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What is your Retirement Number?

February 20, 2015

Guest Article by Paul McGarigal:

When asked, “What is your number?” many people have no idea what you are talking about. The number, of course, is the amount you will need to retire. Let’s take a look at how to figure out your retirement number.

If you now live on $7,500 a month gross combined income, that’s a $90,000 per year family income. Sounds like a lot to most people, yet this income amount puts you in the top 15 percent of all families in the United States. If each person in a retiring couple receives about $1,500 a month from Social Security, then that’s only $3,000 a month toward the $7,500. Where will the other $4,500 a month come from?

Here’s one scenario: If you manage to save $300,000 in your IRA/401K by the time you retire at a 5 percent annual return (of which there may not be too many offering that return) that would be $15,000 a year or $1,250 per month, which is not enough. But how about $1,200,000 at 5 percent? That’s $60,000 a year, or $5,000 a month, which when added to your $3,000 Social Security benefit will put you closer to what you need to live the same as you did when you worked.

So if $1,200,000 is your retirement number, how are you going to get that amount in the years you have left to work? Let’s say you are 40 years old and will work 25 more years. The math is easy. $1,200,000 divided by 25 is $48,000. This is the amount needed each year to add up to $1,200,000 over 25 years.

How are you going to get $48,000 a year, you ask? Real estate. You can purchase a home for 3.5 percent – 25 percent down, depending on its use. Then, with the help of a real estate professional, you can learn how to have tenants pay your mortgage for the next 15 – 25 years, while you receive tremendous income tax advantages. This may be the only way you will ever come close to saving or accumulating a $1,200,000 nest egg for retirement.

Just three houses at $250,000 each now will double in value over the next 25 years, assuming only a 2.9 percent average rate of appreciation. So, $250,000 multiplied by three is $750,000 and multiplied by two is $1,500,000. Selling them at age 65 would fund your nest egg and help you enjoy 20 to 40 years of retirement.

Of course, this is the short version of a much more complex formula that will be different for each couple. But hopefully you are at least thinking about your retirement number and now see how real estate and a knowledgeable real estate agent can help you get closer to reaching your goal.

Paul McGarigal has been in the top 1 percent of all Realtors in Central Florida every year for the past two decades. He is also very involved in his community and volunteers with youth sports and the YMCA, among many other non-profits. This article was also featured in the April 2013 edition of  Central Florida Lifestyle