Fund Retirement Account vs. Direct "Taxable" Real Estate?

[Arie Van Gemeren]

Like most of us, my conception of one's career most of my life thus far was pretty plain vanilla - work hard, grow your W-2, and save the max possible in your retirement account. Like many others have echoed, I read Rich Dad, Poor Dad and had my conception of this "equation" thrown upside down. My view is different now, with the exception that I think if you have a great W-2 job it's a valuable "asset" and you should keep at it, not try to make the leap (per se) to financial independence or a full-time real estate career until the risk is mitigated "somewhat". 

I recently changed Firms and in my previous role had been maxing out my 401(k) every year as is the "standard" course of action (my last company also provided a 401(k) match so this made more financial sense). I'm now being offered a 401(k) at my new Firm sans the match and was debating (within my mind) whether or not to fund the new retirement account and benefit from the tax shield. As a note, I borrowed from my ROTH 401(k) to buy my first property last year, so I already know which way I'm leaning. 

I was curious what the communities thoughts are on this question: to max out your retirement account contributions, or to take post-tax money and invest it into real estate? 

Here's the calculation I ran in contemplating this - hypothetically you have $100k to place tax-free into a retirement account, or you have $60,000 post-tax to invest in RE. Retirement account earns 10% per year in stock market returns, and perhaps you get a 12% annualized return on a real estate investment. Year 30 your "real estate" account is worth $1,79mm, and your retirement account is $1.74mm (before paying taxes to withdraw the capital, so call it $1mm or so if you back out ~ 40% taxes - I live in California . . . ).  In short, this simple equation (to me) seems to indicate that even if you're earning a significant match on retirement assets it's actually not worthwhile to contribute if you can find high-quality real estate assets to invest your money into instead.  

Add to this that you can cash-out refinance on your R/E asset and pay no taxes on the withdrawal of capital and then re-invest the proceeds, and have the ability to use (TODAY) the investments outside of your retirement account, it seems to me there's no comparison. Some may argue that you can invest in real estate with a self-directed IRA, which is true, but you still have a significant tax to pay at the end in order to utilize the money.

Quickly, here are arguments against what I said; 

• Retirement accounts act as a "forced saver". The example above assumes that one has the discipline to save post-tax money and then to use it in real estate. if you can't enforce self-discipline, then clearly a retirement account wins hands down versus not saving plus spending your money and then having nothing come retirement time! If you also factor in that most people judge their own capabilities vastly beyond their actual performance, then the better risk-adjusted choice would still be to fund your retirement account. 
• Also, my example assumes you find a high-quality investment that yields 12% annualized (levered) which doesn't outrageous to me but is a big assumption. 
• There's also the fact that when you contribute to your retirement account, you automatically get invested (and so automatically get the benefit of compounding and being invested). With real estate there's a likelihood you're sitting on cash often while searching for a deal, so while each deal may annualize some % return, your total portfolio is inclusive of drag time with cash sitting on the sideline (pros and cons - you may sit on cash until a screaming deal comes along, balancing out your return, or you may sit on cash and never commit and never actually grow your money - another self-discipline issue which you have to factor in). 

Anyways - would love to gather others thoughts on this topic, or how others have approached it?