Other Retirement Income
Many baby boomers nearing retirement today did not have a disciplined savings plan starting at an early age. This is why many financial advisors are recommending that people work part time in retirement to supplement their other retirement income. If you find part time work that you enjoy, then continuing to work a few hours per week is a great idea. But what if your goal is to travel or enjoy other pursuits rather than work in retirement or, perhaps, you may not be able to find any decent paying work? The answer to these questions may not be known before retirement. Therefore I think it is imperative to develop another source of income to supplement your retirement savings plans.
I believe in today’s economic environment that unless you start a disciplined savings plan by approximately age 30, and maintain your employment savings rate (and your employment) throughout your entire working life, it will be very difficult to accumulate the amount of assets necessary to support yourself in retirement. I think this is true for most people nearing retirement today and, with the changes coming to the Social Security and Medicare programs, will be even more so for people who won’t retire for another 20 to 30 years.
What I am talking about here is developing some other business venture on the side during your working life that will provide other income. It can be anything that can be handled on a part time basis that does not interfere with your main employment.
For example, one person I worked with back in the mid-1990s was a CPA. He had a part time accounting business that he had developed over 20 years. When I met him, he and his wife had about 1,000 clients that he prepared tax returns for from January to May of each year. I don’t know how much he made from this side business, but I do know what accountants charge to do a simple tax return. Let’s say that if each client paid an average fee of $300 that would come to $300,000 gross income per year. Frankly, with 1,000 accounting clients, I never understood why he still worked at his regular $80,000 per year day job. Anyway, I don’t know if my acquaintance continued his accounting business or sold the business in retirement, but either way he had set himself up with a very nice additional stream of income during retirement.
The point is, for most people, I believe it will be necessary to develop another source of income besides the traditional retirement savings plans, if the goal is to not work during retirement. Because I started my retirement savings plan late, about age 35, I needed another vehicle to get me to my retirement goal of retiring in my mid-50s. I chose real estate investments as my vehicle for developing another source of retirement income. My retirement financial assets provide only about two-thirds of my retirement income. I do not have any employer provided pension or health care benefits and I am not yet eligible for social security. The balance of my retirement income is derived from residential property investments that I rent out to others.
Despite the recent troubles in the real estate market, I still think investing in real estate is the best wealth building tool available to the average person. In the next few posts I will discuss why you should consider investing in real estate and how it can help supplement your retirement income.
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