Diversified Investment Strategies for Sustainable Income & Retirement Savings
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    It was a typical evening in our household, chaos masquerading as controlled chaos, with my two young children darting around the living room like hyperactive squirrels.

    Amidst the din of laughter and the occasional sibling squabble, I finished up work in my office. From the other room, my youngest piped up with a question that stopped me in my tracks: “Mom, why do you work?”

    I blinked, momentarily taken aback by the simplicity and profundity of his question. Why do I work? It was a question I don’t think about every day. I realized that my answer swirled around the meeting point of financial security and fulfillment. And also financial independence, or rather, the do-it-yourself version of retirement.

    I think about sitting down with my kids and explaining the concept of work and money in terms they could understand, but they are 2 and 6 so we’re just getting into that level of conversation. I did reflect on my own journey toward retirement, however. How would I ensure a sustainable income after retirement? How could I provide for my family’s future while still enjoying life’s simple pleasures?

    Luckily, I think about this a lot. (I even have the homegrown spreadsheet model to analyze different scenarios like a true finance nerd.)

    But what do retirees think about as they are nearing that golden age? Whether that’s an early 30-year-old or a more traditional 65-year-old, I dove into the weeds. Perhaps I’ll even get to share these ideas with my kids one day.

    Are you contemplating how to secure and grow your retirement savings account now that you’ve stepped into retirement? A solid investment portfolio after retirement is crucial for maintaining your standard of living without the need to cut back on your luxury expenses or rely on a regular paycheck. This article breaks down practical strategies and investment options that sync with the unique financial landscape of retirement, aiming to sustain and potentially enhance your wealth.

    Key Takeaways

    • Retirees should aim to save 25 times their annual expenses for retirement, considering factors like inflation, interest rates, and longevity risk, and explore diversified investment strategies to ensure the growth of their nest egg.
    • Passive investments, outside of the stock market, such as real estate syndications, can diversify a retiree’s portfolio and provide consistent income without the hassle of property management.
    • Retirees need to adapt their investments over time, focusing on conservative asset allocation, tax efficiency, managing RMDs, and rebalancing to stay aligned with risk tolerance and market changes.
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    Determining Your Retirement Income Needs

    Retirement shouldn’t be viewed as a phase where you watch your retirement money pile shrink. Instead, it should involve strategies to ensure your nest egg grows, even when you’re not actively working. But how much is enough? Well, for stock market investors, the magic number is ‘25’. Aim to save 25 times your planned annual expenses. 

    So, if your goal is to have an annual income of $100,000 in retirement, you should aim for a retirement portfolio of $2.5 million. Easy, just make a robust investment strategy, right? Well, there’s a little more to it than that, and the numbers don’t always correlate if you’re invested in real estate. But first, you need to account for a few key factors: your annual expenses, the effects of inflation, and longevity risk.

    Estimating Annual Expenses

    Understanding your annual expenses in retirement equates to possessing a roadmap for an extended journey. It gives you direction and helps you plan your journey. It’s not just about your day-to-day living expenses. There are other factors at play too. For example, healthcare costs often go up as you age, and then there’s the fun stuff – travel, leisure activities, gifts for the grandkids. All these elements must be taken into account when planning for a retirement savings account. And don’t forget to include a healthy financial buffer for those unexpected expenses.

    Interest Rates, Inflation and their Effects

    Inflation can be compared to an unpleasant houseguest. It eats into your purchasing power and upsets your carefully planned budget. As prices rise, the same $100,000 won’t buy you as much as it did a few years ago. Therefore, shielding your retirement income from inflation’s impact becomes vital.

    Interest rates also play a part in this equation. When
    interest rates rise, it can help curb inflation and make borrowing more
    expensive. Understanding this relationship can help you better manage your retirement savings.

    How can this be achieved? By investing in assets that generally appreciate with inflation, like real estate and Treasury Inflation-Protected Securities (TIPS), is one possible approach.

    Related Article: Real Estate Investing: The Perfect Hedge Against Inflation

    Longevity Risk Management

    While increased lifespan is a positive, it also implies that your retirement savings must be stretched over a longer period. This is what we call longevity risk. To manage this risk, consider re-evaluating your investment strategy and diversifying your investment portfolio. Annuities with insurance companies can provide a steady stream of income for life, protecting you against outliving your assets. However, they may not be the right choice for everyone.

