Real Estate vs. a Traditional Retirement Plan: Two Very Different Outcomes

by | Oct 18, 2020 | Financial Freedom, Life of Your Dreams, Passive Investing, Real Estate Investing 101 | 0 comments

Did you ever watch Mad Men, or a similar show set in the 1950s or 60s? Back then, working life had a “game plan”…you went to college, got a good job with a pension, and worked hard until the day you retired. Then your company gave you a gold watch, and — more importantly — a reliable pension for the rest of your life. That kind of retirement plan is called a “defined benefit” plan (because you know what the retirement benefit will be), and outside of retirements from the military, they’re practically non-existent any longer.

Today, we’re responsible for contributing from our pay (hopefully with some amount of employer matching) into a “defined contribution” plan like a 401k, 403b, or the government’s Thrift Savings Plan so we’re ABLE to retire. But if the market happens to take a nose-dive during the last few years before we retire…well, we won’t be retiring, at least not when we planned to.

Not only that, but it’s no longer common to stay at a single company for very long, or even to remain in a single career path. Instead, it’s become common to change jobs every three to five years and change careers a couple of times during our working lives. Because of this, many of us have partially funded, half-forgotten retirement accounts scattered among our trail of previous employers.

If this sounds familiar, you’re going to want to declutter your retirement accounts ASAP by rolling each one over into a single, consolidated account.

The Rollover Drill

You don’t want to be on the verge of retirement attempting to remember all the way back to your 20s and 30s about who you worked for and what financial company managed that old retirement account. What a disaster!

Believe me, while some of that is still somewhat fresh, you’re going to want to consolidate and roll over all your old retirement accounts into a single account you can keep track of easily. 

It’s definitely a hassle, but if you do what it takes now to find all the accounts and file all the paperwork, your future self (and your family) will be VERY thankful!

Investing in Real Estate with Retirement Funds

Here’s where the good stuff begins. Once you can see the value of your combined retirement accounts (not to mention their mediocre performance), you need to invest it in something, and it might as well be something that could potentially accelerate your earnings. 

Did you know you can use your retirement funds to invest in real estate? 

That’s right, you sure can!

There are certainly some rules you need to follow in order to do it…but first, let’s walk through a couple hypothetical scenarios to see why you might be want to invest your retirement savings in real estate. 

Hypothetical Situation #1: Keep My Money Where It Is

First, let’s say you’re about 35 years old and have $100,000 in your consolidated retirement account. Imagine that over the next few decades, you earn about 7% annually in returns, plus you add $10,000 per year to the account with compounding growth. In 30 years, when you’re at retirement age, what do you think you’ll have?

1.8 million dollars. Not bad, right?

Wait, not so fast…we need to consider inflation, which is about 3.2% per year. This means the cost of living doubles every 22 years.

The $1.8 million that makes you feel like a retiring pro athlete right now equates to less than $900,000 in today’s money. It’s not bad, but it’s NOT the same as
$1.8 million!

Introducing Self-Directed Retirement Accounts

With a self-directed IRA or Solo 401k, you have far more control over the types of investments you can invest your retirement money in. With one of these self-directed retirement accounts, you’re no longer limited to investing in mutual funds, stocks, and bonds, although you can certainly invest in those if you want. Instead, you can invest your funds in real assets like real estate or notes.

Of course, there are limits. You can’t invest in a vacation home for yourself, for example. But you CAN invest in commercial real estate syndications, as long as you’re not one of the syndicators. These are passive investments where you direct the custodian of your self-directed IRA or Solo 401k account to invest the funds in a certain deal on your behalf. Any profit earned from the syndication goes right back into your retirement account to build your retirement savings.

Related article: Active vs. Passive Real Estate Investing — Which is the Best Fit
for You?

Hypothetical Situation #2: Invest My Money in Real Estate Syndications

Now, let’s imagine the same $100,000 was in a self-directed retirement account invested in real estate syndications. You invest in deals with a 5-year hold time and a 2x equity multiple (100% total return), which means that over the course of 5 years, your initial investment doubles — roughly 20% average annualized returns.

That means that in 5 years, your $100,000 could become $200,000, and if you continue investing this way, in 30 years, your self-directed retirement account could be about $6.4 million.

And don’t forget about the $10,000 in contributions each year*, like in hypothetical scenario #1. If you add those in, you’d have over $9.5 million at retirement.

*Note: Being able to contribute $10,000 per year assumes your 

employer’s 401K allows in-service rollovers. If that’s not allowed, you may be limited to contributing $5,500 per year under today’s rules, which makes the total in your account in 30 years around $7.4 million. Still not bad! Also, keep in mind these totals don’t take taxes into account.

Related article: Exploring Projected Returns in a Real Estate Syndications


Comparing $9.4 million (or $7.4 million if your contributions were limited) to $1.8 million…well, that isn’t even a comparison, right?

The impact on your future life (and your family’s) is nearly unimaginable. But just to blow your mind a little more, consider the impact your 30 years of real estate investments made on thousands of families whose homes and communities you helped improve!

Personally, I’d choose real estate every time. But you can’t make this choice when you’re 65. This is a choice you have to make now — the younger the better. Putting it off even 5 years means you’re missing out on hundreds of thousands of dollars.

Do it for your future self and for your family. The paperwork is worth it to prevent your retirement-age self and your loved ones from experiencing financial stress and strained relationships because of money. Take the time to learn about this, and do what it takes now so you can live life on your own terms!

Further reading: Stocks vs. Real Estate: the 4 Risks to Know Before You Invest