The standard retirement plan is the 401K. Almost every big employer will offer their employees an opportunity to build their retirement savings with tax free contributions. Many companies will match their employees contributions. The majority of companies will match 50% up to 6% of pay.

How can we compare a 401K to real estate investing? It’s seems like apples to oranges.

To start, both can be used to build a large retirement nestegg. Both require annual monetary updates, and both can be destroyed by market volatility. My husbands 401K’s are worth about half, as of late because the large drop in the stock market.

A 401K is fairly simple to understand. The limits change all the time. In 2009 you can contribute 10% of your base income with a max at $16,500.

For both examples we will be looking at a family where the husband and wife both make $80,000 a year and they are both 30 years old. At this income they will contribute a total of $8,000 a year each to their retirement. individually, over the next 35 years, they will retire with approximately $1.9 million for retirement. Combine the 2 family members and you get a total of $3.8 million total.You can use a 401K calculator to play with the contributions and see results.

Next we will look at buying investment rental properties that will be used to build our retirement savings. This example is in my e-book, How to build a 10 million dollar real estate portfolio.

Take the same family, both 30, making $80K… if both are contributing $16,500 a year to their 401K, we will use that in this example. Almost all real estate investments require at least 20% down. Therefore, taking both family members and combining their contributions, they can buy a rental property valued at $165,000. Even in California, you can pick up some nice rental condos or even homes in perfectly fine rental markets. Using the spreadsheet from the e-book, I can see that using our plan of buying one rental a year for 10 years… We get a total retirement of $8.7 million. Almost $5 million more then the 401K.

In summary, you can see that buying real estate as a retirement strategy makes a lot of sense. Not only will you have passive income from all the rental properties but you will also have tons of equity, if you have not refinanced them.

References:

• Search for homes under $200,000, at least 2 beds, 2 baths
• Real estate investing E-book and newsletter training course