401k vs Real Estate: The Shocking Truth About Your Retirement Savings!

by | Feb 25, 2023 | Investing Advice

Gone are the days of relying on pensions; individuals are now solely responsible for saving for retirement. Consolidating scattered retirement accounts is crucial for those with multiple past employers.

Red Rover Rollover

Consolidate prior retirement accounts to avoid confusion and ensure easy management. It may be tedious, but it will benefit you and your family in the long run.


Investing in Real Estate with Retirement Funds

Retirement account dull? Consider real estate investment. Rules apply. Hypothetical scenarios ahead.

Hypothetical Situation 1: Keep My Money Where It Is
Imagine having $100,000 in your retirement account and gaining a 7% annual return over several decades while contributing $10,000 annually. This would lead to an impressive $1.8 million upon reaching retirement age. However, when you factor in inflation of 3.22% per year, which doubles the cost of living every 22 years, the same $1.8 million is worth less than $900,000 in today’s money. It’s a scary thought to contemplate living off only $900,000 in retirement.

Enter: The Self-Directed IRA
Self-directed IRA grants greater investment control, not limited to mutual funds, stocks, or bonds. Vacation home investing is prohibited, but investing in commercial real estate syndications is allowed. Syndications are passive investments, with the custodian investing on your behalf. Profits are reinvested in your account to increase retirement savings.

Hypothetical Situation 2: Invest My Money In Real Estate Syndications
Now, let’s pretend that the same $100,000 was in a self-directed IRA account, invested in real estate syndications. You invest in deals with a 5-year hold time and a 2x equity multiple, which means over the course of 5 years, your initial investment doubles (roughly 20% annual returns). To be clear, that means in 5 years, your $100,000 could be $ 200,000 and 30 years from now, your self-directed IRA could value about $6.4 million. Then, don’t forget about the $10,000 in contributions each year, like in hypothetical scenario 1. Add those in and you’d have over $9.5 million at retirement.

*Side note: Being able to contribute $10,000 per year assumes that your employer’s 401K allows in-service rollovers. If that is not allowed, you may be limited to contributing $5,500 per year which makes the total in your account in 30 years around $7.4 million. Still not a bad deal at all.



In Summary

Comparing $9.4 million (or $7.4 million if your contributions were limited) to $1.8 million is a no-brainer. The impact on your future life and your kids’ future is nearly unimaginable, but add that to the impact your 30 years of real estate investments made on thousands of families whose apartments and communities you helped improve. I’d choose real estate every time. The thing is, you can’t make this choice when you’re 65. This is a choice you have to make now. Even if you procrastinate another 5 years, you’re missing out on hundreds of thousands of dollars. Do it for your future self, for your family, for your children. The sea of paperwork is worth it to prevent your 70-year-old self and your loved ones from experiencing financial stress and strained relationships because of money. Learn the lingo, and do what it takes today so you can live life on your own terms when it matters most.