Why Boomers Should Consider Real Estate as a Retirement Hedge

October 2, 2018

Over 10,000 baby boomers are turning 65 every single day and will continue to do so for the next 10 – 15 years.  That has never happened before.  More people will actually be retiring than entering the work force.  Ironically, the boomer generation, who for all intent and purposes, did considerably better financially than their post-Great Depression Era generation parents did are at a crossroads.

Many have lived well and planned poorly.  Growing up in the booming post WWII economy, the mantra was to get good grades, go to college, get a good job and retire with a big fat pension.  It sounded great but no one ever said that mid-career corporate America would do away with pension plans and place the responsibility for our retirement squarely on our shoulders.

That single shift caused a whole new paradigm to emerge and many boomers missed that subtle shift.  Rather than socking money away for retirement, the houses got bigger, the cars more luxurious and lifestyle bigger.  As Old Blue Eye sang, “We Did It Our Way!”  We raised our kids to be less independent—video games replaced stickball and tag, and everyone got a trophy just for showing up.

While big screen TVs and surround sound became our generation’s “chicken in every pot,” savings rates plummeted.  Consumerism was in full swing for decades.  Now, for many, those free-spending days are coming home to roost.  The average boomer is retiring with a nest egg of $160,000 plus social security.  All indicators suggest Social Security will be bankrupt by 2027 because more dollars are going out in the form of benefits than are coming in.

With Americans living longer, on average 20 years after age 65, that would suggest that if you could earn 5% on your nest egg, you would run out of money in 264 months presuming you took $1,000 a month to supplement your Social Security.  The presumption is that you’d pay no tax on those earnings or distributions.  It also presumes you enjoy perfect health because out of pocket health care expenses are expected to average $250,000 for the average American retiree after age 65.

How Long Will Your Savings Last in Retirement?

Earnings            Initial              Monthly          Months to

Rate                 Balance           Distribution         Zero

4%                  $160,000             $1,000                229

5%                  $160,000             $1,000                264

6%                  $160,000             $1,000                322

4%                  $250,000              $2,000                162

5%                  $250,000              $2,000                177

6%                  $250,000              $2,000                196

By Augie Byllott