When planning for retirement late in working years, there are two primary focus areas that this blog will focus on:

INCOME

EXPENSES

Most of my generation will rely on income sources other than Social Security benefits for retirement. Certified Financial Planners agree that while eligibility is available at 65, there is a larger payout if you can wait until age 70. If this is possible, it will make the social security income higher.

Retirement Planning is best done early, but the good news for someone that does not have a target fund, there are options.

How much do I Need for retirement?

If you are curious about your estimated Social Security Administration benefits, here is the official benefit retirement calculator.

The average retirement savings for ALL WORKERS is $97,000. Savings expectations for a comfortable retirement is $1.04 Million. In 2021, only 56% of workers were enrolled in a workplace retirement plan and contributed to their retirement account balances.

The average life expectancy in the US and peer countries is currently 76. The current retirement age is 62; on average, we will need 14 years of “income” to care for our daily needs. This is likely where the common retirement goal of $1,000,000 originates with roughly $70,000+ per year for 14 years is $1,000,000. In principle, $70,000 per year is considered a comfortable retirement. That is if the house is paid off and Medicare absorbs most medical expenses.

Any financial advisor will advise a young person entering the workforce to build a nest egg of 5-10% of their annual income and invest this money to earn 7-8% investment return per year.

As you approach retirement age, having a clear picture of your retirement lifestyle will become essential to visualize. This picture will need to drive your investment objectives which will cause your asset allocation and emergency fund. This can take several years and discipline; however, consistently working on your investment strategy and working toward this goal will get you (and your bank account) there.

Regardless of where you are in the retirement planning phase of your life, now is the best time.

But what if someone is approaching retirement and only has $300k? What can she do as solid income-producing years are likely behind her? Even if someone has $1M in the portfolio, what are some of the best ways to grow this in the next 5-10 years?

Increase Income

How can you create additional sources of income when you are exiting the workforce? Finding a job will not be the best use of time; instead, it is better to put current and retirement assets to work as additional income. The near or post-retirement-age person should focus on a lower cost of living and finding extra income.

If you are trying to exit the workforce with early retirement, then this is a matter of ensuring you have enough income (or savings) minus expenses month over month and year over year. That is until your Social Security benefits, pension, and other benefits take effect.

Passive Income

Suppose you are in the position of our protagonist, with only 300k. In that case, you should seek out passive investment vehicles such as annuities and multifamily syndications that can provide income to you without additional labor.

Syndications

Syndications are real estate transactions in which people pool their funds to purchase commercial properties. There is a Managing Partner and a Limited Partner. The managing partner(s) can have multiple people responsible for the business plan and asset allocations and are the asset managers. The limited partners are the silent partners who receive monthly income or quarterly dividends into their savings account or Roth IRA as an incentive for investment.

Usual timeframes for Syndications are five years of payments + total return of principle. Average returns are typically 18-22% IRR (internal rate of return annually).

Syndications are common in Multifamily (apartments), Self-Storage, Office Buildings, and Industrial. Most large investment offerings that are not going public; but are still regulated by the SEC will be syndication.

I am using the Conveyor Belt theory pictured below. 

  • Year 1, invest in syndication and begin collecting the dividends (6%) – $3000
  • Year 2, invest in a 2nd syndication and collect on dividends from deal 1 + 2 – $6000
  • Year 3, invest in 3rd, collect on dividends from 1+2+3-$9000
  • Year 4, invest in 4th, collect on 1+2+3+4-$12000
  • Year 5 invest in 5th, collect on 1+2+3+4+5-15000
  • Year 5, exit from deal 1: $100,000
  • Total Passive Income Year 5: $115,000
  • Year 6, invest $100k on 6th: $18000
  • Year 6, exit from deal 2: $100,000
  • Total Passive Income Year 6: $118,000

And the cycle continues. 

By consistently putting capital into real estate syndications, you enable yourself to cash flow, build equity, and receive tax benefits from owning real estate. Re-investing the capital offsets capital gains taxes as well.

Annuities

Annuities are insurance products with monthly distributions of 4-6% payments for life. With numerous structures and benefits, Annuities are another passive income vehicle available. Annuities can be purchased on different timeframes offering higher yields with the longer-term product.

The general rule of thumb is you want to double your assets’ worth every five years (20% IRR or Internal Rate of Return). In a volatile environment, stock prices can reduce the value of mutual funds and the overall investment returns of a portfolio. This makes investing in any brokerage account scary and reduces the amount of money someone would want to invest.

Understanding your risk tolerance and the past performance of the vehicle you choose will be equally crucial to the investment advice you receive from any financial experts.

Expenses

Diversifying becomes more critical at this stage, and receiving cash dividends is essential to cover monthly / retirement expenses such as utilities and unexpected repairs.

Understanding your monthly expenses will be stepping ONE to knowing if you have enough money to retire or if you need to wait until full retirement age.

Also, understanding how much money you can cut to invest wisely to increase monthly or quarterly distributions will help on this journey. Such things will significantly improve the ability to reduce the overall retirement goals and develop a solid retirement strategy.

The good sense to not purchase unnecessary items such as a new car every 3-5 years and keeping your monthly expenses elevated is vital in retirement years.

The rule of thumb is that 4% is a safe withdrawal rate from your savings/retirement accounts/Social Security. In retirement, you are responsible for 100% of your medical care.

Your monthly budget on the right track will set you up for long-term success, even with a smaller retirement account.

Taxes

In retirement, income taxes should be lower, but receiving tax advice and additional information from a certified financial planner is a good idea. They can help guide you on potential tax breaks and how much gross income / pre-retirement income/investment income to invest in the stock market, annuities, syndications, and what your entire retirement portfolio should look like.

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