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Posted about 7 years ago

Why My Retirement Strategy Is Cash Flowing Rentals

I see a lot of information out there about how much a person needs to retire. I also see and hear a lot of people asking the question "how much money do I need to retire?" There are online calculators on just about every investing website, and I'm pretty sure my online banking accounts have some version of one as well.

As a person who likes simple things and applies common sense to just about everything, this whole concept of having a big chunk of money in order to retire is confusing to me. But for fun, I choose to complete a retirement calculator and see how much money I would need in order to retire the traditional way (I'm not counting in my rental income or equity in my properties).

I choose the nerd wallet calculator because I like their website. Sometimes they have cool stuff, so I figured I'd give it a try.

The first step was to enter my age.

Nerdwallet Retirement Calc 1024x496

Step two was to enter the age I want to retire. I put 62, though I was shocked when the Nerdy Insight informed me that I can get 100% of my social security benefits at age 67. I guess I thought it was 65, and I am now feeling kind of cheated.

Next question was my pre-tax income. By this point I am also starting to not like their Nerdy Tips since it is saying that I need to save twice my annual pre-tax salary by the age of 35. Yeah... that's not going to happen.

Next it asks how much I've saved for retirement. A few years ago I set up my own self directed 401k since I am self employed. I contribute $1250 each month into the account and then invest it in PeerStreet. Anyway I only have $60k in my 401k and I kind of feel like a slacker now.

The final question asks how much I contribute toward retirement. The Nerdy tip tells me I should be at 15%. Based on my math, I actually contribute 5%. Man, I'm really failing at this thing according to Nerdwallet.

So my results are depressing. I am literally "in the red" and at 22% of my goal. Apparently at my current savings rate I will be able to retire at 82 years old. Now I want to drink...

So here is what concerns me. I wonder how many 30 year olds even have $60k in retirement?! I mean it's great and all that someone would be checking out this retirement calculator but I also wonder how many "give up" or feel defeated after getting a response like this.

My other issue is why do these retirement calculators (Nerd Wallet's is not the only one) not ask about passive income streams?

In this day and age, it seems like everyone has a personal blog, FBA Amazon Business, DropShipping Store or real estate.... I love this blog article on the Top 12 Passive Income Ideas. I think some or all of these ideas would be a perfect retirement income strategy. I bet you could even set up a self directed 401k and get a business license and fund it with the income from any one of these ideas if you wanted to. Wouldn't that be beneficial for this magical retirement calculator to factor that in?

So after my initial shock at being in the red, I reminded myself that I do have passive income, and quite a bit of it.

I have a memory from a few years back. I had maybe five rentals at the time, two duplexes and one single family. I remember opening the mail one night and it was from the Social Security office. It had some kind of calculation telling me that if I continued to work what felt like the rest of my life, I would get $1200 per month. I laughed and showed my husband. He laughed too because that was the cash flow we were already getting from just one of our duplexes. I was very tempted to mail them a letter back telling them to close my account and disburse it to others because I've got it covered myself. I get that you can't do that, but in all seriousness I then started to wonder how many people my age are seriously planning on retiring off of social security.

Just for fun, I completed the Action Plan that was suggested to me by the Nerdwallet Retirement Calculator. Guess what their amazing advice was? Increase my monthly savings to $4,002 per month.

With inflation at around 2% and bank interest at like .5% this advice sounds insane. I get that these financial people are saying that you need a chunk of money so that it can be invested and you can live off of the dividends, (if those still exist) the interest, or off of the profits of selling stock.

But where are all the new school financial planners who share with us young millennials how to create passive income that doesn't require sending them thousands of dollars every month? I love that there are so many bloggers who share how they created their own path to financial freedom, though I really think that a fee based financial planner who knew about this stuff would be super helpful. I read a useful book recently, Tony Robbins's book Money: Master the Game is a long read, but he really went straight for the stock brokers and mutual funds and exposed their horrendous fees. In real estate land usury is a no-no, but these guys are making a killing while hiding it in the fine print.

I dropped out of college at 20 and I felt bad that my mom and dad paid for my schooling that I never finished. So I repaid them by doing a real estate joint venture and they earned back pretty much ten times their college investment so I think they felt pretty good about it. I dropped out so that I could learn the skills I felt I needed in order to succeed on my own. Learning those skills required me to work in sales jobs, customer service, and sometimes I had two jobs because I figured in working two jobs at once I could double my rate of learning and earning at the same time.

When I started making some real money in real estate, the first thing I did was start saving up for a down payment on a duplex, and every year I set out to buy at least once property so that I could eventually replace my income. I currently own 16 units, I have two more under contract and I'll likely buy 10 more this year, but we'll focus on what I currently have. These rentals produce $80,880 per year in net income. That's after all expenses. My amazing husband was able to retire at 29 years old from construction because of our rental income. I could too, but I'd be too bored so I just keep grinding. Plus it's not about making more income anymore, it's about buying more faster so that I can double down on my learning and help others.

While we do not have $1 million in the bank, if we did it would likely not be able to produce $80,880 in income. We don't have that much cash, however we do have over $1,600,000 in net worth, mostly from the equity in our real estate.

Now this could get wiped out in a few months with another downturn like in 2008-2012. If that happened I'd be thrilled, because every woman loves a sale, and I'm addicted to real estate. If all of that equity got wiped out that would mean that real estate values would have gone down 50%, so I'd probably spend every last dollar buying everything up that I could. My husband will attest to the fact that a few times I almost made us broke by buying a few too many houses at a time. I truly can never turn down a good sale.

So, let's say we didn't buy anything else and I retired at age 62, which is 31 years away from now. Let's also say that I do not take any further loans or lines of credits out on the properties, and the rents do not increase at all for 25 years. Leaving everything as it is currently, that would equate to $16,785 per month or $201,420 in annual income. I think I could comfortably retire off of that....

So tell me, why do we use silly calculators that tell us how many millions we need in the bank and why do we look forward to those Social Security statements?

I'm not even saying that everyone needs to buy a ton of real estate in order to be able to have income to retire. I'm more focused on why more people are not looking for additional passive income streams in order to retire, or not live paycheck to paycheck. Then retirement would look more like a monthly passive income number, not an age.

I don't know about you, but I'd way rather live like a 40 something retiree than a 60 something retiree. I'd also love to hear of any cool and different ways that you are planning for retirement or creating retirement income! The more we share the more we learn and the more we all benefit.



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