It used to be that you could work for the same company for 40 years and retire with a pension that would allow you to live comfortably for the rest of your life. Those days have become a thing of the past. Even as a commercial real estate broker with a high net worth, retirement has become a lot more uncertain these days, and retiring early is an even bigger question mark.
Sure, you’ve heard it a million times: just live below your means, save the rest, and you’ll be on your way to an early retirement. But the truth is it’s nearly impossible to accumulate enough money to build a nest egg that can sustain 40+ years of retirement. There simply isn’t enough time. Especially when you factor in the cost of other common financial goals like buying a home, college tuition for your children, weddings, family vacations, etc. So, how can you achieve the flexibility to work because you want to and not because you have to? Here are some strategies to consider as you work toward early retirement.
Diversify Your Income
A great way to set yourself up for early retirement is to diversify your income. This is a particularly important strategy since there will be a gap between when you retire (age 50) and when you are eligible to take retirement benefits including Social Security (age 62) and tax-advantaged withdrawals (age 59.5). That means you will have anywhere from 9.5 to 12 years of early retirement that will need to be funded by other assets. Income diversification can make up the difference. There are many ways to diversify your income, including:
- Invest in other forms of real estate. As a commercial real estate broker, you have a wealth of knowledge regarding what it takes to buy, sell, and lease commercial properties. Put that knowledge to work by investing in other forms of real estate. Owning rental properties, for instance, is a great way to earn passive income without dipping into your retirement savings. Real Estate Investment Trusts (REITs) are another popular option.
- Continue to earn active income. You could also pursue a passion, become a freelancer, or work for a nonprofit. You will earn less than what you’re making now, but all these options will provide flexibility and a form of income diversification that will keep your retirement savings intact for longer, which is the number-one objective for any early retirement plan.
Invest for Growth
Another strategy for retiring early is to invest excess cash flows for growth. Consider this: if you want to retire at age 50, then you’re already a “pre-retiree” when you hit your 40s. That’s when most people are ramping up their investments in terms of risk. But traditional pre-retirees typically invest in more conservative assets. In an early retirement plan, however, over-allocating funds to conservative investments is actually the opposite of what you want.
Instead, your portfolio should include steady growth assets in addition to some riskier investments that have a greater growth potential. Keep in mind that market volatility is typically a short-term issue that evens out with longer time horizons. As someone with a shorter time horizon, accepting any degree of risk in your portfolio becomes inherently riskier than if you had 20-30 years until retirement.
But the good news is, coordinating your growth strategy with an income diversification strategy will give you much more flexibility. You may be retiring in 10 years, but you won’t need to set a 10-year horizon for all your investments because you will have other sources of income. That means the bulk of your retirement assets can stay invested for another 20-30 years.
Make sure you are investing with the proper perspective and don’t cheat yourself out of years (or even decades) of potential growth.
Review Your Restricted Stock Units
If you work for a public real estate company and receive restricted stock units (RSUs) as compensation, consider utilizing them as part of an early retirement plan. Many times it makes sense to treat the RSUs as part of your compensation package by converting and selling the units as they become eligible, but that is not always the best plan.
Factors including your total income to date, total projected income, and the current tax landscape will play a role in whether your RSUs should be sold to create current income, or held until they can be used as early retirement income.
RSUs will vest and convert to stock over a certain period of time, so it’s crucial to review them periodically in the context of your overall financial situation.
Learn More About Early Retirement Strategies
We at Envision Wealth Planners understand the unique retirement challenges facing commercial real estate brokers. If you’re considering early retirement and would like to learn more about how to achieve financial independence, schedule a no-obligation introductory phone call or reach out to me at connect@envisionplanners.com or 407.720.6535.
About Sean
Sean Gerlin is founder, principal, and a financial planner at Envision Wealth Planners, an independent financial advisory firm founded on the core values of family, honesty, and a determination to be a master of the trade. With almost 10 years of experience, Sean specializes in serving affluent families and commercial real estate executives and brokers, providing comprehensive, customized financial guidance and services for their complex financial needs. Sean acts as a family CFO, managing and coordinating the many moving pieces of his clients’ financial lives. Sean is known for his commitment to building long-term relationships and paying personal attention to each client. He is passionate about helping his clients experience the relief that comes from having organized and well-planned strategies and portfolios, and he desires to help them by shouldering some of the financial burdens they face.
Sean has a bachelor’s degree from the University of Florida and holds the CERTIFIED FINANCIAL PLANNER™, Chartered Financial Consultant®, and Chartered Life Underwriter® designations. When he’s not working, you can find him cooking, eating good food, traveling, coaching his son’s baseball team, or playing golf. He loves spending time with his wife, Nicole, and their two kids, Avery and Will, and entertaining friends in their beautiful backyard. To learn more about Sean, connect with him on LinkedIn.