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Everyone Has a Retirement Plan, But Most Fall Short. Here’s How to Be Different.

Jeff Brown
7 min read
Everyone Has a Retirement Plan, But Most Fall Short. Here’s How to Be Different.

How many fellow investors have you met who didn’t have a “plan”? Yeah, they all do, right? Thing is, as in all of life’s endeavors, there are plans, and there are plans. Decades of experience have helped me to evolve, having ended up with what I call a purposeful plan. Plain ‘n simple, it involves four separate “pillars,” which if the overall strategy is executed properly, generates additional horsepower due to serious synergy.

Ah, synergy, one of the favorite catch words of marketing folk everywhere. It’s likely one the most bastardized concepts in investing. Still, there are a couple simple tests we can apply to ensure real, empirically measurable synergy was created.

Let’s review the Four Pillars, in no particular oder of importance, then take a look at some real life case studies on how they were used interactively to produce synergistic results.

Note: Two “tests” can empirically show whether or not you’ve created actual synergistic results. The first one is simple: Did you get to your Point B faster than planned? The second test asks the question: Was Point B better than it would’ve been without the synergy you employed?

You need to have created at least one of those realities, though we often see both, which is much mo’ betta!

The Pillars

  1. Real estate. Specifically residential income property. This can at times include group investments.
  2. An insurance policy known as an EIUL. (Tax-free retirement income.)
  3. Discounted notes secured by real estate held in a Roth “wrapper.” (More tax-free income at retirement.)
  4. Discounted notes secured by real estate held in the investor’s own name.

Related: Does the 4% Retirement Spending Rule Still Hold Up—And Where Do Rentals Fit in?

Real Estate Income Property Investments

Right off the bat, let’s get this out in the open: Real estate investing isn’t for everybody. Some are simply too old, and for others, it simply does not fit their plan, or they’re uncomfortable with the whole idea. If we’re going to have debt on our investment real estate, it’s imperative, as we approach retirement, that debt has been eliminated. Otherwise, we end up with somewhere between 20-50% of the income we should be getting. Certainly that’s not part of anyone’s plan.

It hurts my heart every time I have to say this to an investor, but real estate investment property is far more likely to end up being the lowest yield, cash-on-cash, that you’ll have in retirement. I arrived at this conclusion after a couple decades of simply doing countless analyses and being ruthlessly honest with myself. Virtually everything in which folks invest, speaking only of the pillars, outperforms real estate. Whenever I say this, a minority of investors with whom I speak protest that in their case, that’s completely inaccurate. It doesn’t take long for me to ascertain that their real estate portfolio is located for the most part in areas where they likely would not want their mother to live. Yes, I realize that it is a high bar for location, but in the long run, the rule for real estate saying it’s all about location has proven to me to be staggeringly true—not to mention how very old buildings in less than stellar locations tend to go south right around retirement time.

So what then is the real benefit of arriving at retirement with a handsome real estate investment portfolio valued at two commas? Think about it as the bank of (your family name here). If you have a million or two in free and clear real estate investment property and you need some money relatively quickly, that property is likely the best answer. Your tenants are paying the payments for you. You don’t miss the cash flow much, especially considering the importance of the tax-free money received in only three to six weeks from your lender. But even better is the fact that you were able to avoid cannibalizing either your notes inside the Roth rapper, notes in your own name, or EIUL insurance policy, all of which out perform the real estate in the long run.


Notes in a Roth Wrapper

Understand that when I say notes I’m talking about discounted notes secured by real estate, in first position. (What’s first position? Simple—it means you’re the first loan to be paid off. If you should foreclose while in first position, you’ll end up with the property free ‘n clear of any loans.) For example, you might buy a $50,000 first position note on a house somewhere in the midwest or south for $40-45,000.

The total of your payments annually might amount to something like $4-5,000. Nobody knows when they’re going to pay off. Sometimes you luck out and it comes very quickly, while other times they can seem to go on forever. For the most part, you have little or no control over when that happens. My 42 years of note investing experience says 3-9 years is the very rough range for payoff. But don’t rely on that, as the fact remains it’s virtually always completely random. The thing is, notes can sometimes be loosely compared to bunnies. Keep them safe, pay attention to ’em, and before you know it, you have a lot more bunnies. This is especially true when interest rates are falling. People sell or refinance their homes when it becomes more affordable.