    Diversified investment strategies, including real estate, stocks, and bonds, can offer more growth, flexibility, and potential for estate planning, wealth transfer, helping you manage longevity risk more effectively.

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    Generating Additional Income Through Real Estate Investments

    In retirement planning, diversification is a key investment strategy. And one of the best ways to diversify your portfolio is through real estate investments. But before you start imagining yourself as a landlord, juggling tenant complaints and property repairs, let’s set things straight. The focus here is on passive real estate investments, called real estate syndications. These allow you to earn income from real estate without the headaches of direct property management. 

    Let’s explore some of these options that have reduced risk and more reliable income that retirees are searching for most often.

    Passive Real Estate Syndications

    Imagine pooling your investment with others to buy a slice of a commercial property. Now, imagine sitting back and earning income from that property without having to lift a finger. This is the essence of passive real estate syndications. You invest money, and the syndicate, run by a team of professionals, does all the legwork of managing the property. As a passive investor, you get your share of the profits, without the stress of being a landlord. It’s a win-win situation.

    But what’s the potential investment amount? Well, using a self-directed IRA, you could hypothetically invest $100,000 in a real estate syndication. If the syndication has a five-year hold time with a 2x equity multiple, that’s a pretty neat return on your investment.

    Preferred Classes For Higher Cash-on-Cash Returns

    What if you’re seeking a more dependable cash-on-cash return? You might want to consider the Class A investor class in syndications. With this class, you get your full preferred return first, often 8-10%, every quarter before anyone else gets paid.

    While the distributions are not guaranteed, they are the lowest-risk form of real estate investing. It’s an excellent option for retirees looking to prioritize reliable, steady income to build their retirement savings account over long-term growth.

    Related Article: Real Estate Syndication Structures And What They Mean For You As A Passive Investor

    Preferred Equity and Stable Returns

    Preferred equity investing presents another avenue to garner stable returns from real estate. These investments offer:

    • Returns based on a fixed interest rate, making them less risky than common equity positions
    • A higher yield compared to debt
    • A higher position in the capital stack, reducing the overall risk of the investment.

    Investing in Hotels for Consistent Annual Returns

    Have you ever thought of your next vacation as an investment prospect? Investing in business-class hotels can offer consistent annual returns, especially those located in prime market areas. Beyond regular income, hotel investments also provide the chance for an upside payment from the property’s sale, thus enhancing your returns.

    Smart Retirement Investment Strategies for the 70s and Beyond

    As you transition into your 70s and onwards, your investment strategies must adapt accordingly. This is the time to focus on:

    • Conservative asset allocation
    • Real estate investments
    • Dividend-paying stocks
    • Bond funds

    The goal? To strike a balance between generating steady cash flow and preserving your capital, while staying compliant with the Financial Industry Regulatory Authority.

    Ultimately, the golden years ought to be spent savoring the fruits of your labor rather than fretting over depleting finances.

    Conservative Asset Allocation

    With advancing age, it’s prudent to gravitate towards a more conservative portfolio. This means investing more in bonds and fixed-income investments and less in volatile stocks. It’s all about managing risk while ensuring stable returns.

    A common guideline is to align your bond allocation with your age. So, if you’re 70, then 70% of your portfolio should be in bonds. But remember, these are just guidelines. It’s important to adjust your portfolio according to your specific needs and circumstances.

    Asset Allocation For Real Estate Investments

    In the realm of real estate, the focus is on dependable cash-on-cash returns. This is especially true for retirees who prioritize steady income over long-term growth. For instance, investing in Class A investor class in syndications can provide an annual return of 8-10%, paid out quarterly before anyone else gets paid. These returns are not guaranteed, but they are the lowest risk form of real estate investing.

    Preferred equity investing can also provide stable returns based on a fixed interest rate, making it a great low-risk option for retirees.

    Real estate investments offer multiple ways to diversify your investment portfolio to decrease risk.

    Dividend-Paying Stocks for Income

    Dividend-paying stocks can prove to be a retiree’s most reliable ally. They offer regular payments that can supplement your retirement income. Plus, they are a great way to keep your investment portfolio diversified. But remember, picking the right stocks is key.

    Focus on companies with a reliable history of consistent or steadily increasing dividend payouts.

    Mutual Funds and Bond Funds

    For retirees seeking a stable, regular income stream, bond funds can be an optimal choice. They offer the benefits of bond investing, without the need to manage individual bonds. Plus, they are less risky than stocks, making them a great option for a conservative portfolio.

