Retirement Investment Plan Alternative
You can walk into any major stock brokerage or financial planning company in the word to get advice on planning for your retirement. Most will give you some variation of the same retirement investment plan.
Traditional retirement planning goes something like this:
- Start saving early by putting your money into a 401k.
- Keep adding to your investment and reinvesting the profits until you reach 65.
- Hope that your investments appreciate or grow over time.
- Then, once you have built up your “nest egg” and are ready to retire, start selling off a certain percentage of your portfolio each year to pay your living expenses until it’s completely gone (hopefully not before you die).
- Don’t run out of time.
Traditional retirement investment planning just is not cutting it for millions of “baby-boomers” who are currently contemplating retirement. There are a couple big problems with this plan.
First, you need to have a crystal ball that tells you how long you will live and how much money you will need. What happens if your money runs out before you do?
Second, because of inflation and other factors, they find out they didn’t save enough to last them once they get there and it’s too late. That is, unless they make significant cuts in their lifestyle or go back to work.
Third, you better hope that your investments appreciate and that the market doesn’t crash right before retirement. I think we all know people who planned on retiring in 2007 but had most of their portfolios destroyed almost overnight when the market crashed.
Last and I think the biggest problem with this plan is that the retiree has to withdraw their retirement savings to cover living expenses at retirement therefore depleting your “nest egg”. This can put you in a very scary place if you live longer than expected or costs go up. Also, wouldn’t you like to have something left to pass on to your loved ones?
This is a scary and uncertain future that millions of baby-boomers face when contemplating retirement. Unfortunately, this is what most people are told is “solid retirement planning”. And, it works for some of them.
Let me suggest an alternative retirement investment path to your happy retirement. It is an alternative plan that allows you the same advantages of the traditional option, but with fewer of the disadvantages. Think about this… What if you could put at least some of your retirement savings into an investment vehicle that would not only grow your investment over time, but also provide spendable income that you could live off during retirement without having to deplete your investment?
This alternative type of retirement plan can be achieved through investment real estate. I know what you are thinking, “didn’t the housing market crash too?” and “I don’t want to deal with tenants”. That is where you need to be careful. Like stocks or bonds, there are many different types of real estate and real estate investments that you can take part in. There are high-risk and low-risk real estate deals. Shopping centers, vacant land, single family houses, or multifamily properties you can invest in. There are opportunities that require you, as an investor, to manage them yourself and take tenant calls and fix toilets. Most people only know about these types of opportunities. You can take part in these, but if you are getting ready to retire, that is probably the last thing you are interested in.
What most soon to be retirees don’t know is about “private equity investments”. These opportunities cannot be advertised and you have to find out about them from someone who is putting them together, which is why most people don’t know about them. But, they can give you all of the same benefits of real estate investing (monthly income, shielding your income from taxes, and appreciation), but you, as an investor, do not have to take care of any of the day-to-day operations, calls from tenants, or fixing leaky toilets. Normally, the sponsor or managing member of the private equity investment takes care of all of those operations for you so the experience for you is just like any other investment where you receive your reports on how the investment is doing, but without a lot of the volatility of the more fluid equity markets.
These alternative investments can be great for retirees or people investing for retirement. They can provide a return on your investment, can provide for tax shelters, and can also appreciate in value. My favorite part is that they are less volatile to global events and you don’t have to sell off your equity to receive income from them giving you something to pass on to your children and grandchildren someday. Now, I would never suggest putting all of your “eggs” in any one basket and meeting with professionals to plan out your retirement as everyone’s goals and needs are different. However, private equity investments in real estate are a great option and something that I think everyone should consider for part of their retirement portfolio.