Note Foreclosure

Roll your eyes when you hear folks say you can pretty much avoid foreclosures by executing higher quality due diligence up front. They’re demonstrating a severe lack of experience, to be kind. I’ve had notes with double income borrowers, both earning six figures, sporting FICO scores beginning with an eight. Know what I discovered? Seems when both borrowers lose their jobs, their impressive FICO scores can’t make the home loan payments. Who knew, right? Foreclosures happen, period, end of sentence, over ‘n out. Hire a specialist to handle it and move on.

Back in the day, when I used to teach other professionals how to analyze the purchase of discounted notes, it always got fun when it was time to analyze the foreclosure scenario. I had one simple principle by which I operated with my own notes portfolio.

“If after you’ve analyzed the foreclosure scenario and you completely trust your conclusions, pause for a few seconds. Now imagine that you buy this note and you must foreclose on it. Does that thought make you want to jump up immediately and do the happy dance? If not, don’t buy the dang note!” 

Having notes in a self-directed Roth IRA or Solo 401(k) is one of the best deals around. Not only do you get to grow tax-free, when you’re ready to start taking retirement income, that income is also tax-free by IRS definition. It doesn’t get any better than that. Imagine growing tax-free for 10-35 years with an average annual yield in double digits. No, really, imagine it. I now have clients who have such an impressive tax-free note income, their incoming payments alone are buying new notes every year!

Related: Retirement Might Be Closer Than You Think—If You Do These Two Things

Notes Owned Personally

The difference here is that the interest received is taxed by most states and the IRS. This, of course, means that they’ll grow as a stand alone portfolio, much more slowly than when protected by a “Roth wrapper.” That’s the bad news. Here’s the great news: The after-tax income can be used to help you get to the Point B of your purposeful plan in the two ways discussed above, re: synergy. It could help you to get to retirement sooner than without them. Also, it could—and most likely will—significantly increase your after-tax retirement income.

Furthermore, once you retire, those notes keep randomly paying off, creating a sweet capital gain, virtually always long-term. Long-term cap gains are taxed almost always at a lower rate than the ordinary income tax rate. You then buy another note, slightly bigger in loan balance, hopefully with slightly bigger monthly payments. That’s known in some circles as gettin’ a raise in retirement.

One more thing to contemplate: For many investors owning real estate income property, excess unused depreciation will be used, in most instances, as a shelter for interest income from notes not protected by a tax-free entity. This sounds really good, right? Mostly it is, though it can speed up tax savings for which  the investor might be planning, as in the cost segregation strategy (CSS). (I’ve written about that strategy at length here on BiggerPockets.) It doesn’t screw things up, just moves up the tax benefits of the CSS to sooner rather than later.


The EIUL Insurance Policy

I won’t go into depth here, as this site isn’t about insurance. However, the majority of my clientele use this tool to create unfettered, independent, and tax-free retirement income! It can also be used to finance college expenses if begun for a child/grandchild by the time they’re three or younger. The minimum gestation period is at least 15 years, depending on each individual’s agenda. I have many clients who’ll benefit from EIUL income in six figures. One of ’em will exceed $200,000 a year! This will be in addition to his other pillars.

It can also be pivotal in creating what I’ve come to call a “bifurcated retirement.” That is, the ability to retire years before your other pillars are fully ready, bridging the income gap ’til those other investments are able to generate their share of retirement income. This allows the investor to sometimes quit their day job earlier than planned.


None of these investments are akin to rocket science. In fact, your purposeful plan for retirement should indeed be analogous to watching paint dry. Investors think they want an exciting plan, but the problem is that all excitement isn’t fun. For example, a traffic accident is indeed exciting, but none of us wants to be in that car, right? The only time we want pure excitement is at our retirement party!

Though we don’t need to be geniuses to execute our purposeful plan, we need to be honest to the max with ourselves. It’s not that all the DIYers out there don’t do well, because a ton of ’em do very well. But I can count on one hand the number of dyed in the wool DIY investors who couldn’t have done better, usually significantly better, if they’d simply brought seriously experienced pros onboard.

Make liberal use of highly experienced experts when investing in all of the pillars. It’s not just that they know more than you,and can fill in the blank spots in your knowledge. It’s that they can answer those questions you wouldn’t know to ask if you lived to be 150 years old. Those answers are not only priceless, they’re almost always the reason for a better retirement—or better yet, avoiding the pitfalls that can utterly destroy what should’ve been a magnificent retirement.

Finally, the use of strategies incorporating true synergy is central to increasing the odds of arriving at retirement sooner, with more income, or in the best of all cases, both. Plans not employing synergy will not, cannot produce the same results. Remember, everybody has a plan. Most of ’em fall short. Don’t be most investors.

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What does your purposeful plan involve?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.