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Real Estate Investing Versus 401(k) THERE IS A REASON MORE MILLIONAIRES HAVE BEEN MADE THROUGH REAL ESTATE THAN ANY OTHER INVESTMENT.
by Zach Lemaster
he most commonly accepted retirement plan in the United States today is the 401(k) plan. But have you considered real estate investment as a retirement vehicle? Let’s take a look at the two options. 401( k ) PLANS Interestingly, the 401(k) wasn’t even intended for use as a retirement vehicle when it was founded in 1978. But once companies discovered how much cheaper it was to require employees to fund their own retirements, the 401(k) took off like wildfire. Investing in stocks through a 401(k) pays everyone else involved before paying the employee contributing to the plan: Fund managers are paid fees, the government collects taxes, and Wall Street gets perpetually richer through your regular contributions. We are told to keep investing for the long-term whether the market goes up, down, or sideways. Why are we taking all the risk by putting our money for years into these 401(k) plans when the financial advisers, companies, Uncle Sam, and Wall Street get paid no matter how well the market is doing? Most people don’t question this because they receive a small match on their 401(k) contributions through their employer, or they are told they are saving on taxes each year they contribute. The truth is, they don’t know any other way of doing things. Plus, most people don’t want to think about money. They believe since the 401(k) is set up by their employer, or since their neighbor talks about their 401(k), they must be doing the right thing. But, as the saying goes, “You just don’t know, what you don’t know.” The 401(k) plan hasn’t even been around 40 years! It’s still an experimental idea for how to save for retirement. The reason it’s been so commonly adopted is because companies started going bankrupt trying to pay employees for life through pensions and continue T
to rid themselves of pension options. It makes sense for companies to require employees to fund their own retirement plans. Now consider how long real estate has been around. Well, since people have needed a place to live! The main reason a 401(k) will never work for the vast majority of people is because it is essentially a savings plan. There is no way to “save” your way to retirement. Unless that sum of money stashed away in your 401(k) can be converted to consistent monthly cash flow, it is basically worthless. It is estimated that you will receive a measly 4% on your money to live on once you convert your growing 401(k) to fixed income securities. For example, let’s assume you are in the top 1% of all 401(k) investors and you have accumulated $300,000. Good job! A 4% return generates $12,000 a year to live on! Let’s say you have a job paying you $80,000 annually. When you retire, it would be nice to at least earn that much. After all, the goal is to maintain the same lifestyle you have now—and maybe even travel more. With a 4% return, you would need at least $2 million saved to receive $80,000 per year in retirement. Further, 4% doesn’t beat inflation most years! The good news is you can achieve a substantial retirement through real estate—in a fraction of the time and with exponentially higher results. At what age do you want to retire? How do you plan to achieve that? The government decided that 59½ is the age when we should be finished working. The sad truth is the majority of people will work far past this age because their retirement will not even partially support them. Should we really let someone else decide when it is time for us to retire? Should it really be this complicated to access our “retirement” money that we have spent the majority of our working life saving for? You want to retire on your
36 | think realty magazine :: september - october 2022
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