Avoid Becoming Another Statistic: How To Retire On Your Own Terms With Real Estate

By Gabriel

Than Merrill, ContributorFounder and CEO of FortuneBuilders


For better or for worse, your financial future isn’t written in stone — no matter how old you are. It’s never too late to secure the retirement you had always envisioned for yourself, and there is one investment vehicle in particular that can make the transition a lot less burdensome: real estate.

If for nothing else, real estate may be the solution to what are otherwise less than attractive retirement statistics. According to the Motley Fool, as recently as this year, “the average 50 year old has $42,797 saved” up for retirement. While a savings account upwards of $40,000 is impressive when looking to buy a car, it is nowhere close to what you will require in retirement, at least according to The Motley Fool’s data collected earlier this year. “You’ll need $1,060,751 in savings if you expect to draw $5,000 per month for 30 years, assuming 6% annual investment returns and 2% inflation,” says the financial-centric multimedia outlet.

Unfortunately, a large percentage of the population grossly underestimates the cost of retirement. That, or they simply can’t save enough under their current circumstances. Data presented by the Government Accountability Office (GOA) last year should serve as a sobering reality check. “Among those with some retirement savings, the median amount of those savings is about $104,000 for households age 55-64 and $148,000 for households age 65-74,” said a previously released GOA report. Far too many people planning to retire simply don’t have the realistic means to do so.

It’s worth noting, however, that it’s never too late (or too early) to take action into your own hands. Retirement is as divisive a topic as they come; people are either convinced that it’s too far away to even consider worrying about, or they are concerned they haven’t done enough to supplement their golden years. But I digress; whether you have or you haven’t done enough to compensate for losing the income stream you have come to rely on for the better part of 50 years is a moot point when you are 64 going on 65. What’s done is done. All that matters is what you decide to do moving forward.

I want to encourage you to think outside of the box. By all means, a traditional retirement savings account is a great asset to have at your disposal come retirement, but it isn’t your only option. I maintain that the best retirement vehicle is an investment of the passive variety. Instead of contributing solely to a retirement account, perhaps it’s time you put your savings to work in an entirely different way: an investment portfolio comprised of rental properties.

A passive income real estate portfolio boasts an inherent advantage over the traditional nest egg: accumulated capital is in no way limited, but rather compounded over time with each additional asset. A nest egg, on the other hand, has a finite amount of savings to tap into. While a savings account is limited to the amount you have managed to accumulate, a passive income portfolio will make it possible to pursue the lifestyle you intend to achieve in retirement.

You could argue that Social Security will make periodic contributions to a nest egg, but it is by no means able to support the average American over the duration of retirement. As the Motley Fool so eloquently puts it, the trust funds we have come to know as Social Security “will run out of money entirely in 2034,” unless drastic changes are made to the program’s solvency.

Passive income, on the other hand, can make up for where social security falls short, and then some. The right portfolio can make saving for retirement a reality, which begs the question: How many properties will you need to rent out to meet your future needs? The answer may surprise you, but you won’t know for sure until you determine the amount you can retire comfortably with.

Instead of concerning yourself with a daunting retirement number, use your current salary as a benchmark. Experts are of the consensus that prospective retirees should be able to retire on somewhere in the neighborhood of 80% of their current salary. Articles cited by the GAO echo a similar sentiment, suggesting that wage replacement rates “typically range between 70 and 85 percent.”

That means a person making $100,000 prior to retiring should be able to maintain their current lifestyle with approximately $80,000 in retirement — according to the 80% rule financial analysts use today. Only once you have your number can you even begin to contemplate the specifics of a passive income portfolio capable of financing your retirement lifestyle.

Now, apply that same number to your passive income portfolio. How many rental properties will it take to meet your needs? Don’t worry, the math won’t be as hard as you think. Data compiled by ApartmentList should put things into perspective.

The average 2-bedroom apartment rents for approximately $1,280 a month, according to ApartmentList. That means a passive income portfolio hoping to realize at least $80,000 a year should consist of no less than six properties. Using the going rate for the average apartment, landlords would stand to make $7,680 every month, provided their six properties are in line with the national average. That same number extrapolated over the duration of an entire year would come to $92,160.

It’s worth noting, however, that for the idea of a passive income portfolio to live up to its name, it needs to be passive. In order to do so, you must account for the costs of property management, maintenance expenditures and several other variables, but those things can easily be offset by adding more properties to your respective portfolio.