Read an Excerpt
CHAPTER 1: IT WAS NEVER MEANT TO BE THIS WAY
A Brief, Fascinating History of Retirement Options and the Current Landscape
My parents worked hard to build up their nest egg. They were self-employed, so they knew there would be no pension to rely on once they stopped working. They put four kids through college and worried about money . . . a lot. But they did build what they felt was a fairly sizable egg. Then my dad died suddenly and unexpectedly, leaving Mom both devastated from the loss and paralyzed by questions like: "Will our savings be enough for me to retire? And when??" In fear, she kept working. Now, fifteen years later, she is seventy-five years old and still working part-time. Yes, she has a nest egg. But is it large enough to last her? Will she ever be able to retire with the peace of mind to know that she'll never run out of money?
The answer that she and my three siblings and I have come to is: Who knows?! And this is precisely the problem with the current nest egg model of saving for retirement. It's not that the stock market might tank and remain low in the years she needs her money the most . . . though it could. It's not that her assets could be wiped away in an instant by identity theft . . . though they could. It's not even that fees of 2 percent or more could have wiped out more than half her account value over four decades of investing . . . though they did. It's that she will never, ever know for sure if she has enough money saved up to last all her remaining days.
If you really sit down and think about the "nest egg" model, it just doesn't make sense. The whole premise is that you build up as much money as you can over your whole life, in order to draw down from it in retirement. Then, you cross your fingers and hope, wish, and pray that it will be enough to last you. And that's terrifying. And the older you get, the more terrifying it becomes. And this is where my mom is right now.
This model is in stark contrast to the system it replaced: the pension. With the pension, workers were guaranteed income for life.They didn't have to worry about whether the money would last. By definition, it would.
Take my parents-in-law, for example, both of whom were teachers in the public school system and are now comfortably retired. But their comfort doesn't depend on one risk-laden, finite sum of money saved over the course of their lives. In addition to their savings, and Social Security benefits, they have pensions that promise to pay them monthly incomes for life.
Pensions and retirement accounts operate on two entirely different playing fields. Ideally, you would have both, plus Social Security to boot. Pensions operate on the monthly-income playing field. They provide monthly income for life, just as a salary provides sustainable income during one's working years. In contrast, a retirement account, or "nest egg," operates on a totally different type of playing field. It doesn't operate on a monthly basis. By definition, a nest egg is limited or finite. It can be used up. And there are so many factors that go into the old "how long will it last?" question that it is nearly impossible to answer with any degree of confidence.
There is an interesting history as to how this all went down, which I'll get into shortly. For now, let me say that pensions are nearly extinct. Almost all workplaces have either partially or completely eliminated the pension and have replaced it with mutual fund—based retirement accounts, a national trend that shows no signs of stopping or slowing down.
This means that, if you were to time-travel a couple decades or more into the future, you would find that the vast majority of our population will, without a doubt, wind up in my mom's precarious situation, not my in-laws' more stable one. And for those with less in savings, Social Security could be their only source of income, as it currently already is for many individuals without savings or pensions. What this means is that, without a pension, you could be forced to downsize significantly in your older years, possibly dipping into poverty, unless you are able to continue working for the rest of your life. That's without considering any physical, mental, or cognitive health challenges that may arise as you get older.
There is another option: Create your own "pension." Take matters into your own hands. The way to do this is through rental property. Because of rental property, my wife and I are optimistic about retirement. The same goes for the millions of others who own rental property. You, too, can get to that same place of optimism. This is because rental property is like a pension plan for those who don't have a pension. Rentals that are well maintained and well managed provide consistent income, month after month . . . for life.
Excerpted from RETIRE ON REAL ESTATE: Building Rental Income for a Safe and Secure Retirement by K. Kai Anderson. Copyright © 2018 K. Kai Anderson. Published by AMACOM Books, a division of American Management Association, New York, NY. Used with permission.
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