The Importance Of Real Estate In Retirement Investing

Investing for retirement is important for all of us, and real estate may be most important part of investing for retirement.

Most of us will live to retire in some capacity. That could be the traditional retirement ideal of heading to Florida to play golf, flock to early bird menus, and watch beautiful sunsets from private terraces. Or it could just be as a passive board member, CEO, part time consultant, or active investor. Some may have the option to retire far earlier than most. Others will be forced to retire far earlier than planned. Most need to be prepared for surviving 30+ years in retirement, without earned income. Are we investing well to provide for that?

The Retirement Challenge

Americans are facing a barrage of challenges in financially preparing for retirement. The average won’t make it. The vast majority aren’t even headed on the right trajectory.

The most common challenge for many Americans could be social security. Although some are realistic about the fact that they cannot rely on it, others are going to be in for a big surprise. The Motley Fool says that the average monthly SS benefit in 2017 is just over $1,400. Not many will be able to stretch that to cover food, healthcare copays, clothing, and utilities. Never mind housing costs, or any of those things individuals spent their previous 60 plus years dreaming about doing in retirement. More important is the fact that Social Security is already acknowledging shortages of funds to pay out promised benefits. Even if the system survives, those that have spent a lifetime paying in, won’t be able to receive the benefits they were promised. That is unless benefit amounts are dramatically slashed, or taxes on workers are dramatically raised, or both. The system relies on new participants paying in, so that funds can be shifted to current retirees. Those sums aren’t adding up right now. Some may call it the biggest pyramid scheme in global history.

Even among the few who have some savings, very, very few are on target toward what they’ll need. They aren’t setting aside enough. When they do, they are often being hit hard with taxes, fees, and inflation.

Some have built up six figures in their traditional IRAs or 401ks. Though these funds are typically invested in the stock market. Stock indexes have been hitting fresh highs. While that may sound good, it also cramps potential returns, and is making it even more likely that a new crash will come sooner rather than later. There is really no safety for stock market investors. Portfolios can be cut in half or wiped out in a very short period of time.

For these reasons, real estate may be the most important element in retirement investing for everyone.

Your Home as a Retirement Investment Tool

While many debate whether a personal residence is really an investment or not, homeownership can have big advantages.

Those relegated to renting in retirement really have no control over their housing costs. They are held hostage by whatever landlords choose to ask for in rent. You can bet that will just keep going up, limiting where many can afford to live in retirement.

Homeowners have the ability to lock in fixed house payments, and eventually have no mortgage payments if they choose (though there can be advantages of maintaining a modest home loan). Homeownership offers a variety of tax advantages too, can add to wealth through appreciation, and is often the biggest asset American families will have to pass on to the next generation. Depending on where you own a home, there can be homestead protections which limit tax increases and protect owners from other creditors. Some of the brightest economic minds have pointed to home equity and the option of taking out reverse mortgages as one of the best tools for combating the looming retirement crisis.

Investment Real Estate

Owning investment properties other than your primary residence can be a powerful way to prepare for retirement. There is the wealth building potential from appreciation. This can be compounded using leverage, and having renters pay off loans, and create more net worth for you. This effectively means other people are paying for your investment properties and your retirement. That’s certainly better than the other way around. However, one of the best benefits of this investment class is the ability to generate passive income from rents each month. Just a few properties can dwarf anything you hoped to get in Social Security benefits, while offering a level of security you can’t find in the stock market.

We all need to prepare for retirement. Real estate can be one of the best ways to do that. If you haven’t started yet, learning about real estate investment should be at the top of your to-do list.

About the Author

Kent Clothier is President and CEO of Real Estate Worldwide (REWW), a multi-faceted real estate education company with headquarters in Scottsdale, Arizona, San Diego, California, and Boca Raton, Florida.

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Mr. Clothier is an expert in real estate investing. As such his experiences are not necessarily typical to the standard real estate investor and whose results may vary. The successes shared on this site are not considered typical. Most individuals who order the educational materials and systems probably do not follow any of the techniques or strategies and consequently make little to no money due to their inaction. The company is in the process of determining the typical success of its clients. Stories shared herein are for example purpose only and should not be construed as "guarantees" of success. Results will vary based on background, education, and experience and actions taken.