In a recent newspaper article by Chuck Jaffe entitled Retiring when the market is down is costly if stocks provide nest egg, the question is asked by John, a participant in an investment seminar, "Is this a bad year to retire?"
Although retirement may seem like a lifetime away, it's a question that we will all one day have to consider.
In this case, the answer would be "yes" to John although he has $400,000 invested in 18 stock funds. The fact that comes barreling out at people from left field is that if you must withdraw funds from your retirement savings when the market is in the toilet and that loud sucking sound is the additional dollars flying out of your portfolio, you can ruin your nest egg.
It's ironic that people can spend their whole lives preparing for retirement only to find that when the time comes to retire, they can't do it.
Stock Picking by Luck and Accident
Investment advisor, Judy Shine says, "People assume that if they pick the right funds and stick with them forever, they'll be set to retire and they might be, but that's more by luck or accident than by design."
Granted, planning for retire is a complicated process. A lot rests on what people determine are their needs and desires. However, there is a better way to get ready for retirement.
The Rental House Option
What could John have done differently? Get born to wealthy parents? Have Warren Buffet crash into his car? Maybe something less dramatic, but requiring similar foresight and planning.
Home ownership is widely recognized as a way to generate wealth. Can you get wealthy by being a renter? Maybe, but the odds are against you. In 2004, the average renter had a net worth of $4,000, while the average home owner had a median net worth of $184,000. If owning one house is good, wouldn't owning 2 or 3 be better?
Let's imagine that John bought a house soon after he started his professional life and got married. He lived in his house for 6 to 7 years then bought a better house, as most people do. But, unlike what most people do, John kept his old house to rent out. Six or 7 years later, John does the same thing again. Now John owns 3 houses. He has tenants in two of them who pay off the mortgage and provide rental income for John.
A Different Answer
Fast forward a few years and John again asks the question "Is it a bad year to retire?". This time he may get a different answer.
John has 3 houses "free and clear" with mortgages paid off. He's got a good chunk of money coming in each month in rent, and he makes no payments on his residence.
Unlike stocks, he doesn't have to remove money from his savings or from his investments. His house steadily increases in value when he retires, while he continues to collect rent, which also is constantly increasing in the long-term. With rents providing perhaps 40-50% of his income, if he collects a pension and starts taking social security payments, he is set to retire with barely a change in lifestyle.
In reality, having rental properties is like getting a retirement pension before you retire.
And, John has the option to sell a house to fill up his checking account or to help out one of the kids. He will still have a steady cash-flow from the remaining rental house. If he wanted to cash out and sell both properties, or all three and move into a smaller place, he would be sitting on a small fortune.
No matter how you slice it, John has greatly increased his chances for a successful segue way into his golden years.
Terry Sprouse is author of the book "Fix 'em Up, Rent 'em Out: How to Start Your Own House Fix-Up and Rental Business in Your Spare Time."
Terry's blogs:
http://www.fixemup.org
http://www.squidoo.com/fixerupper
Article Source: http://EzineArticles.com/?expert=Terry_Sprouse
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