunning in a very positive sense. Let’s look at just a few of the second tier questions to which your retirement plan need answers.
- Depending upon the economic factors, both macro & micro, what strategy(s) will be put in place?
- Will any of these strategies be time sensitive? Why?
- Will there be another vehicle(s) brought into the plan, either initially, or at a more or less preplanned time, later?
- Will the plan’s retirement income arrive at the same ‘start date’, or will two or more income sources be triggered at different times?
- Does you plan allow wiggle room for the potential to influence if, or how much of the retirement income will be taxable, tax sheltered, or tax free?
- When retirement arrives, relatively speaking, how much flexibility will be available, when the ability to move quickly is crucial?
- Does your plan give you as much control as humanly possible? Or, does it rely on solid economic conditions and government largesse?
Those few additional queries are merely the tip of the iceberg. Yet most folks don’t get answers to them for one very valid reason: They didn’t know the questions to ask. It ain’t fair, but not knowing the answers to questions of which you’re unaware can literally hamstring your ability to produce seriously meaningful retirement income.
I’ll leave you with this thought.
Let’s say Frank’s birthday is June 15th, and he’s gonna turn 65 and retire. Let’s play ‘what if’.
What if, 30 years ago when he was 35, he was given two choice for retirement? The median income back then was around $18,500. That’s important to know so we can see assume his mindset back then when choosing the two options.
1. He’ll be guaranteed $56,000 a year before taxes in retirement income. This will assume his home is debt free, along with two free n’ clear cars. OR . . .
2. He can use his savings to put a small down payment on the modest duplex around the corner and build his own retirement.
It’s human nature, right? We know Frank’s gonna choose #1 almost every time. Why? When you were 35 and somebody guaranteed you triple the income you were making, wouldn’t you? Sounds like a pretty good deal, right? Let’s look at how it worked out for Frank’s dad.
Same choices, only #1 was even more enticing. He was asked back in 1965, when the median household income was $6-7,000 or so, if he’d rather have $35,000 a year before taxes, or buy the nearby duplex. Back then, Frank’s dad was thinkin’:
“Are they kiddin’?! That’s five times what I’m makin’ now, and I have kids, a house payment, and a car payment, which I surely won’t then. You bet I’ll take #1!”
Bet you’re gettin’ ahead me here, right?
How’d you like to be Frank’s dad? He’s been livin’ off of $35,000 a year, before taxes, since 1995. Anybody wanna volunteer to trade places with him? No? Didn’t expect so. The bad ending to Frank’s father’s story is why Frank will think long n’ hard about opting for door #2. See, he’s done the numbers, which as we know, are not built upon conjecture. We know what happened in those 30 years his daddy coulda been investing in real estate.
Even the most conservative approach would easily conclude the generation of a minimum of $100,000 annual income for his dad, had he gone the real estate investment route. Frankly (pun intended), it’s my professional opinion he coulda screwed up twice and still managed to produce more than $100,000 a year. Yeah, I’m thinkin’ Frank casts his vote for the second option.
Here’s the kicker.
From 1965 through 1995, the interest rates for investors fluctuated in the range of around 8-19%. Investment rate interest now? Try 4.5-5.5% the last couple years. Think that might’ve made things even better back in Frank’s dad’s day? Ya think? Yet he would’ve almost literally cruised into a retirement income of six figures. Given that reality, and I know it’s real cuz I’ve been in the biz for all but the first four years of that example, what do you think might be possible in your case?
Hhmm — a real poser, isn’t it?