I stopped funding my retirement accounts when I reached the $100,000 mark at age 40. I rather save money to buy real estate properties in my 40s than continue to buy stocks during a fading bull stock market. According to a recent article by U.S. News & World Report, people need to put aside eight times their salary if they want to have a comfortable retirement. Few people discuss the fact that a large nest egg may break if the stock market suddenly drops before a person retires. Investing in rental properties in my community is a more attractive option to me than crossing my fingers and hoping the stock market continues to rise. I didn’t always feel that way. However, I can think of several reasons now while becoming a landlord makes financial sense as I head toward retirement.
Losing faith in retirement accounts
I’m starting to lose faith in retirement accounts such as the Roth IRA. Lawmakers have been discussing changing the rules. I might end up being forced to take required minimum distributions from my Roth IRA just as I have to do with my traditional accounts. I have no way of knowing if lawmakers won’t change the inheritance taxes and rules regarding retirement accounts.
Taking advantage of short sales
At this time, there are a number of homes in pre-foreclosure and foreclosure in my Florida community. Although the foreclosures are sketchy because some have been abandoned for a number of years, there are a lot of short sale deals ideal for investors. My mortgage lender said I’d have to put 20 percent down on an investment property. For a $120,000 short sale, I’d have to come up with $24,000. If I am constantly funding my retirement accounts, it’s difficult to save up that much money. In addition to the 20 percent down payment, I need money in reserve for repairs and ongoing maintenance.
Generating income in retirement
One of the advantages of buying an investment property in my 40s is that I can use the rent checks to pay off the mortgage. By the time I’m 70 years old, I’ll have a paid-off home that generates income. At this time, it’s possible to rent out a $120,000 for about $1,200 to $1,300 a month. Considering a mortgage payment would only be about $600 a month, I could use the excess money to save as well as pay the property management company. If I wait to purchase an investment property, I might lose out on the low interest rates as well as the abundance of short sales.
I get annoyed with so-called retirement planning experts that preach about the one true path to financial freedom in retirement. Typically, they want people to save up several million dollars in a 401(k) or IRA account. During a bear stock market, I am more aggressive about saving in my retirement accounts because of the “bargains.” At this time, real estate seems like a much better deal than stocks. But saving too much for retirement will sabotage my efforts to buy investment properties that pay for my retirement.