Real Estate and the Retirement Squeeze

[Ravi Renduchintala]

Here are some startling statistics. According to an article titled, “Workers Saving Too Little to Retire” by the Wall Street Journal, 10,000 people are turning 60 every day and 57% of US workers surveyed, report less than $25,000 in household savings. The survey also found that 28% of all Americans don't have the confidence that they will have enough to retire comfortably. Meanwhile, pension plans are stretched because Americans are living longer. Only half of the people surveyed said that they would be able to come up with $2000 if a need were to arise in the short term. Pretty scary stats! The manifestation is all around us. Retirees are doing odd jobs like boxing at Costco or driving a shuttle to the airport to make up that extra $1000 income gap. Does it have to be this way for people that have worked hard all their lives? The roller coaster rides of the stock market and low fixed income environments have whacked a generation hard, dealing many a knockout punch. Take target date funds that set retirement dates and load up on bonds towards the end. Well, if interest rates stay at such low levels, the price of those bonds is likely to fall with a slight increase in interest rates. And that will hit a number of about-to-retire folks. No escape in the market jungle!

Real Estate investment could be the answer for the fixed income malaise afflicting potential retirees. If they had bought a rental home every now and then over the span of their careers, they may very well have had that extra $1000 or $2000 in monthly income when they needed it most at retirement. One way they can make a difference is if they could get their kids started in the right direction to avoid their mistakes. I know of investors that have paid for their children's college education using this strategy. It still may not be too late for many of them. And a piece of real estate is not going to vanish like Enron or a Madoff ponzi scheme. The key is to buy the right property in the right neighborhood managed by a trustworthy property manager.