You’ve got $500,000 in liquid assets for your retirement and you’re still 15 years away. All your bills are paid; you have a small mortgage on your home; cars are paid for and great credit. Don’t break your arm patting yourself on the back yet.
People think more about what they’re going to do when they retire than whether they’ll have the funds to do them. Ask anyone who has retired, it takes more money than you thought it did. Let’s look at a hypothetical situation.
To retire with $125,000 income in today’s dollars with a life expectancy of 25 years after retirement, you’ll need to have a net worth of $1.5 million at retirement including what Social Security may provide. Your $500,000 will grow to $1,045,420 in 15 years which will leave you about a half million short. You’ll need to save $24,149 each year for the next 15 years to reach your goal.
Is this surprising? Did you imagine that this example would be that far from its goal? It might seem staggering to save $24,000 each year but there is another way…investing in rentals.
Real estate over the long term has proven to be a solid, predictable investment. Cash flows, appreciation, equity buildup and tax advantages are the components that contribute to the rate of return. Increasing rents, available financing and solid appreciation make rentals particularly attractive in today’s environment.