Don’t Believe Synergy Can Have a Powerful Effect on Retirement Income? Read THIS!

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I’m currently working with three families whose sons are helping their moms safely maximize their retirement years. A couple of these ladies are already retired; one’s still working at 68. The working mom is making around $28,000 a year, pre-tax. She owns a very modest home, which is now debt free. She has no assets other than a now self-directed IRA. The other two have impressive assets available, but according to their sons, these assets are woefully underperforming when it comes to income. After assessing the data provided by those two, I concur. What’s the one thing you might surmise they have in common?

None of the three should be putting money earmarked for their retirement income into real estate. 🙂 

There is a small percentage of investor-clients who gets that advice from me. They’re almost always at least a little surprised, as it comes from the owner of a real estate investment brokerage. There are a couple reasons that can cause me to conclude that advice is warranted.

  1. Their timeline to retirement isn’t nearly long enough to eliminate the real estate debt.
  2. The yield pales in comparison to other options.

Sometimes it’s both. In the three above examples, it makes no sense to put these ladies into single-digit cash flow yields, when double digits are readily available. Not only available, but with a couple factors built in. Discounted notes in first position not only offer built-in capital gains, but also, and far more crucial to these women, a Plan B if the you-know-what hits the fan. To review, notes offer them higher cash flow and profit.

The mom with the low income and the least money needs some help only her sons can offer. At around a $225,000 balance in her pre-tax IRAs, she needs to convert that into Roth money. The cost incurred doing that will be significant for sure. This is where her two sons, both currently serving in the military, are stepping up. They’ve volunteered to pay her taxes during the two-calendar-year process. This will ensure her income will be somewhere in the range of $23-27,000 yearly, all of which will be tax-free.

Furthermore, since she’s close to 70.5 years old, she’ll have dodged the “RMD” bullet. Required minimum distributions are what happen when you have balances in most other retirement plans other than Roth IRAs. I’d hafta ask my in-house expert on the topic if the Roth IRA is the only escapee from RMDs. Suffice it to say, she won’t have the government knockin’ on her door at that age. Are her boys the best, or what?!

The other two moms will be investing in a note fund and a private note investment group. They both deal in first position notes secured by real estate. They’ll not be in the fund to acquire notes for themselves. It’ll be for the double-digit preferred return, which at the moment is 12% (3-year commitment). The group invests in notes too, but the individual investors don’t take title to them; the group does. In both cases, they’ll enjoy double-digit yields with much protection and the ol’ Plan B built in.


Related: The Boring, Plain Vanilla Retirement Strategy With AWESOME Results (No High Paying Job Needed!)


First off, I abhor the whole investment concept of synergy in today’s world of slick marketing. We’ve all seen the promises offered all over the internet, TV, and radio offering “systems” guaranteed to create an irresistible synergy resulting in riches and/or income beyond our wildest dreams. Print out all the words used in the marketing piece. Put that piece of paper in a crosscut shredder, then take the confetti and spread it evenly over your front lawn, watering generously. In a week or two, you’ll have the greenest lawn on the block. 🙂

Here’s the failsafe way my mentors taught me to evaluate whether or not so-called synergy had actually been activated. Simply look at the bottom line. One or both of two things needs to have happened for you:

  1. You arrived at your retirement plan’s Point B sooner than targeted.
  2. You arrived at Point B with more retirement income than planned.

Generally speaking, I’ve found that both apply to over half of investors who’ve wisely employed synergy into their purposeful plan. It’s not universally true by any means, but I see it easily more than half the time.

What Does Synergy Look Like While Investing for Retirement?

No rocket science here, people. I have four “pillars” in purposeful planning — 1) Real estate, 2) an EIUL (or two), 3) discounted notes in your own name, and 4) discounted notes in a Roth “wrapper.” Here are many, though certainly not all, the ways investors create real synergy with those four possibilities:

  • Investment real estate cash flow used to increase the velocity of real estate debt elimination.
  • Investment real estate cash flow applied to premiums for an EIUL.
  • Investment real estate cash flow used to max out contributions to self-directed IRA(s), preferably Roth.
  • Investment real estate cash flow used to pay off primary residence debt.
  • After-tax note income used to increase the velocity of real estate debt elimination.
  • After-tax note income used to fund EIUL premiums.
  • After-tax note income used to fund/max out contributions to self-directed IRA(s), hopefully Roth.
  • After-tax note income used to pay off primary residence debt.
  • Profits (virtually untaxed through our cost segregation strategy) from the sale of investment real estate to fund the doubling or tripling of the sold property. Or funding a five premium EIUL with equal payments over four years and a day.
  • Profits (virtually untaxed through our cost segregation strategy) from the sale of investment real estate to fund the purchase of discounted notes. Income which will, you guessed it, be applied to one or more of the above.
  • Profits (virtually untaxed through our cost segregation strategy) from the sale of investment real estate to fund the cash purchase of a second or retirement vacation home or condo.

Again, that’s not the whole list of what’s possible. Also, and this is critical to remember, there are no easy-to-follow formulas for the use of synergy in this context. One of the costliest lessons I’ve ever learned is that formulas in general are not to be given the gravity most wish they had. In fact, over the 40+ years I’ve owned a real estate investment brokerage, formulas have come ‘n gone like teenage fads. There’s this rule and that rule. We’re told to “never violate this formula” and you’ll be fine. Gimme a break. Here’s the truth about far too many of these.

