by Joe Firmin 3 ½ Minute Read
In the “good ole days” you went to college, got a good job with a pension, and rode that wave until the day you retired. Things aren’t quite like that anymore. We’re 100% individually responsible for our retirement now.
Not only are employer-paid pensions practically non-existent, but it’s also uncommon to stay at a single company or even in a single career path. For this reason, many of us have old, partially-funded, half-forgotten retirement accounts scattered throughout our trail of previous employers.
If this sounds familiar, or you’re saying, “Well, I might have 1 or 2 tops,” - you’re going to want to declutter your retirement accounts ASAP by rolling each one into a single, consolidated account.
Why?
Don’t Play Dead, Rollover Instead
Take Charge! You don’t want to be on the verge of retirement attempting to remember all the way back to your 20s and 30s as to who you worked for and what financial company managed that 401K, 403b, or IRA. Ugh! Having to go back and get documents together – the worst, like a bad tax season.
Trust me, while some of this 401K stuff is moderately fresh in your mind, you’re going to want to consolidate and rollover all your prior retirement accounts into a single, manageable account you can keep track of easily.
It’s a drag, but if you do what it takes now - find all the accounts, file all the paperwork - your future self (and your family) will thank you SO much.
Don’t just do any old rollover either into yet another IRA. Make sure it gives you the ability to control it and take true leadership of your investments. One type of IRA that let’s you do this is a “Self-Directed IRA (SDIRA)” You can read more about these in another post we had here.
What’s Next?
Here’s where you get to the good stuff. Once you can see the value of your combined retirement accounts and their lackluster performance, you become interested in investment opportunities that have the potential to help you accelerate your earnings. The beauty of the SDIRA is the flexibility and options it gives you on where and how you can invest your $$$$.
Did you know you can use your retirement funds to invest in real estate?
Yep! Sure can! No, not a REIT – REAL real estate. Hard ground – real assets.
There are absolutely some rules you need to follow in order to do this, so again, check out our previous post. First though, let’s walk through a couple of hypothetical scenarios to see why you might be interested in investing in real estate with your retirement funds.
Scenario 1: Keep My Money Where It Is
First, let’s pretend you have $100,000 in your new consolidated SDIRA. And let’s say that over the next few decades, you earn about 7% in returns annually. You add $10,000 per year to the account with compounding growth. In 30 years, when you are retirement age, what do you think you’ll have?
$1.8 million
Not a bad deal. So, you’re thinking, I can handle that, right?
Well, let’s add inflation into the mix. Inflation is about 3.22% per year, which means the cost of living doubles every 22 years.
The $1.8 million that sounds like boo-coo bills right now equates to less than $900,000 in today’s money. Living out retirement on only $900,000 is scary.
Enter Stage Right: The Self-Directed IRA
With the self-directed IRA, you have infinitely more control over the types of investments you’re allowed to make with your retirement money. No more being limited to certain mutual funds, stocks, and bonds, although you can certainly invest in those if you want.
Of course, there are limits - you can’t invest in a vacation home for yourself, for example. But you CAN invest in commercial real estate syndications. These are passive investments where you direct the custodian of your self-directed IRA account to invest the funds in a certain opportunity on your behalf. Any interest/profit earned from the syndication go right back into your SDIRA account and build your retirement $$$.
Hypothetical Scenario 2: Invest My Money In Real Estate Syndications
Now, let’s pretend that the same $100,000 was in a self-directed IRA account, invested in real estate syndications. You invest in deals with a 5-year hold time and a 2x equity multiple, which means over the course of 5 years, your initial investment doubles (roughly 20% annual returns).
For clarity… that means in 5 years, your $100,000 could be $ 200,000 and 30 years from now, your self-directed IRA could value about $6.4 million. Then, don’t forget about the $10,000 in contributions each year, like in hypothetical scenario 1. Add those in and you’d have over $9.5 million at retirement.
*Side note: Being able to contribute $10,000 per year assumes that your employer’s 401K allows in-service rollovers. If that is not allowed, you may be limited to contributing $5,500 per year which makes the total in your account in 30 years around $7.4 million. Still… pretty good right?
In Summary
Comparing $9.4 million (or $7.4 million if your contributions were limited) to $1.8 million is a no-brainer.
The impact on your future life and your kids’ future is crazy unimaginable, but add that to the impact your 30 years of real estate investments made on thousands of families whose apartments and communities you helped improve. So cool!
I’ll choose real estate every time.
The thing is, you can’t make this choice when you’re 65. This is a choice you have to make now. If you procrastinate another 5 years, you’re missing out on hundreds of thousands of dollars. Take Charge!
Do it for your future self, for your family, for your children. The work is worth it to prevent your 70-year-old self and your loved ones from experiencing financial stress and strained relationships because of money. Learn the lingo, and do what it takes today so you can live life on your own terms when it matters most.
If you decide you want to be a hands-off investor and invest in real estate syndications, join the Freedom Network. It’s absolutely free to join with no commitment necessary, seriously. If you don’t join, we won’t be able to send you opportunities (sorry, SEC rules). So join today! Not sure how it will work? Check out this post to understand the logistics.