Retire on Real Estate: Building Rental Income for a Safe and Secure Retirement
275
Retire on Real Estate: Building Rental Income for a Safe and Secure Retirement
275eBookFirst Edition (First Edition)
Related collections and offers
Overview
This book exposes the cracks in most retirement portfolios, then opens your eyes to the benefits of rental income.
With pensions slashed, savings slim, and Social Security insufficient and unpredictable, most people won't have nearly enough money to last them through their retirement years, but seasoned real estate investor and landlord K. Kai Anderson proves that real estate is an investment that anyone can dive into to fund their retirement…lucratively!
Not leaving anything to question, Retire on Real Estate also lays out a complete plan of action, including how to:
- Get started--by either purchasing property or converting your residence into a rental
- Reduce the risk of vacancies, repairs, and problem tenants
- Spot smart investments
- Choose the right mortgage, or even out-of-the-box financing options
- Trade up to more profitable properties
Don’t wager your retirement on Social Security, dividends, and unpredictable bull markets. Real estate is an investment that will always pay off--if done correctly.
Product Details
| ISBN-13: | 9780814438985 |
|---|---|
| Publisher: | AMACOM |
| Publication date: | 09/14/2017 |
| Sold by: | HarperCollins Publishing |
| Format: | eBook |
| Pages: | 275 |
| File size: | 932 KB |
About the Author
K. KAI ANDERSON, PH.D. is an experienced real estate investor and landlord. She has secured her retirement through rental properties and is on a mission to help others do the same. She is a graduate of the Investors United(TM) School of Real Estate Investing and holds advanced degrees from Johns Hopkins University.
Read an Excerpt
CHAPTER 1
IT WAS NEVER MEANT TO BE THIS WAY
A Brief, Fascinating History of Retirement Options and the Current Landscape
My parents worked hard to build up their nest egg. They were self-employed, so they knew there would be no pension to rely on once they stopped working. They put four kids through college and worried about money ... a lot. But they did build what they felt was a fairly sizable egg. Then my dad died suddenly and unexpectedly, leaving Mom both devastated from the loss and paralyzed by questions like: "Will our savings be enough for me to retire? And when??" In fear, she kept working. Now, fifteen years later, she is seventy-five years old and still working part-time. Yes, she has a nest egg. But is it large enough to last her? Will she ever be able to retire with the peace of mind to know that she'll never run out of money?
The answer that she and my three siblings and I have come to is: Who knows?! And this is precisely the problem with the current nestegg model of saving for retirement. It's not that the stock market might tank and remain low in the years she needs her money the most ... though it could. It's not that her assets could be wiped away in an instant by identity theft ... though they could. It's not even that fees of 2 percent or more could have wiped out more than half her account value over four decades of investing ... though they did. It's that she will never, ever know for sure if she has enough money saved up to last all her remaining days.
If you really sit down and think about the "nest egg" model, it just doesn't make sense. The whole premise is that you build up as much money as you can over your whole life, in order to draw down from it in retirement. Then, you cross your fingers and hope, wish, and pray that it will be enough to last you. And that's terrifying. And the older you get, the more terrifying it becomes. And this is where my mom is right now.
This model is in stark contrast to the system it replaced: the pension. With the pension, workers were guaranteed income for life. They didn't have to worry about whether the money would last. By definition, it would.
Take my parents-in-law, for example, both of whom were teachers in the public school system and are now comfortably retired. But their comfort doesn't depend on one risk-laden, finite sum of money saved over the course of their lives. In addition to their savings, and Social Security benefits, they have pensions that promise to pay them monthly incomes for life.
Pensions and retirement accounts operate on two entirely different playing fields. Ideally, you would have both, plus Social Security to boot. Pensions operate on the monthly-income playing field. They provide monthly income for life, just as a salary provides sustainable income during one's working years. In contrast, a retirement account, or "nest egg," operates on a totally different type of playing field. It doesn't operate on a monthly basis. By definition, a nest egg is limited or finite. It can be used up. And there are so many factors that go into the old "how long will it last?" question that it is nearly impossible to answer with any degree of confidence.