They tend to work like crazy — ’til the day they don’t. Here’s what some very wise men taught me as a young man with a whole lotta book learnin’ and no real experience or knowledge gained from repetitions of actually DOING.

Never trust an investment principle younger than 500 years old.

What Else Happens When Real Synergy is Applied?

An example could be the application of some or all of the oftentimes tax-free profits from the cost segregation strategy to the enlargement of your personal note portfolio. The more income from notes, the faster you might pay off a rental, or six. 🙂

Meanwhile, notes, being like bunnies, tend to multiply over time. Organically, you get to see much faster growth of both net worth and current/future note income. Sure, synergy got you those extra notes, but they randomly pay off and pretty much do what they do naturally, which is grow in size and multiply in number.

All ’cause you used profits from a completely separate strategy.

Or how ’bout an ongoing, real time example? A client with all four pillars rockin’ ‘n rollin’ is about to cash in on an unanticipated windfall. His Texas real estate investments have appreciated markedly. In fact, he’s ready to close on a refi of six of ’em to the tune of scoring around $400,000 in tax-free cash. He’ll still be able to pay them off in full in the next nine years, the “first stage” of what I call his bifurcated retirement. The income from this money, which will be put into discounted notes/land contracts yielding cash on cash returns of roughly 10-13%, will aid handsomely in the payoff of the six refi loans. All properties still cash flow, and the LTV will be no higher than 70-75%.


Related: 4 Powerful Ways Real Estate Can Make You a Millionaire

Not only will he hit his “first” retirement with at least $10,000/month cash flow from these rentals, but by then, his before tax note income from the notes purchased nine years earlier will likely be in the range of $6,000-8,000 monthly.

That’s income he never would’ve had but for the employment of direct synergy.

What that boils down to is his income in retirement at 50 will literally be $70,000-96,000 higher than if this windfall and synergistic approach didn’t happen. Sometimes life gives us the best lemonade ever, right?

But wait, there’s more!

Sometime around 60 to 62 or so he’ll begin receiving tax-free income from a couple EIULs. This will be in the neighborhood of $150,000 yearly. The key point to ponder is that almost half of that income wouldn’t even exist but for the synergistic distribution of the booty deriving from the after-tax profits of the sale of a few rentals via the cost segregation strategy.

Bottom Line?

His retirement income at both 50 and 62 using no synergy whatsoever would have been around 60%, give or take of the income he will be receiving having employed the principle of synergy. In his case, beginning at the second stage of his retirement plan, he’ll easily have more than an extra $10,000 monthly — more likely around $15,000.

Real synergistic results are easy to see. They don’t tend to hide. The best part? None of it is rocket science.

Are you using synergy to power your retirement? Questions about this strategy?

Let me know with a comment!

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Hey Jeff,

    Always enjoy your articles and writing style, thanks for contributing and providing these great ideas to the community.

    I’m curious why ya would choose to convert the 225K to Roth all at once when with the low income in the example, splitting over her next couple earning years or not at all would save thousands of dollars in taxes to uncle Sam. With such small balances, are the RMDs even taxable? Keeping the $225K in the non Roth for 3 years until 70.5 for this 68 year old, would put her balance at 12% not compounded to about 305K making a RMD of 11K at 70.5.

    Tossing the 225K into a Roth will reduce the investable amount by about 60K with current tax rates for a head of household or widow. 60K at 12% is $7200 income loss yearly. Question is, will the RMD tax savings cover the tax and capital loss? Keeping her life style at $25K in retirement may cost her $2500 in taxes. If it’s above SS, then it may cost her $3500.

    Help me discover my errors, `cause, I use the same math for my own retirement and if it’s flawed, I wanna know


    • Jeff Brown

      Great question, Kevin. The post actually does say they’ll take two calendar tax years to roll the traditional IRA money into the new Roth IRA, and for the very reason you stated. The sons are paying the tax bill for their mom, not her. She’s tired of workin’, Kevin. She’s paid her dues, so to speak. Virtually all distributions to the taxpayer coming from a pretax plan are taxable, period.

      They want Mom to be getting equal or greater after tax, in this case tax free, to what she’s now earning. She simply can’t afford to make less, which would be the case if it was taxed. If the boys had many years to slowly move it over, paying her annual income taxes as it went, they would. But she’s already knockin’ on the door of 70.5. Tick tock. Make sense?

    • Jeff Brown

      Much appreciated, Logan. Those who discount my content do it much of the time from a position of a lack of knowledge and experience. It’s real, and I respect it. However, as one new client recently told me, “After speaking with some of your clients I couldn’t wait to get started.” 🙂

  2. I am curious about “note fund and a private note investment group. They both deal in first position notes secured by real estate. They’ll not be in the fund to acquire notes for themselves.” I have been told that unless you are an accredited investor, you cannot invest in note funds.

    • Jeff Brown

      Hey Katie — The note ‘fund’ is indeed for accredited investors only. If they buy notes, they get full title to them with insurance, and a warranty in place. There’s no obligation to buy notes, so if the investor merely likes the 12% preferred return, they can opt for that. There’s a three year commitment.

      The group is a different model. The entity itself takes title to all the notes in which they invest. There’s no preferred return, and a limited number of unaccredited investors are welcome. There are quarterly distributions, which the investor can elect, yearly, to take or let ‘roll over’.

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