In a recent newspaper article by Chuck Jaffe entitled Exiting when the market is down is expensive if stocks provide savingsJohn, a participant in an investment seminar, asks the question, “Is this a bad year to retire?”
While retirement may seem like a distant life, it’s a question we’ll all have to consider one day.
In this case, the answer would be “yes” for John, even though he has $400,000 invested in 18 stock funds. The fact that comes to people from left field is that if you have to withdraw funds from your retirement savings when the market is in the toilet and that loud sucking sound is the extra dollars flying out of your wallet, you can go bankrupt. his nest. egg
It’s ironic that people spend their entire lives preparing for retirement only to find that when it’s time to retire, they can’t.
Stock selection by luck and accident
Investment adviser Judy Shine says, “People assume that if they pick the right funds and stick with them forever, they’ll be ready to retire and they just might, but that’s more by luck or accident than by design.” “.
Of course, planning for retirement is a complicated process. Much depends on what people determine are their needs and wants. However, there is a better way to prepare for retirement.
The rental house option
What could John have done differently? Born to rich parents? Has Warren Buffet crashed into his car? Perhaps something less dramatic, but requiring similar foresight and planning.
Home ownership is widely recognized as a way to build wealth. Can you get rich being a tenant? Maybe, but the odds are against you. In 2004, the average renter had a net worth of $4,000, while the average homeowner had a median net worth of $184,000. If owning one house is good, wouldn’t it be better to own 2 or 3?
Let’s imagine that John bought a house shortly after starting his professional life and got married. He lived in his house for 6-7 years and then bought a better house, like most people do. But unlike most people, John kept his old house for rent. Six or seven years later, John does the same thing again. Now John owns 3 houses. He has tenants in two of them who pay the mortgage and provide rental income for John.
a different answer
Fast-forward a few years and John asks the question “Is it a bad year to retire?” again. This time he may get a different answer.
John has 3 “free and clean” houses with mortgages paid off. He receives a good amount of money each month for rent and pays nothing for his residence.
Unlike stocks, you don’t have to take money out of your savings or investments. Your home’s value is steadily increasing when you retire, while you continue to collect rent, which is also steadily increasing in the long run. Since rents provide perhaps 40-50% of your income, if you collect a pension and start receiving social security payments, you will retire with little change in your lifestyle.
In reality, owning rental properties is like getting a retirement pension before you retire.
And, John has the option of selling a house to fill his checking account or to help one of the children. He will still have a steady cash flow from the remaining rental house. If he wanted to cash in and sell both properties, or all three and move to a smaller place, he would have a small fortune.
No matter how you look at it, John has greatly increased his chances of having a successful transition into his golden years.