    Related Article: Investing in Real Estate vs. Relying on a 401k: Two Drastically Different Retirement Outcomes

    Safeguarding Your Retirement Capital: Bonds, Annuities & Savings

    Though maximizing returns is significant, protecting your capital holds equal importance. This means creating a safety net in your portfolio to protect against market downturns. FDIC-insured savings accounts, government bonds, and annuity contracts are all great ways to safeguard your retirement capital.

    Let’s examine these strategies in detail.

    FDIC-Insured Savings Accounts

    FDIC-insured savings accounts are a secure option for safeguarding a portion of your retirement funds. These accounts, also known as savings account, are insured by the Federal Deposit Insurance Corporation up to $250,000 per depositor, per insured bank. This means even if the bank fails, your money is safe.

    This provides a sense of security during your social security retirement benefits years.

    Government Bonds and Treasury Securities

    Another effective method to safeguard your retirement capital is through Treasury bonds. Backed by the U.S. government, these bonds offer predictable income with minimal risk. Plus, they provide regular interest payments, which can be a valuable source of income in your retirement years.

    Annuity Contracts with Insurance Companies

    Annuities, as financial products, ensure a regular income flow during retirement. They can be a valuable part of your retirement assets, providing a combination of safety, potential for long-term growth, and a steady income.

    However, it’s important to understand that annuities come with their own set of rules and costs, and they may not be right for everyone.

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    Diversifying Investments Across Asset Classes

    Diversification acts as a safety net for your investment portfolio. By spreading your investments across different asset classes, you can balance risk and reward. Your asset allocation should include a mix of:

    • Stocks
    • Bonds
    • Cash equivalents
    • Alternative investments

    This way, if one asset class is underperforming, others may be doing well, balancing out your overall returns.

    Related Article: How To Win At Investing: Understanding The Balance Of Risk And Return

    The Role of Fixed Income in Diversification

    Fixed-income securities, such as bonds, hold a significant role in diversifying your investment portfolio. They offer several benefits:

    • They lower risk compared to stocks
    • They provide regular interest payments, making them a reliable source of income
    • They are particularly important as you get older and your preference shifts from capital appreciation to income generation.

    Equities and Growth Potential

    Equities provide diversification across a range of sectors and market capitalizations. Plus, they provide potential for long-term growth, helping your portfolio keep pace with inflation and taxes. Remember, while stocks can be volatile, they can also offer higher returns than bonds or cash over the long term.

    Alternative Investments and Their Place

    Alternative investments comprise assets such as real estate, commodities, and cash investments, which fall outside the conventional stock-bond-cash portfolio. They can provide a buffer against portfolio volatility and potentially enhance returns, especially when traditional asset classes are underperforming.

    Investing in rental real estate or real estate syndications, for example, can provide a robust source of retirement income.

    Planning for Tax Efficiency

    Paying taxes is generally unwelcome, more so during retirement. That’s why tax efficiency is a crucial part of retirement planning. By understanding the tax implications of different retirement accounts and investing in tax-efficient assets, you can manage your tax liability effectively.

    Understanding Taxable Income Sources

    Various sources of retirement income carry different tax implications. For example, withdrawals from traditional IRAs and 401(k)s are taxable. Being aware of these rules can help you strategize your withdrawals to minimize your tax liability.

    Tax-Advantaged Retirement Accounts

    Certain retirement accounts come with tax benefits. For instance, Roth IRAs and Roth 401(k)s provide the benefit of tax-free withdrawals in retirement. These tax advantages can help you manage your tax liability more efficiently.

    Harvesting Losses and Other Tax Strategies

    Numerous tax strategies can be employed to effectively manage your tax liability in retirement. One such strategy is tax-loss harvesting, which involves selling securities at a loss to offset capital gains tax liabilities. This strategy can lower your capital gains tax bill and retain more profits from your investments.

    Related Video: How Real Estate Investors Pay Low (or NO) Taxes

    Navigating Required Minimum Distributions (RMDs)

    Required minimum distributions (RMDs) refer to the least amounts that must be withdrawn annually from your retirement accounts, beginning at age 73. Navigating RMDs can be tricky, but it’s a crucial part of retirement planning.

    RMD Rules and Schedules

    RMD regulations can be intricate. Generally, you must start taking withdrawals from your retirement accounts when you reach age 73. However, there are exceptions. For example, owners of 401(k) or similar workplace retirement plans can delay RMDs until the year they retire, unless they own 5% or more of the sponsoring business.