There is an interesting history as to how this all went down, which I'll get into shortly. For now, let me say that pensions are nearly extinct. Almost all workplaces have either partially or completely eliminated the pension and have replaced it with mutual fund-based retirement accounts, a national trend that shows no signs of stopping or slowing down.
This means that, if you were to time-travel a couple decades or more into the future, you would find that the vast majority of our population will, without a doubt, wind up in my mom's precarious situation, not my in-laws' more stable one. And for those with less in savings, Social Security could be their only source of income, as it currently already is for many individuals without savings or pensions. What this means is that, without a pension, you could be forced to downsize significantly in your older years, possibly dipping into poverty, unless you are able to continue working for the rest of your life. That's without considering any physical, mental, or cognitive health challenges that may arise as you get older.
There is another option: Create your own "pension." Take matters into your own hands. The way to do this is through rental property. Because of rental property, my wife and I are optimistic about retirement. The same goes for the millions of others who own rental property. You, too, can get to that same place of optimism. This is because rental property is like a pension plan for those who don't have a pension. Rentals that are well maintained and well managed provide consistent income, month after month ... for life.
*
Godgrant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.
Prayer adopted by Alcoholics Anonymous and authored by Reinhold Niebuhr, theologian
There is a well-known prayer that goes: "God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference." This serenity prayer pretty much sums up my book. You can't change the fact that you don't have a workplace pension, or that you have a very small pension, or whatever the case may be for you. Yet, you do have the ability to create a pension-like plan for yourself, through real estate. It's up to you to understand this difference and take action.
A BRIEF, FASCINATING HISTORY OF THE 401(K)
The 401(k) was never meant to be our only retirement vehicle outside of Social Security. And yet, without ever having been planned, or tested, or modeled as such, it has gradually become just that.
What many of us don't realize is that, when measured against the extent of time that civilized society has been around, the 401(k) is just a baby! In fact, it was born in my own lifetime. The birth of the modern-day 401(k) can be attributed to Ted Benna, who, in 1980, asked the U.S. Department of the Treasury to slightly modify the Revenue Act of 1978. At the time, Benna's goal was simply to help his company, The Johnston Cos, an employee-benefits consulting firm (not to be confused with Johnson & Johnson, Inc.), improve its bottom line and pay less in taxes.
In its early days, the 401(k) was not relevant to lower-paid workers because most could not afford to set aside funds for later. They needed their wages for their more pressing day-to-day living expenses. (This struggle to save is really no different from how it is today, especially with stagnant wages and ever-escalating living expenses.) The difference, however, is that back in those days, lack of participation in the 401(k) was not particularly concerning for those individuals who knew they would have a pension to rely on in their older years.
You see, in its early years, the 401(k) was never meant to replace the pension. It was meant to simply add to the pension and Social Security as a sort of three-legged stool, for those who could afford it. Then, after only a few years into its life, the role of the 401(k) began to shift. The investment vehicle that had originally been built to shield the income of the highest-paid employees began morphing into the main retirement option for the vast majority of workers.
The momentum for this shift picked up speed in the 1980s as pensioned places of work increasingly sought to improve their bottom line by cutting costs. In 1986, Congress dramatically lowered the pension benefits offered to employees of the federal government and added the option of enrolling in a 401(k)-type plan called the Thrift Savings Program (TSP). Interpreting this massive transition as a sort of government endorsement, the private sector quickly followed suit. Companies found the 401(k) to be infinitely cheaper than the pension. Rather than paying retired workers a good-sized portion of their salaries for life, the 401(k) allowed companies to chip in a small "match" during the employees' working years, only. This pleased company shareholders, drove up profits, and fueled a surge in the entire mutual-fund industry. This then marked a heyday for mutual-fund companies, as they discovered how to take advantage of this relatively new product called the 401(k). By forging relationships with businesses, these mutual-fund companies could gain instant and exclusive access to all of a company's employees and a consistent cut of their weekly or biweekly paychecks.
