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Updated about 5 hours ago on . Most recent reply
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Advice for investing a big war chest?
Hi all, rookie here. My wife and I want to move out of stocks and in to cash-flowing assets once we hit 59.5. Our goal is to produce robust cash flow to help fund the golden years and eventually pass the properties to our kids. I've been reading books and listening to various BP podcasts nonstop for the past couple months, but I'd love to hear thoughts about the right strategy for turning our war chest into a sound real estate portfolio (preferably before I'm too old to enjoy the fruits of our labor!). Thanks!
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Hi Trevor! Great question and I completely get the appeal of wanting to prioritize portfolio cashflow once your paychecks stop. That said, it would be hard to determine if this is a move that will help or hurt you with such little information.
While a more robust conversation around your entire financial picture would be required, here are a few questions that I'd want to double click on first:
Where is Your War Chest? - The type of account(s) that hold your life savings is important in this decision (ie. savings, brokerage, pre-tax retirement, Roth retirement). I assume that since you're waiting until 59.5 that at least a decent bit is held in retirement accounts and you're hoping to avoid early withdrawal penalties. Either way, there are a wide range of tax consequences associated with big withdrawals from any of these accounts that can't be ignored.
What is Your Current Plan? - Say you decided not to go all in on real estate, do you have confidence that your current nest egg would be enough to protect your retirement spend? If not, is this decision an attempt to step away from work sooner than you would otherwise be able to? Do you have clarity around different options there are to create cashflow besides pure yield/interest/rental income?
What is Your Real Estate Experience? - Are you considering using your war chest for your first real estate investment or are you experienced in this space? Make no mistake, shifting a "big war chest" from liquid investments and cash into a cash flowing real estate portfolio is not a passive endeavor. Assuming you're getting into deals that can perform above what the market will deliver (the only reason you would do this), there is still going to be a lot of work involved. Granted, this may be what you're looking for in your ideal "retirement" but worth noting!
My personal opinion is that, while shifting investments into real estate may be the right move for your situation, there is likely a lot of work to be done before you get to that step to avoid a potentially costly mistake. Retirement income can be created in many different ways and the tax implications of all options should be carefully thought through. You only get one shot at retirement so I'd highly advise at least having a conversation with a financial planner. Feel free to message me if you want to talk more details.