Ever wondered if you could retire, nicely, 15 years from now? So much as been said and written about retirement and its planning in the last decade or two that gettin’ lost in the miasma of most of what passes for rational thought is easy. Possibly the first casualty of retirement planning has been reality. If I hear ‘risk free’ one more time someone will pay the price. 🙂
Let’s look at the general group maybe most interested in this subject.
The 35-55 year olds who make more than the median income. Say they gross $80-200,000 yearly. They live at or below their means. They believe strongly that regular savings (however you define it) is part of their cost of living. Either by way of current investment property equity(s) or accessible capital they have, give or take, $200,000.
Many of ’em have a few hundred grand in a 401k or one of its cousins. They haven’t learned the lesson taught so many back in 2008: If your retirement relies more than slightly on Wall Street? Good luck Chuck. They’re contributing five figures annually to their company plans. They’re enamored of their company’s matching contribution. For those who got massacred in 2008, how’d that match work out for ya?
There are specific strategies, that when combined, can and usually do create an immensely positive synergy. For example, those who’re adept at flipping real estate profitably can easily marry that ‘strategy’ to long term real estate investing for retirement, often with staggeringly impressive bottom line results. Then there are the strategies outside of real estate, the EIUL is my favorite. Equity Indexed Universal Life — basically an investment grade insurance policy. ‘Course, that definition doesn’t begin to do it justice.
Here’s what it offers — compare it to your company sponsored retirement plan.
- All contributions are made with after tax money — no tax write-off.
- Income is tax free — and in most cases for life.
- The contract includes a ‘floor’ which limits the minimum yield in any year to no less than 0-2% depending on the carrier.
- There’s also a ceiling, usually around 12-16%. Any yields above the contracted ceiling go to the insurance company.
- When you die, your heirs get whatever value is inside the policy tax free. It’s not even part of your estate — by definition.
- Whether for opportunity or emergency, you may borrow from the cash value at any time — no penalty. Pay it back, don’t pay it back. The only real penalty if you don’t pay it back, is that money is no longer working for ya.
Here’s another way to look at your 401k.
Even if your annual tax write-off (savings) were $5,000, and you contributed for 30 years, it doesn’t make sense. Why? Ponder this a minute. Let’s say the angels blessed you with 30 consecutive years without one losing year. (Yeah, right.) Let’s further assume you amassed $2 Million. Upon retirement you manage to generate a 7% yield for income — about $140,000 annually. After taxes, state/fed, you net about $105,000 or so, which might prove generous, but we’ll go with it. That means you paid about $35,000 in personal income taxes. Wait for it — here it comes.
You would find yourself paying more income taxes in your first 5 years of retirement than you saved in the 30 years it took ya to get there. So the question screams to be asked: Why would anyone do that to themselves on purpose?!
There’s more, but you get the picture. Those who listened and adhered to this school of thought in the years before the market crashed in 2008, made 2% instead of losing 40%. For them it was literally a game saver.
As mentioned here so often, we’re not on Planet Sophisticated any more. Investing in real estate for retirement is now back to Grandpa’s days in so many ways. Appreciation is, or at least should be, treated like a surprise dessert, not an entitlement. Ditto with net operating incomes. We’re back to creating our own retirement, a well conceived plan, doing things on purpose, and plain old hard work. File it under — The more things change, etc.
Next week I’m gonna lay out a relatively detailed scenario for those interested in retiring about 15 years from now, who also meet the prerequisite factors mentioned up top. It will not only show what they’d do with real estate, but include a detailed, but most importantly, a reliable EIUL scenario. The inner workings of the synergy will be clearly delineated.
The best part? You’ll quickly discern how realistic it is, and that it applies to you. See ya next week.