In spite of being originally developed to help the bottom line of companies, or perhaps because of it, the 401(k) took off in the United States, and eventually spread to other countries under different, or sometimes surprisingly similar (like the "Japan 401[k]"), names. Benna claims he had no idea that the 401(k) would take off the way it did. He told Workforce Management magazine, "I knew it was going to be big, but I was certainly not anticipating that it would be the primary [italics mine] way people would be accumulating money for retirement thirty plus years later."
*
Progress is impossible without change, and those who cannot change their minds cannot change anything.
GEORGE BERNARD SHAW Irish playwright and winner of Nobel Prize in Literature, 1925 (1856-1950)
THE CURRENT LANDSCAPE
As I've mentioned, most people's retirement plans consist of any or all of the following three elements:
1. Social Security
2. Pensions
3. Retirement accounts (such as stocks, bonds, and mutual funds held in a 401(k), 403(b), 457, TSP, or IRA)
Some people might literally add "the lottery" to this list, a sign of how desperate we have become for help. Instead, I offer a better and more reliable #4: rental property. After spending some time on Social Security, pensions, and retirement accounts in this chapter, the rest of the book covers, at length, rental property, the fourth, most vital, and most neglected element of a truly diversified retirement plan.
*
There is no security in life, only opportunity.
MARK TWAIN Great American author (1835-1910)
Social Security
Social Security is a program that has been helping elderly individuals and persons living with disabilities since 1935. At that time, the United States was just beginning to recover from the Great Depression and millions were still out of work. Social Security was established in response to great societal concern for the nation's seniors, disabled individuals, and those in need of unemployment insurance.
Social Security is still available to 90 percent of seniors. It is most desperately needed by those who are poor and living on the edge of poverty. Without Social Security, 22.2 million American seniors (44.4 percent) would be living below the poverty line, as compared to the 9.1 percent who actually do. Social Security's critical role is even more pronounced among women, minorities, and the very elderly.
And while Social Security is desperately needed among the poor and near-poor, it has become increasingly vital for the middle class as well. For the vast majority of adults in the United States, retirement literally equates to Social Security. In fact, Social Security is the only source of income for a quarter of current retirees and it is the primary source of income for nearly three quarters of retired people.
According to Jonathan Peterson, Executive Communications Director at the American Association of Retired Persons (AARP) and author of Social Security For Dummies, "Social Security is incredibly important for the middle class, as well as the less affluent. In a world where defined-benefit pensions are increasingly scarce, savings rates are low, home values have fallen, stocks are volatile, and older workers often struggle in the labor market, Social Security income is indispensable for the middle class."
Even so, Social Security payments aren't nearly as generous as people expect them to be. These days, Social Security payments range from one quarter to one half of individuals' pre-retirement salaries. The average Social Security payment for retired workers in January 2016 was $1,341 per month. That comes out to $16,092 for the year, barely over the Federal Poverty Line (FPL) for a single person in the United States.
In other words, while Social Security might be one part of your retirement picture, you can't count on it being your entire picture. Those who rely on Social Security benefits alone have income — and corresponding lifestyles — that are significantly lower than they had while working. As an example, someone earning $50,000 should expect to receive somewhere between $1,000 and $1,300 per month in Social Security benefits, depending on birth year.
You can calculate your own projected Social Security benefits on the online calculator at the Social Security Administration website: www.ssa.gov/OACT/quickcalc/index.html. You can also register on the www.ssa.gov website to find your precise individual retirement benefits based on your actual income history. Keep in mind that these projections are based on current policy and may not reflect any future cutbacks to Social Security benefits.
Speaking of cutbacks ... this is the second reason not to put all your eggs in the Social Security basket. The Social Security Administration (SSA) has stated that additional reductions in benefits and increased taxes on those benefits may be necessary in the future. In other words, there is a good chance that current workers will receive less in retirement than what retirees currently receive.
Furthermore, the age at which people are allowed to receive Social Security benefits has been increasing (see Table 1.1) and may continue to increase. You can see that for those born before 1938, the Social Security retirement age was and continues to be age 65.
