Different Worlds: Investing in Real Estate vs. Relying on a 401k

by | Sep 7, 2022 | Real Estate Syndications | 0 comments

It used to be that you went to college, got a good job with a pension, and rode that wave until the day you retired. Things aren’t like that anymore and we’re 100% individually responsible for putting away savings SO THAT we can retire.

Not only are employer-paid pensions practically non-existent, but it’s not common anymore to stay at a single company or even remain in a single career path long term. For this reason, many of us have old, partially funded, half-forgotten retirement accounts scattered throughout our trail of previous employers.

If this sounds familiar, you’re going to want to declutter your retirement accounts ASAP by rolling each one over into a single, consolidated account.

First Step – Rollover

You don’t want to be on the verge of retirement attempting to remember all the way back to your 20s and 30s as to who you worked for and what financial company managed that 401K, 403b, or IRA. What a disaster!

Trust me, while some of that is moderately fresh in your mind, you’re going to want to consolidate and rollover all your prior retirement accounts into a single, manageable account you can keep track of easily.

It’s a bear, but if you do what it takes now – find all the accounts, see all the notaries, file all the paperwork – your future self (and your family) will thank you SO much.

 So, I Can Invest in Real Estate with Retirement Funds?!

Here’s where you get to the good stuff. Once you can see the value of your combined retirement accounts and their lackluster performance, you become interested in investment opportunities that have the potential to help you accelerate your earnings.

Did you know you can use your retirement funds to invest in real estate?

Yup! Sure can!

There are absolutely some rules you need to follow in order to do this, but first, let’s walk through a couple of hypothetical scenarios to see why you might be interested in investing in real estate with your retirement savings.

Situation 1: Stay the 401K Course

First, let’s pretend you have $100,000 in your consolidated retirement account. And let’s say that over the next few decades, you earn about 7% in returns annually. You add $10,000 per year to the account with compounding growth. In 30 years, when you are at retirement age, what do you think you’ll have?

$1.8 million

Not a bad deal. So, you’re thinking, I can handle that, right?

The $1.8 million sounds like boo-coo bills right now but may not be as much as you think if you need to cover health care costs in retirement, if you plan to travel in retirement, and if you (fill in your retirement wish list here..). Let’s say you plan to withdraw $10,000/month (assuming a 24% tax bracket, 3% inflation and 6% before tax growth), then your money would be exhausted in less than 18 years in a period where many are living 25 years or longer in retirement. To have the nest egg last longer than your life, cutting back the monthly budget is needed and now you’re just living a retirement life you must settle for, not the one you had imagined.

An Alternate Retirement Account: The Self-Directed IRA

With a self-directed IRA, you have infinitely more control over the types of investments you’re allowed to make with your retirement money. No more being limited to certain mutual funds, stocks, and bonds, although you can certainly invest in those if you want.

Of course, there are limits – you can’t invest in a vacation home for yourself, for example. But you CAN invest in commercial real estate syndications. These are passive investments where you direct the custodian of your self-directed IRA account to invest the funds in a certain deal on your behalf. Any interest/profit earned from the syndication go right back into your retirement account and build your retirement savings.

Situation 2: Invest My Money In Real Estate Syndications

Now, let’s pretend that the same $100,000 was in a self-directed IRA account, invested in real estate syndications. You invest in deals with a 5-year hold time and a 2x equity multiple, which means over the course of 5 years, your initial investment doubles (roughly 20% annual returns).

To be clear, that means in 5 years, your $100,000 could be $ 200,000 and 30 years from now, your self-directed IRA could value about $3.2 million. Then, don’t forget about the $10,000 in contributions each year, like in hypothetical scenario 1. Let’s pretend these annual contributions are invested at the same 7% rate of scenario 1 as it will be a bit of a challenge (though not impossible) to consistently invest in syndications annually with $10,000. Add-in this total of $944k and you’d have over $4.144 million at retirement.

With this nest egg, you could withdraw $14k/month (assuming a 24% tax bracket, 3% inflation and 6% before tax growth) ….not only increasing monthly income by 40% but having your nest egg lasting almost twice as long and highly likely to outlive you!

*Side note: Being able to contribute $10,000 per year assumes that your employer’s 401K allows in-service rollovers. If that is not allowed, you may be limited to contributing $5,500 per year which makes the total in your account in 30 years around $3.7 million, still a tad over $1.8 million!

A Retirement of Settling versus Thriving

Comparing $4.144 million to $1.8 million is a no-brainer.

The impact on your future life and your kids’ future is nearly unimaginable, but add that to the impact your 30 years of real estate investments made on thousands of families whose apartments and communities you helped improve.

I’d choose real estate every time. And though I invest in the stock market to diversify, my investments are dominated by real estate.

The thing is, you can’t make this choice when you’re 65. This is a choice you have to make now. Even if you procrastinate another 5 years, you’re missing out on hundreds of thousands of dollars.

Do it for your future self, for your family, for your children. Imagine it’s your family in the blog photo, at a retirement party you can afford to host on the beach! The sea of paperwork is worth it to prevent your 70-year-old self and your loved ones from experiencing financial stress and strained relationships because of money. Learn the lingo, and do what it takes today so you can live life on your own terms when it matters most.

If you’re ready to begin your journey towards financial success through passive real estate investing, schedule a time with me to get to know you and learn more about how we can help achieve your investment goals! Additionally, consider joining the GrowAbility Equity Club to have earliest access to our investment opportunities.  

Thanks for being a part of our community. Until next time, keep growing your ability to accelerate your wealth building….glad to be a part of this journey! 


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