Remember the days when workers retired at age 62 and lived out the rest of their days in comfort?
Actually, I don’t remember those days anymore. But many employees still believe in it in outdated retirement myths just now not delay WHERE more.
Rethink your retirement, or be in for a rude awakening when the sun sets on your career. Here’s a look at some of this advice no longer works.
‘Retirement is the finish line’
In the twentieth century, people worked until that last Friday, when the office threw a retirement party and presented you with an engraved watch. If you were lucky. Then you went home And sit on the couch or play golf until you croak.
Nowadays, employees approach their retirement with a little more nuance. They think in terms of semi-retirement gigs: fun, flexible work that they can do on their own terms and that brings in some extra money. Cash that allows them to defer their Social Security benefits and avoid selling stocks when the market falls.
Better yet, think of financial independence as the financial line. How much passive income do you need to support yourself? Then create it to go do work you love.
In fact, you don’t even have to do that. Achieve ‘coastal FI’, where you have invested enough that you can build it up on your own to reach your target savings pot. From there, you can make a career change to something you love without having to fork out money for retirement investments.
“Follow the 80% spending rule”
For decades, financial planners told their clients That she won’t spend the same amount during their retirement, so only they need enough income to cover 80% of their current expenses.
Sure, some costs like commuting or mortgage payments be able to decrease, but others to get up. Healthcare, travel, home maintenance, and family support (such as helping adult children or aging parents) can put a strain on your budget. My own mother now spends significantly more in retirement than she did when she was working.
“Many people underestimate how expensive their sixties and seventies can be,” says Oren Sofrin Eagle cash Buyers in a conversation with BiggerPockets. “They are more active, and medical inflation is outpacing general inflation.”
“Social Security will cover 40%-50% of my expenses”
Just this year, the Social Security Administration recalculated when its OASI trust fund will become insolvent. Bad news: the date was moved to 2032.
That means Social Security Reforms are coming, and you can expect lower benefits and higher taxes.
And as we just noted, many people spend more in retirement, not less. “The mentality of relying heavily on Social Security is also falling short because older adults are more active and spending more than they used to,” notes the real estate investment coach. Tim Bowman when you talk to BiggerPockets. “They want to pursue hobbies and travel, all of them costs money.”
“I should aim for a 60/40 split”
As a real estate investor you intuitively understand that the allocation of 60% shares and 40% bonds is nonsense. Where does real estate actually fit in?
But apart from real estate, the 60/40 portfolio is still outdated.
In his will, Warren Buffett instructed his trustee Unpleasant put down 90% of his investments in an S&P 500 index fund and the other 10% in short-term government bonds. Professor Javier Estrada at the IESE Business School in Barcelona, Spain, put that 90/10 allocation to the test with historical data and found that it dramatically outperformed a 60/40 portfolio and had an extremely low failure rate (2.3%).
Lawyer Julia Ruechemeyer summarizes the research in a conversation with BiggerPockets: “Even during the worst periods of stock market downturns, such a 90/10 portfolio was only slightly lower than a 60/40 portfolio. And in good times, the 90/10 portfolio creates a huge amount of wealth for retirees.”
“Follow the rule of 100”
The ‘rule of 100’ is even worse than the 60/40 portfolio myth. It says subtract your age from 100, and that percentage should disappear from your portfolio in shares, the rest in bonds.
Maybe that math worked when government bonds paid 16% interest. It doesn’t work if they pay 2% Unpleasant 4%.
Personal, I have almost no money not at all in bonds. My wallet replaces bonds with passive real estate investments. Every month I invest $5,000 in a new passive real estate investment, as a member of the co-investment club I help organize. We all meet in one Zoom meetingexplore an investment together, and all members who wish to invest can do so with $5,000 or more.
Oh, and the investment we vetted this month? It actually pays 16% in benefits – and has done so since inception.
“Follow the 4% rule”
As common, sweeping, unqualified rules of thumb go, the 4% rule is actually better than most. But it still doesn’t hold up for thoughtful, sophisticated investors like you and me.
In an interview with the ever-smart Paula Pant, the inventor of the 4% rule, Bill Bengen himself has debunked it. Instead, he says the math supports a 5% withdrawal rate, as long as you plan your asset allocation properly.
His research shows that you should remove a large part of your portfolio from shares just before you retire (to avoid retiring). sequence of returns risk), and keep a good amount of cash and bonds for the first few years after retirement. Once you get past that initial period of high risk, move the bulk of it back into stocks.
“Sell investment properties before you retire”
If you don’t know what you’re doing in real estate, and you own a few rental properties with poor cash flow, you should probably sell them before you retire.
But are you an experienced investor with cash cow properties? Ignore the talking heads.
On the passive side, I absolutely, positively plan to keep to cling Mine hands off real estate investments through retirement. Some of them pay huge income yields, like that 16% fund I mentioned earlier. I also invested in that same fund last year and enjoyed the consistently high income yield.
‘Pay Off All Debt Before You Retire’
Robert Kiyosaki says yes $1.2 billion in debt. Do you think he’ll pay it off soon? Of course not, because he only takes on debt if it will boost his monthly cash flow.
Professional real estate investor Austin Glanzer of 717HomeBuyers.com uses the same strategy himself, telling BiggerPockets, “I built my portfolio using leverage on income-producing assets, properties that pay for themselves every month. The key isn’t avoiding debt; it’s learning how to make debt work for you.”
The same logic applies to your home, by the way. Sure, it feels emotionally satisfying to pay off your mortgage. But if I’m paying 4% interest on my mortgage, and I can make 8% to 10% on stocks or 10% to 20% on passive real estate investments, I’ll be doing that arbitrage all day long.
How I prepare my own money
I currently divide my investments evenly between equities and passive real estate investments. As I get older I may reconsider that allocation, but so far I’m happy with it.
On the passive real estate investment side, I will start to prioritizing income over growth. Currently I invest in both growth and income oriented investments, but that balance will do start shift.
I have also started adding precious metals and commodities to my portfolio. Not a ton: I plan to increase my allocation to metals to 5% of my portfolio, and will probably do the same with commodities. But the world is looking more economically and politically unstable than I would like, so a little coverage seems appropriate.
Ultimately, I aim to achieve financial independence within the next three years. But I continue to work as an investment club organizer and writer because I enjoy it – and it never hurts to make money doing work you love.
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