Financial Literacy Guest Blogger Health and Lifestyle

How to Double Your Mom’s Retirement Income

Written by Lawrence Gonzalez, CFE and Financial Literacy Educator

Oooh Stats

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Based on the the Bureau of Labor Statistics, as of 2018, the average American household (those north of 65 years old) pulled in $48,000 of retirement income and expensed $46,000. All things considered that’s not half bad if you are average, you are likely breaking even. The average retirement saving portfolio holds $100,000 (rounded up from $95,000).

Under further scrutiny (nerdy words), those household owe at least $66,000 in debt. The majority of that debt falls under their primary mortgage with $9,000 on revolving credit card debt.

The Dilemma: 4% Rule

Per Investopedia, the 4% rule is a rule of thumb used to determine how much a retiree should withdraw from a retirement account each year. This rule seeks to provide a steady income stream to the retiree while also maintaining an account balance that keeps income flowing through retirement.

Using the 4% retirement withdrawal method, a portfolio of $150,000 would net about $6,000 annually (or $500 monthly). Added to the average social security benefits of $16,800 annually, we are looking at a total of $22,800. Just above the poverty line for a household of two people for $16,910. If you can live off of $1,900 per month, it’s not a bad deal. What if it costs more?See retirement withdrawal screenshot below:

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The Fix: Retirement Rental Income

While I don’t recommend it for everyone, this is the strategy that I’ll use to double my mom’s retirement savings income.

I’d use the $150,000 to purchase a rental income property under the multiple door theory. 3 bedroom, 3 bath in a college town rented for $750 per room per month equates to $2,250.00. That’s a larger sum than $500 per month that’s for sure. A grand total income of $27,000 annually. I know what you are thinking what about the risk, liabilities and expenses. I got you buddy. Let’s factor those out:

  • HOA fees: 13% of monthly rental value for $292.50 per month or $3,510.00 annually
  • Property Taxes: Current Average according to the US Census Bureau = $2,127.00 annually
  • Maintenance Fees: 3% of sale price annually for $4,500.00
  • And just for good measure, let’s factor for a occupancy rate of 10.5 months out of the year. Just to be conservative.

The Calculation:

Annual Rental Income of ($27,000 * occupancy rate of 83.5%) = $23,625.00

Annual Expenses of ($3,510 + $2,127 + $4,500) = $10,137.00

Grand Total = $13,488 – *reserves of $1,488 = $12,000 annual profits or $1,000 per month. All while the home increases in value.

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So yep, I’m going with option #2. In the end, they aren’t making more land and this is a great way to build generational wealth. This process might not be for you but if you are the type of person that used to make forts out of couches like I did, you might have a ball with this idea.

Oooh about the intro stats, my mom would net $16,910 from social security benefits plus$9,000 from rental property #1 plus $12,000 from the hypotethical rental property #2. A total of $37,910 minus $2,910 in shenanigans for a round number of $35,000. More than she made pre retirement ($27,000). Yep, if it doesn’t make dollars; it doesn’t make cents.

Never Say I didn’t Put You on Game. Win-Win. Sn. Feel free to comment, I actually respond.

For even more content, stay connected with my Linktr.ee/GQ_Accountant. If you like this article check out, So My Mom is Retiring in Haiti Checklist Pt. 1 and So My Mom is Retiring in Haiti: Part two/deux/dos, Financial Layout. As always share quality information. This is probono but the effort is priceless. Just hit the share button, it’s easy. It costs you nothing and earns you Karma pts.

Bonus Resources from the author:

Between Mint.com and Personal Capital, I’m gonna go with Personal Capital because A. they give you $20 Amazon gift card with my referral link (once you complete it), B. It’s what the big CEO-types use. Why not? No matter how you slice it, it’s FREE to use. https://lnkd.in/dD9K_-5. Additionally, download and print out the NetMax Plan that help me go from NEGATIVE $110,000 to POSITIVE $200,000 in net worth in 5 years. We also have them for NetMax Plan – Single Parents, and for NetMax Plan – couples.

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