Ditch the 4% Rule: Here's A Smarter Way to Fund Your Retirement

If you're looking at your retirement account balance and feeling that knot in your stomach, you're not alone. A recent survey from Bankrate showed that more than half of Americans feel like they're behind on their retirement savings. But before you resign yourself to working an extra decade, there's a strategy you might be overlooking that can reduce the amount you need to retire.

Rethinking the Traditional Retirement Model

The conventional retirement playbook probably looks familiar. Save diligently in your 401(k), follow a traditional stock-and-bond allocation, and plan to withdraw 4% of your portfolio each year in retirement. Even if you've done well and accumulated $2 million (which is well above average), that traditional withdrawal rate only gives you about $80,000 per year to live on. And we all know $80,000 doesn't get you nearly as far as it did just five years ago.

The problem with this traditional strategy is that you're left with a retirement portfolio that doesn't generate income. You have to sell off pieces of your portfolio each time you take a distribution and hope you don't live to see the next market crash. Otherwise, that 4% might leave you living on only $40,000 per year.

401(k)s and IRAs are effective tools for helping you save for retirement, but they're not an efficient means for actually funding your retirement.

A Retirement Portfolio That Cash Flows

When you have a retirement portfolio that produces income instead of requiring you to sell it off piece by piece, you get to use a different playbook. This is what real estate can provide.

This doesn’t have to mean buying rental properties and becoming a landlord (are you really retired if you’re still chasing down rent checks and taking calls about clogged drains?).

Many investors ar doing this with the same type of high-quality multifamily properties that pension funds and insurance companies have been using for decades to generate reliable income. At Cardone Capital, we've mastered this institutional approach, managing nearly 15,000 units across prime locations in growth markets.

Individuals can invest in these properties through private real estate funds. In many cases, you can even invest in these funds with your 401(k) or IRA without paying any penalties. We’ve seen thousands of people make this transition through Cardone Capital.

When you convert your traditional retirement account to real estate, that same $2 million nest egg could generate $120,000 or more in annual income. The key difference here, besides receiving 50% more income, is that you don't have to sell anything. Your distributions come from rent payments every month, like clockwork.

You've probably heard that real estate is an excellent hedge against inflation. One of the reasons for that is rent growth has outpaced inflation over the past 20 years. This means your income will likely increase each year, and you can maintain your lifestyle throughout retirement.

Tax Advantages on Top of Tax Advantages

One of the things that make 401(k)s and IRAs an effective tool for helping you save for retirement is the tax benefits. These benefits allow you to put more money to work for you during your accumulation years to grow your wealth faster.

Beyond that, the tax benefits don't help you much during your retirement years. This is where real estate comes in to help you keep more of your money and allow your retirement income to go even further.

When you receive dividends from stocks or interest from bonds, you're taxed on every dollar. But real estate has a huge advantage called depreciation. Even though the properties are typically appreciating in value, the tax code allows for depreciation deductions that can shield a significant portion of your income from taxes.

Think about what this means for your retirement income. Not only could you be generating more income than a traditional portfolio, but you might keep more of what you make.

Making the Transition

If you're intrigued by the potential of institutional real estate for your retirement, you don't need to make a dramatic all-or-nothing move. Many investors start by allocating a portion of their portfolio to real estate while maintaining their traditional investments.

The key is working with established firms that have strong track records and truly institutional-quality assets. And before making any moves, you'll want to understand the investment structure, including minimum investments, hold periods, and distribution schedules. A conversation with your tax advisor can also help you understand how to structure your investment most advantageously.

A New Perspective on Retirement

Retirement planning isn't just about building the biggest nest egg - it's about creating reliable income streams that can support your lifestyle for decades to come.

While traditional investment strategies might leave you constantly worried about market volatility or running out of money, real estate offers a different path. You could generate the income you need while preserving and growing your wealth, potentially reaching your retirement goals sooner than you thought possible.