My Home is My Retirement Plan

I always knew saving for my retirement was going to be tough. I know that by the time I retire social security will be dried up, pensions will be a thing of the past, and people will be living longer than ever before. I must admit though I never thought it would be this tough. I used to think that in order to retire I would need $1,000,000 in a retirement account. It seemed like a lofty goal, but one that I was up to. I mean a $1,000,000 is a lot of money, but hey I had the stock market to increase my contributions over the years, so I figured I would be ok.

Then, about a year ago I was using one of those retirement calculators you find over at the mutual fund sites. I filled in the information and figured it would come back with the conclusion that I would need $1,000,000 if I wanted to retire as 65 years old. Well it didn’t! No it came back at over 5 times that amount. That’s right over $5,000,000! If you don’t believe me head over there yourself and check it out. It is not like I want to live like a king when I retire, but I do not want to have to decrease my lifestyle either. I checked out other retirement calculators too and they all pretty much said the same thing. It was telling me that I needed to save between $800 and $3,200 MORE a month if I wanted to be able to retire well. I am already saving 12% of my monthly income, how much more could I save. After I realized that was impossible to save half my salary each month for retirement I figured I better come up with another plan.

That is when I came up with the thought of using my current home as a retirement plan. The thought is simple. It is pretty straight forward. When I move into my next house I will not sell my current house. I will rent it out and eventually, before the time I plan to retire, it will be paid for. I mean everyone has heard of investment property, well this is along the same lines. In a way I believe it is better than a retirement plan. The fact is rents will almost always rise as inflation rises. Your retirement account is worth less as inflation rises. Score one for the rental property retirement plan. One con of this idea is that all of your risk is in the housing market and if rents fall so does your monthly retirement stipend. This is very true, but your typical retirement account is most likely invested in the stock market and if this crashes for any reason so does your hope for retirement. The other major pro for using an investment property for a retirement plan is that you can deed it to your offspring when you pass on. No matter how much of the rent you spend that comes in each month from your investment property during your retirement, the house does not decrease in value. This is not true with your typical retirement plan. With your typical retirement plan as you spend more and more of it, the amount of money in the retirement plan decreases. This would mean you would leave less money for your offspring.

Now by no means is this easy or does it completely replace the need for a typical retirement plan. The fact is that it is not easy to try to pay your mortgage, while at the same time trying to save for a down payment for your next house. I am struggling to do it myself, but I figure if I can work hard and sacrifice now I will have all the payoff in the future when it really counts. This is not for everyone as I said, but if you can pull this off you may have just secured yourself a pretty nice retirement.