The beauty of paid off rental income during retirement is the lovely depreciations which will keep me from paying zero to very little in taxes and am able to collect the Obama care subsidies for way less expensive Healthcare, grateful I stumbled upon this plan for my early retirement when I did
You forgot about these issues: Surprise unexpected maintenance on rental properties cutting into their savings after they already retired. Second, like contributions from employers to match their retirement accounts contributions. Not usually a lot of money, but you still should consider it. You missed these. The unexpected maintenance issue needs to be part of the plan. Sanjosemike (no longer CA)
Not sure how the software is doing its calculations, but mathematically, they'd be better off in retirement if they paid off the low-interest debt slowly and invested as much of their income as possible into aggressive growth funds. QQQ has averaged about 18-20% per year for the past decade. Even assuming a 10% return is far better than paying off 4% debt that your renters are technically paying for you anyway. If they really wanted to pay the house off before retirement, they'd be better off investing the "extra" payments in an aggressive growth ETF and then selling off the investment as soon as it grows high enough to equal the balance of the loans on the rental properties. However, by that point, a portion of the annual growth of their portfolio would probably be more than enough to cover the mortgages anyway... no need to entirely sell off the portfolio, just use it to pay extra on the mortgage each month. Neither of those options is as good as leaving the money invested and paying down the low interest debt slowly though. I also noticed their interest rates are over 4%. Pretty easy to refinance those down to 2.75% right now. That would be the very first thing I'd advise. With that said, eliminating debt means eliminating risk. While the returns are better in the market, you're still leveraged in real estate. If the renters stop paying for any reason, things change considerably. You can retire when your total investment income exceeds your total expenses, whether that income is from rental income or investment income, or both. There's always risk to that income, whether it be market risk or renters defaulting on payments. It's just a matter of choosing which type of risk you're comfortable with and making sure you have a cushion to withstand some turbulence when it inevitably hits.
Dustin, I currently don’t have an advisor, but my investments are very non traditional they include rentals, pension, 401k, and ESOP. I’m an really struggling with prioritizing where I should put my $ to debt on the rentals or IRA or 401k and what to do with my ESOP shares. How familiar are you with ESOP and what would it take for you to help me prioritize my savings/debt payments? Thanks for all the awesome videos!
The last 6 months have demonstrated that your income properties may not generate any income if the local Democrat Kommissar decides that tenants need a rent holiday. Plan accordingly.
The beauty of paid off rental income during retirement is the lovely depreciations which will keep me from paying zero to very little in taxes and am able to collect the Obama care subsidies for way less expensive Healthcare, grateful I stumbled upon this plan for my early retirement when I did
I like this analysis! I’ve always wondered that. I’m glad that you explained it and backing it with facts! Thanks!!!
What premiums? HAS money cannot be used to pay for health insurance according to the IRS.
You forgot about these issues: Surprise unexpected maintenance on rental properties cutting into their savings after they already retired. Second, like contributions from employers to match their retirement accounts contributions. Not usually a lot of money, but you still should consider it.
You missed these. The unexpected maintenance issue needs to be part of the plan.
Sanjosemike (no longer CA)
Ironically I was going to call you about this, thanks! 😊
Awesome video. Nice to see all of the different variables to think about for retirement.
Not sure how the software is doing its calculations, but mathematically, they'd be better off in retirement if they paid off the low-interest debt slowly and invested as much of their income as possible into aggressive growth funds. QQQ has averaged about 18-20% per year for the past decade. Even assuming a 10% return is far better than paying off 4% debt that your renters are technically paying for you anyway.
If they really wanted to pay the house off before retirement, they'd be better off investing the "extra" payments in an aggressive growth ETF and then selling off the investment as soon as it grows high enough to equal the balance of the loans on the rental properties. However, by that point, a portion of the annual growth of their portfolio would probably be more than enough to cover the mortgages anyway... no need to entirely sell off the portfolio, just use it to pay extra on the mortgage each month. Neither of those options is as good as leaving the money invested and paying down the low interest debt slowly though.
I also noticed their interest rates are over 4%. Pretty easy to refinance those down to 2.75% right now. That would be the very first thing I'd advise.
With that said, eliminating debt means eliminating risk. While the returns are better in the market, you're still leveraged in real estate. If the renters stop paying for any reason, things change considerably. You can retire when your total investment income exceeds your total expenses, whether that income is from rental income or investment income, or both. There's always risk to that income, whether it be market risk or renters defaulting on payments. It's just a matter of choosing which type of risk you're comfortable with and making sure you have a cushion to withstand some turbulence when it inevitably hits.
Thanks Dustin since finding that there can be a big difference (compounding) I always look at it both ways.
Dustin, I currently don’t have an advisor, but my investments are very non traditional they include rentals, pension, 401k, and ESOP. I’m an really struggling with prioritizing where I should put my $ to debt on the rentals or IRA or 401k and what to do with my ESOP shares. How familiar are you with ESOP and what would it take for you to help me prioritize my savings/debt payments? Thanks for all the awesome videos!
LOL love the new outro!
It looks like I'll have more than enough in retirement investments, so I'm also looking to be mortgage-free by the time I retire.
In this pandemic, people don't need to pay rent. Need to factor that risk in
Dustin is the 🐐🐐
The last 6 months have demonstrated that your income properties may not generate any income if the local Democrat Kommissar decides that tenants need a rent holiday. Plan accordingly.