However, in 1983, because of improvements in the health of older people and increasing average life expectancy, Congress passed a phased-in change to the SSA retirement age (as well as the percentage of benefits to be taxed). For those born in 1960 and later, the retirement age is now up to 67 years old. It is not unlikely that the Social Security retirement age will be pushed back even further over time.
The bottom line is that, when our time comes, we should not expect too much in terms of Social Security benefits. We could very well be working longer, for less in return from the government. We certainly shouldn't rely on Social Security as our primary retirement strategy or even our only safety net. We need to build something else.
Pensions
The traditional pension, or "defined benefit plan," is a plan in which retirees receive monthly income for life from their former employer based upon number of years of service and salary. The pension has been wonderful for workers. What's not to love about a steady source of monthly income flowing endlessly into your bank account after you've stopped working?
The problem is that the pension is gradually becoming extinct. Over the last twenty-five years, public- and private-sector employers have been rapidly abandoning the pension in favor of investment vehicles such as the 401(k) and 403(b) plans. In 1983, almost two thirds (62 percent) of workers with an employer-sponsored plan had the "defined benefit" classic type of pension; by 2011, this number had fallen to 7 percent. This shift has silently been reshaping the retirement prospects for my entire Generation X cohort, as well as Millennials (Gen Y), and future generations.
Disturbingly, even those who are currently receiving pension benefits are not necessarily safe. While most companies have simply shifted away from offering a full pension to new employees, some companies have actually frozen or reduced the pensions of those who have already retired and who have come to depend on them. An example of this is the case of retired employees of the city of Detroit, who, in 2015, saw their pensions slashed 6.7 percent and were then required to pay additional taxes and return the excess interest that they had received.
Some experts predict that most private-sector pension plans will be frozen in the next few years and eventually terminated. What this means is that in addition to not providing the pension benefit to new employees, current pension participants are at risk of having their benefits terminated when a freeze occurs. Needless to say, this adds a new level of fear and insecurity for those who have already retired and who currently depend on their pension for their day-today expenses.
(Continues…)
Excerpted from "Retire On Real Estate"
by .
Copyright © 2018 K. Kai Anderson.
Excerpted by permission of AMACOM.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Foreword, Amanda Han, CPA, xvii,
Preface, xxi,
How to Read This Book, xxv,
INTRODUCTION, 1,
PART ONE THE EGG: WHY THE "NEST EGG" IDEA IS SERIOUSLY CRACKED,
1. IT WAS NEVER MEANT TO BE THIS WAY A Brief, Fascinating History of Retirement Options and the Current Landscape, 9,
2. VERY REAL THREATS TO A VERY FRAGILE EGG Running Out of Money, Risk, and Fees, 27,
3. WHY YOU NEED A "CHICKEN" The Rewards and Risks of Rental Property, 55,
PART TWO THE NEST: SETTING YOURSELF UP FOR SUCCESS,
4. PREPARE THE NEST Rethinking Money, Debt, Assets, and Liabilities, 97,
5. THE PRIMARY AND ULTIMATE GOALS Setting the Goal That Is Right for You, 117,
6. WHY DID THE CHICKEN CROSS THE ROAD? Secrets to Achieving Your Goal (Any Goal!), 125,
PART THREE THE CHICKEN: HOW TO PROTECT YOUR RETIREMENT DREAMS WITH REAL ESTATE,
7. BORROW A CHICKEN How to Make Money In Real Estate Without Actually Owning Property, 149,
8. OWN A CHICKEN How to Get Your First (or Next) Rental Property, 161,
9. HATCHING YOUR PLAN Strategies for Every Age and Level of Resource, 199,
10. DO THE CHICKEN DANCE! Achieving the Ultimate Goal, 211,
FINAL WORDS, 215,
Our Story, 219,
Acknowledgments, 223,
Notes, 227,
Index, 239,
About the Author, 247,
Free Sample from Rental-Property Profits, 248,
About Amacom, 269,