In a recent Chuck Jaffe newspaper article titled Withdrawing when the market is down is costly if stocks provide savings, John, a participant in an investment seminar, asks the question, “Is this a bad year to retire?”

Although retirement may seem like an eternity, it is an issue that we will all have to consider one day.

In this case, the answer would be “yes” for John, even though he has $ 400,000 invested in 18 stock funds. The fact that left field folks rage is that if you have to withdraw funds from your retirement savings when the market is in the bathroom and that loud sucking sound is the extra dollars flying out of your wallet, you can ruin your money. savings. .

It’s ironic that people can spend their entire lives preparing for retirement only to find that when it’s time to retire, they can’t.

Stock selection by luck and accident

Investment adviser Judy Shine says, “People assume that if they choose the right funds and stick with them forever, they will be ready to retire and it could be so, but that’s more by luck or accident than by design.”

Of course, planning for retirement is a complicated process. Much depends on what people determine are their needs and wants. However, there is a better way to prepare for retirement.

The rental house option

What could John have done differently? Born of wealthy parents? Did Warren Buffet crash into your car? Perhaps somewhat less dramatic, but requires similar foresight and planning.

Home ownership is widely recognized as a way to build wealth. Can you get rich as a tenant? Maybe, but the odds are against you. In 2004, the average renter had a net worth of $ 4,000, while the average homeowner had an average net worth of $ 184,000. If owning a home is good, wouldn’t it be better to have 2 or 3?

Let’s imagine that John bought a house shortly after starting his professional life and getting married. He lived at home for 6 to 7 years and then bought a better home, as most people do. But, unlike what most people do, John kept his old house for rent. Six or 7 years later, John does the same thing again. Now John has 3 houses. He has tenants in two of them who pay the mortgage and provide John with rental income.

A different answer

Fast forward a few years and John again asks the question “Is this a bad year to retire?” This time you may get a different answer.

John has 3 “free and clear” houses with canceled mortgages. He has a good amount of money coming in each month from rent and he makes no payments for his residence.

Unlike stocks, you don’t have to take money out of your savings or investments. Your home steadily increases in value when you retire, while continuing to collect rent, which also steadily increases in the long run. With rents providing perhaps 40-50% of your income, if you collect a pension and start receiving social security payments, you’re ready to retire with just one change in your lifestyle.

In reality, owning rental properties is like obtaining a retirement pension before you retire.

And John has the option of selling a house to fill his checking account or to help one of the children. You will continue to have a steady cash flow from the remaining rental house. If you wanted to cash in and sell both properties, or all three and move to a smaller place, you’d be sitting on a small fortune.

No matter how you look at it, John has greatly increased his chances of a successful transition into his golden years.