How to Set Up a Retirement Plan

Posted Apr 10, 2021


For many, retirement brings unfettered freedom and newfound happiness. From quiet weekday mornings leisurely sipping coffee in a sunlit room to forging new friendships and experiences, retirement provides ample time to enjoy life’s simple pleasures.

Financial pressures can quickly derail those good times, however. Millions of Americans have amassed savings they hope will carry them through their retirement years by participating in employer-sponsored 401(k)s and similar investment vehicles. Many of these plans offer employer-matching contributions, making 401(k)s an excellent tool to build tax-deferred wealth for use in retirement.

There are other strategies you can deploy to help pursue a sound financial future, however -- and they may be needed to close the Retirement Income Gap, which is the difference between the money you have saved for retirement versus what you’ll actually need to carry you through those golden years.

In addition to participating in traditional retirement savings plans such as 401(k)s, many Americans have turned to investments in real estate to diversify their investment portfolios as they seek to build a more stable financial future.

How Does Real Estate Fit Into Retirement Planning?

Investment properties can be a key component of a well-crafted portfolio and could potentially close the Retirement Income Gap. Investment properties have the potential to provide recurring monthly income, as well as asset appreciation depending on market trends and holding times.

To that end, an investment portfolio comprised of multiple professionally managed real assets in diversified asset classes and different geographical locations not only helps investors manage risk but also potentially provides recurring returns that can be used to maintain your current lifestyle in retirement.

Diversification is a key component of risk management, and it should be an important factor in retirement planning. Investors nearing retirement may choose to relinquish a portfolio that includes multiple single-family rental properties in their home markets in favor of fractional investments in professionally managed Class-A properties offered through a Delaware Statutory Trust as they seek higher returns at steadier rates.

If you are crafting a retirement plan, or you are nearing retirement age and already own an investment property, it’s important to ensure your real property assets are diversified as well as optimized for cash flow.

Is it Time to Reconfigure Your Investment Portfolio?

You’ve likely spent the bulk of your career saving for retirement. After you retire, though, your focus shifts from financial accumulation to distribution as you begin living off the proceeds of your retirement savings and Social Security.

Your financial strategies should change as well to reflect your current situation. Many people in this phase reconfigure their traditional investment portfolios by moving away from growth stocks to traditionally less volatile dividend stocks, or they shed market products altogether in favor of bonds and mutual funds to help manage investment risk.

Few real estate investors, however, rejigger their investment property portfolios. It’s important to view your real assets in a different light in pre- and post-retirement in an attempt to maximize potential returns since your window for earning is beginning to close. As you examine the financial strength of your real property assets, you’ll likely find opportunities to reconfigure your portfolio as you attempt to generate increased or more predictable returns.

For instance, investors who own single-family rentals may realize some of those assets are underperforming. They can seek more favorable returns by relinquishing underperforming assets and completing a 1031 exchange for fractional shares of a professionally managed office building or retail strip center offered in a Delaware Statutory Trust.

This strategy may not work for all real estate investors, especially those who own well-performing assets in strong regional markets. The key, though, is to make sure you spend some time examining and potentially shifting your investment strategies to ensure maximum gains from your real property assets. This reconfiguration, combined with income from traditional retirement plans, could be the difference between coming up short or bridging the Retirement Income Gap.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Consult with your tax advisor regarding your individual circumstances.

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