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Which Retirement Income Option Would You Have Taken?

The elephant in the room whenever two real estate investors are talkin' real estate is, duh, retirement. That elephant is ever present in a world class website dedicated to real estate investing like BiggerPockets. Over 110,000 members speaks for itself. Experience tells me that well over 90% of those members are doin' their level best to ensure a superior retirement at least in part by way of real estate income property. Thing is, what defines a decent to way cool retirement income?

An Example From my Own Family

He's approaching 80. His family lives in the house bought when JFK was in office. As they grew, so did the house, which is now about twice the square footage as when first purchased. Talk about Old School, right? He's a retired professional who rose through the ranks through great work ethic and his ability to never stop learning. His career was an inspiration to me and countless others. One wonders though, if time travel was available, what he'd have chosen as a path to retirement? Remember, in say 1965 when he was 30-ish, pensions were more or less the rule. That year the median household income in the U.S. was $6,900. Let's assume I came to him in 1965 with two separate strategies for retirement, and that he had to pick one and live with it.

Plan #1

His salary that year was $7,000. The first option would be a guaranteed retirement income at 65 - starting in 2000 - of five times his current income before taxes. It would include his home being debt free at retirement. This would include a bank account of $50,000 as a cash reserve.

Plan #2

He takes a bit over $4,000 from his savings account and buys the duplex for sale a couple neighborhoods over. In the next 35 years he takes what the market gives him, whatever that might be. As a time traveler I'm not allowed to tell him what I know will happen. He must make his decision based upon the fundamentals as he sees 'em, good, bad, ugly - or just outright inaccurate. His call. I am able to give him my opinion of the results of this approach alluding only to principles of investing - NOT future appreciation or rent increases.