    Strategies to Reduce RMD Impact

    Despite RMDs being obligatory, there exist strategies to mitigate their impact on your taxable income. One such strategy is making qualified charitable distributions (QCDs) from an IRA directly to charities. This can satisfy your RMD obligations without increasing your taxable income.

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    Adjusting Your Investment Approach Over Time

    Similar to life itself, your investment approach must undergo an evolution over time. It’s not enough to set and forget your retirement portfolio. You need to revisit your investment strategies and asset allocation regularly and adjust them to match your changing needs and circumstances.

    Evaluating Risk Tolerance Changes

    Risk tolerance gauges your readiness to endure losses for the possibility of potential gains. As you age, your risk tolerance typically decreases, leading to a need for adjusting your investment portfolio to more conservative assets over time.

    Rebalancing for Asset Allocation Goals

    Rebalancing involves:

    • Tweaking the proportions of varying assets in your portfolio
    • Upholding your preferred asset allocation
    • Being an essential part of portfolio management
    • Helping you stay on track with your investment goals
    • Managing risk

    Staying Agile with Market Fluctuations

    Investing isn’t a one-time activity that you can set and forget. You need to stay agile and adjust your investment strategies in response to market fluctuations.

    Keep in mind, a skilled investor isn’t one who never incurs losses, but one who discerns when to hold firm and when to release.

    Summary

    Retirement is a journey, not a destination. It’s about making smart decisions and strategic moves to ensure your hard-earned wealth works for you, providing a sustainable income for a comfortable and worry-free retirement. From understanding your retirement income needs to diversifying your portfolio and staying tax-efficient, every step plays a crucial role in creating a successful retirement strategy. So, are you ready to take the next step towards a secure and prosperous retirement?

    Frequently Asked Questions

    What is a real estate syndication?

    A real estate syndication is when a group of investors pool their money to invest in commercial real estate, like an apartment building. It allows individuals to invest in larger properties than they could afford on their own.

    How are returns in real estate syndications split between investors and general partners?

    In real estate syndications, returns are split between investors and general partners based on the deal structure, with options like a straight split or a waterfall structure determining the distribution. It varies depending on the specific agreement.

    What is a preferred return in real estate syndications?

    In real estate syndications, a preferred return is a percentage of returns that goes to limited partner investors before any returns are distributed to the general partners, who only receive a portion of the returns if they exceed the preferred return threshold.

    What is the difference between a straight split and a waterfall structure in real estate syndications?

    In real estate syndications, a straight split offers the same percentage of returns to all investors, while a waterfall structure activates different splits at specific return thresholds, determining how returns are distributed between limited and general partners. This helps to understand the key differences between the two structures.

    How do real estate syndication structures impact investor returns?

    The structure of a real estate syndication can impact investor returns differently. A straight split favors high returns, while a preferred return with a waterfall structure provides a safety net but may result in smaller returns at project exit. Investors should choose a structure that aligns with their goals and preferences.

    Next Investing Steps

    Whether you’re considering investing in turnkey properties, real estate syndications, or a combination thereof, passive investing can be a great way to get your money to work for you in real estate.

    As you continue to explore turnkey rentals and whether they’re right for you, we’re here to help! As a first step, we invite you to join the Goodegg Investor Club, so we can keep you in the loop on insights, as well as opportunities to invest alongside us in real estate syndications, if that’s the right fit for you.

    You can also check out our open deals page to learn more about our current or upcoming opportunities.

    Learn More

    If you’re not yet ready to invest but are curious about how all of this works, we invite you to dip your toe in the water with us through our free 7-day email course – Passive Real Estate Investing 101

    You can also get a copy of our book – Investing For Good – or check out our Life & Money Show Podcast.

    To learn more about us and our experience, be sure to download a copy of our track record, which shows the projected and actual returns we’ve achieved across all the deals we’ve exited to date.

    Connect With Us

    If there’s ever anything we can do to help you on your journey, feel free to email us at [email protected] or call / text us at (888) 830-1450

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    Susan Elliott

    Susan Elliott

    Susan is a real estate investor, intrapreneur, adventure athlete, mother, and Director of Investor Education at Goodegg Investments. Susan began her career in real estate investing by house-hacking her first home, managing a short-term rental business, and starting a non-performing notes investing business.

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