Purposefully Planning Your Retirement – What Is Time To You?

by | BiggerPockets.com

Over the last 35+ years I’ve spoken with literally hundreds of people convinced they were seriously preparing for retirement. The problem for many is one of scale. For a couple in their 40s who make $80,000 yearly between them, $250,000 is one heckuva lotta money. Yet, if they’re 45, retiring at 65, turning that  amount into $1 million would require 20 consecutive years of just under 7.2% annual yield. No losing years allowed. ‘Course, they’re gonna have a down year or two, right? That means a few months to a few years on the ol’ treadmill catchin’ up to where they were when Murphy showed up. At that point, more likely than not, double digit returns would be needed to arrive at the coveted million dollar mark.

A million bucks at retirement probably ain’t gonna cut it for most retirees.

Think about it. For those getting their income from 401s and IRAs, two things sober ’em up big time, and quickly.

1.  Every single dollar coming out of their plan is taxed.

2.  If they were 65 today, the 10 year treasury bond would yield them exactly $19,000 a year plus two $5 foot-longs at Subway — before taxes.

The same million bucks in debt free real estate?

Well located real estate, assuming no increase ever, as in never-ever, in net operating income (NOI), the income would be roughly $60-80,000/yr give or take. $1,000/mo into an EIUL from 28 years old ’til 58, with inflation adjustments of about 2% annually on the premiums, will get my own daughter and her newish hubby around $100,000 annually — tax free — ’til they die.

The combination of those two investment vehicles, wisely used, with careful and Purposeful Planning, will slaughter, literally, the anemic performance of a million bucks in the average couple’s 401k or IRA.

Thing is, Purposeful long term real estate investing is relatively rare. This is especially true when compared to those with the ‘qualified retirement plans’ at work. Seems most everybody has one, but they’ll quickly tell us how the performance has been mediocre at best, and dismal at worst. What TV does with real estate is Barnum and Bailey. There’s the required flipper. Then they find a property. Then there’s some false drama created to keep us coming back after the commercials. Then they make a profit. Then it’s time for the new Netflix movie that came in the mail today.

The Takeaway

Your 401k or IRA ain’t gonna get ya there, regardless of what you’ve been told. The next person who tells me about the six figure retirement income they’re enjoying, courtesy of their 401 or IRA — will be the first. They gotta be out there, but I’ve yet to meet one.

Are you gonna be the exception proving the rule? Not freakin’ likely.

Marshal your capital, and commit to learning about how to invest in real estate, long term. Don’t travel the road most are on, it’s a dead end. There are thousands of Americans thinkin’ they’ve succeeded with their retirement plans, solely due to the fact they’re nest egg requires two commas. They were woefully misled, but after the last guest at the retirement party leaves, it’s a bit late.

Now, it might not be too late, IF, that million bucks can be extracted tax free. Alas, a pipe dream for most.

What’s that I see comin’ round the corner? Another birthday?

Time . . . is . . . not . . . your . . . friend.

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. Learning this lesson now after 20 years of putting into my 401k/IRA’s. Still working for the company so I can’t take mine out but I did lower my contribution to just what they match. But the wife got layed off so we are going to put hers to good use buying some buy and holds. Just trying to figure out the best stratagie to take it out of the 401k, do we cash out and pay the penalties or convert to self directed IRA or what? We want to use the income from the buy and holds to keep her out of work so self directed won’t work there, but also hate the see the balance get killed if we cash it out. THANKS for the article to get my wheels spinning this morning!

  2. Good article and I couldn’t agree more. I took the hit from taking part of my 401k and bought a couple of properties to rent and one to flip. Now my net worth, even after paying the tax and penalty) is about the same as the amount I took out of my 401k, BUT it is all now mine and I’m getting a good return 11% on my rentals (more if I cash out) and some leftover to look for my next deal. The people that tell you 401k are great are the mutual funds that are making money. However, I must admit it was the 20 years of paying into that I was able to have the chuck of money so…make the decision that works best for you.

    • Jeff Brown

      Hey Michael — If you’d saved enough from Day 1 to get your foot in the door, you’d of been miles ahead of where you are now. Still, what you just did says volumes about your intestinal fortitude. You’re a great, ongoing case study of how one can slaughter the performance of their 401k with what’s left after taxes and penalties via their exit from the plan. I’d love to talk with you about your new and improved plan. Sounds like you’re already kickin’ butt and takin’ names, and I’m impressed. Great job, Michael — your a solid role model for those searching for a better, more reliable retirement plan.

  3. Excellent article! It certainly sounds like an EIUL is the best way to set up my son (now 26) for his retirement as a gift from dear ol’ mom (now 48). What happens if I die before the 30 years are up and I can’t make the $1000/mo premium payment. Does he take over the payments, and what happens to the policy if he can’t make the payments?

  4. Great info. 401s and IRAs are so common, most people just start putting money into them without considering alternatives, the best one being real estate. I’ve read so many stories of people near retirement age loosing their jobs, not having enough saved up and, consequently, loosing their homes. It’s heartbreaking. Hopefully young people take note and focus on the future as much as they focus on getting through the next week.

  5. Jeff,

    When I read your first column where you talked about liquidating the 401k completely and reinvesting the capital, I thought you were insane! And now, after a phone call with you and your buddy Dave, I’m:
    * looking at a first quote for an EIUL, deciding what to fiddle with
    * shopping around for some dividend paying, dividend growing long term stocks as a 2nd source of income
    * checking out the rental market in my area and planning my first investment

    It’s shocking but thank goodness there are people like you and Dave out there that preach the unheard truth. My 201k (401k with 50% drop in value) is providing me enough capital to get into real retirement planning!

      • What aspect of the stock part do you disagree with? I think the idea of putting some money into long term dividend paying stocks is another valid way to generate some future, possible inflation resistant income.

        • Jeff Brown

          Dividends come and go, as do companies, even blue chippers. It’s too risky, imo. Frankly, if a real estate investor can’t slaughter stock dividends with their cash flow, even in down times, something’s wrong.

          But again, it’s one of those things about which we can agree to disagree.

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