Retirement Strategizing

Fortunately, I’ve had a great financial advisor over the years. I probably don’t consult him often enough, but really don’t need to. He skillfully has our portfolio positioned to weather market ebbs and flows about as good as it can. However, the economy in its present state is driving me to consider some financial moves not only in our market investments but also our real estate. Significant moves we didn’t plan on making for another 5-10 years!

Our retirement accounts and the kid’s college fund have certainly taken a beating this year, but our rental portfolio is doing well. Thankfully, I also have steady employment. We are wondering if this unique spot we find ourselves in may be a golden opportunity. Is it time to start divesting of some of our real estate investments?

An old adage goes “buy low and sell high”. I believe this is a fundamental truth. With real estate booming and the market tanking maybe now is the time? Allow me to elaborate on a potential strategy I’m contemplating. One can only contribute to retirement accounts while having earned income, also known as, a job. My goal is to retire for good somewhere between 55 and 60 (hopefully closer to 55). Unfortunately, that’s only 5-10 years away for me now!

So, whatever we end up with in our retirement accounts at, let’s say age 57 for arguments sake, is what we got to last us the rest of our lives. Although I’ve been contributing to my employers 401k plan, we haven’t put anything in our personal IRA accounts in several years. I’m thinking maybe it’s time to start divesting of a rental property or two and start putting the proceeds up to the max allowable into our personal retirement accounts.

Up until now, I’d always planned to divest of our real estate between the time I quit working and when we started drawing social security, presumably when we would be at a lower tax bracket. This would also be a nice retirement “kicker” if you will. You may be thinking, why not pass the real estate to our heirs? By the time we pass, hopefully the properties will be so old they may not be as profitable without some major renovations. We certainly don’t want to pass on headaches to our kids.

The draw back to selling in 5-10 years after I quit work is if we place the proceeds from real estate sales in taxable investment accounts, we would be taxed three times! Once when we sell the property, again annually on the capital gains or dividends from the investment and yet again when we cash out the investment.

We could put the proceeds from our real estate into a savings account, but who wants to do that! An annuity is also an option as it would take out the taxes on the annual growth, but annuities have always scared me a bit and I still need to do a lot of homework before seriously considering. There are also 1031 exchanges where we could rollover the proceeds from the rental property into a like kind investment that we could also get some personal enjoyment from up to a point. Think lake or beach house!

Which leads me to what’s rattling around in my brain now. If we start divesting of a few properties between now and when I stop working in 7 years (for arguments sake), we can put the proceeds in our personal traditional IRAs because we have earned income. While we would have to watch how the sale impacts our current adjusted gross income, the proceeds would grow in our retirement accounts tax deferred. Hopefully the growth would be at a terrific rate if the market starts making a recovery over the next few years!  

Is this our time to sell real estate high and buy the market low? Make no mistake, this is a good first world problem to consider, but still a little scary. Our family has scraped, saved, sacrificed and worked very hard over the years to build the assets we currently have from pretty close to nothing. There is always the fear that a bad decision would undo any success.

I’ve said it once, I’ll say it a thousand times; everything in life is a decision. Thankfully, we’ve made some good decisions along the way regarding our personal finance. We’ve had a lot of help. Guess it’s time to seek out all the facts and advice then make an informed decision (and live with the consequences)! Any thoughts out there on retirement strategizing?

Want to learn more about the financial truths that have helped our average American family achieve success? Check out my book, Millionaire on a Worker’s Budget: Five Financial Truths to Build Wealth on sale now at Amazon!

Want to learn more about the lessons we’ve learned from investing in rental properties, check out my book Collect Rent, Don’t Pay It! A Beginner’s Guide to Rental Property Investing, for sale now on Amazon!

The commentary provided in this blog is for informational purposes only and is not intended to be a source of financial or investing advice.

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