Real Estate And Retirement Planning

In the last few years, stocks have taken a nose-dive. Retirement planning of many people on the verge of retirement has gone awry, forcing them to extend their working careers, just to maintain their standards of living. However, during these years, real estate prices have soared, and people who invested their savings in real estate, are on easy street.

Retirement planning involves long-term investments, and going for real estate in your retirement plans is ideal, as you cannot have anything more on long term basis than real estate. Remember that real estate investment is only for income, and appreciation of the assets, and you cannot claim any depreciation as you would in a taxable investment. 

Starting Early

For your retirement plans, you just simply cannot depend on Social Security. Unless your company has a generous retirement program, you will need to plan for long term. You are responsible for your financial freedom and security during the retirement years, and your retirement planning needs to start as early as possible. 

Most people do not think of their retirement plans until they are well into their forties. As a mater of fact, your retirement planning should start as early as possible, as early as your first job. The best way, of course, is to put your future in real estate. Here is why you should incorporate investing in real estate in your retirement plans.

• Tax Benefits and Equity Growth – The tax code encourages equity growth. Your equity does not have to be given up in the form of taxes. The law allows you to invest in any type of property, be it a single family or multi-unit homes, co-operatives, condominiums, apartment buildings, even planned or raw land. As a form of passive income, you can also invest in Real Estate Investment Trusts (REITs). You can also buy property for your Individual Retirement Accounts (IRAs), where the income and appreciation of the assets build up tax free, unless to begin to withdraw. 

• Timing Your Debts – You can control the timing of your mortgage debts when you have invested in real estate. If you have invested in real estate early enough, you have a long enough time, and can plan to pay off your mortgage by the time your retirement date arrives. Your retirement planning should take into account the mortgage acceleration, and calculate to pay off your debts in the year of your retirement. You simply have to plan the amount you need to pay each month to pay off your mortgage by the time the planned retirement date arrives . . . and you do not have to re-finance your mortgage.

• Real Estate and Inflation – Unless the economy takes a turn southwards, which can happen at times, real estate always remains ahead of inflation. The long-term results have been consistent enough to assure that real estate has always been ahead of the cost of living. The rise in prices of real estate over the years has been consistent in comparison to stocks. Inflation often erodes the value of your investments, leading to reduction in real spending power. The consistent performance of real estate, along with the annual tax benefits, always stays ahead of this problem. 

• A Safe Investment – Investment risks in real estate are marginal as compared to other long-term investments. A larger down payment, and investing in properties that generate income, can take care of cash flow problems. You have a better tax benefit with a higher tax rate, and this has a direct bearing on your after-tax cash flow. You can further protect your property with insurance, which is required. 

• Retirement Housing – Your house, which you had maintained over the years with rentals paying towards your mortgage, and offered you the benefits of the annual tax advantages, would have become mortgage free by the time you retire. You can now, if required, convert it into your primary residence – living out your retirement in a mortgage free accommodation. 

Your retirement planning that centers around real estate is quite safe, as no other long-term investments would offer you high safety and low risks. Usually, most investors overlook the comparison of high safety and low risk. On advice, you may need to decide about accelerating your mortgage or investing in some high yield investment. Always make comparisons before deciding on any path.

Many may feel that real estate in your retirement planning may not be appropriate. It is always better to explore all long-term investment avenues, but in majority of the cases you will come out deciding on investing in real estate for your retirement plans.

 

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