Many millennials don’t expect to receive Social Security payments during their retirement, and while that might be a bit hyperbolic, it’s true Generation Y is unlikely to get the same level of benefits enjoyed by previous generations. That means young people need to take matters into their own hands, and when it comes to retirement planning, it’s never too early to start setting money aside.
While this generation might understand the need to save for retirement, many do not realize the best way to protect and grow their money. Leaving cash in the bank ensures the money’s safety, but offers incremental returns on interest, particularly when rates are low. Currently, the Federal Reserve Key Funds Rate that serves as a guideline for banks to set their accounts interest rates targets a rate between 0.0 and 0.25 percent, according to Bloomberg. 401(k) plans provide a way to build savings, but they tie a person’s nest egg to the stock market, which can be a risky proposition for some.
Among the options available to build wealth, real estate investing grants a unique combination of control, stability and powerful growth. It can be a critical wealth generator for anyone who needs to solidify their retirement savings in the coming years and already have enough in the bank to get started.
The problem with Social Security
Social Security isn’t going away, despite what some people will have you believe. Instead, the program is likely to slowly decrease in size as it deals with the increase in beneficiaries and a decrease in available funds. According to Money Magazine, the program will be able to pay full benefits until 2033 under the current system, and will pay 75 percent of the current benefits until 2088. After that, the future is unclear, but the decrease in benefits and the uncertainty surrounding various plans to either further downsize the program or alter its funding should be a clear indication of the need for personal savings.
People are saving, but they could do more
The negativity surrounding Social Security and the air of confusion that clouds the program’s future has had an effect on young people. The majority of millennials participate in their company’s 401(k) program, according to the TransAmerica Center for Retirement Studies, though their participation numbers are slightly lower than older workers. The majority of millennials put their retirement accounts in the hands of professional advisors, and they are less likely to manage their own funds than older individuals who are saving for retirement.
By changing their habits and taking a more hands-on approach to saving, millennials could greatly increase their retirement savings and negate any concerns they have about Social Security’s long-term viability. Real estate investing provides an excellent avenue for millennials or indeed anyone to start receiving strong and consistent yields on the money they set aside for retirement.
How real estate investing for retirement can work
Most people believe the money in a retirement account, like a 401(k) or an IRA, cannot be used for real estate investing, but that’s not true. In fact, this money can be used for real estate investing, assuming a few criteria are met. Although you can’t use the money in a 401(k) for real estate while you work at the company that created the account, you can take that money and use it for other investments after you leave a company’s employ. Additionally, it’s possible to put the money kept in a standard IRA into a self-directed IRA that allows you to invest outside of the stocks and bonds selected by a financial advisor.
Single-family real estate investing provides isolation from the stock market and gives investors the opportunity for consistent yields over time. Once a property is occupied by tenants, it offers consistent rental income for the owner, which can help offset ongoing mortgage payments. Additionally, owning property allows an investor to build equity over time as the property appreciates and the housing market gradually improves. While there are fluctuations in home prices, it’s possible for investors to select properties in locations that are poised for growth and are largely risk free.
HomeUnion® makes it easy to find the best properties for SFR investing in the best locations for consistent performance. Investors who register on HomeUnion®’s site can view hundreds of prevetted rental properties across the country. Once an investor decides on a property, HomeUnion® can provide financing through an in-house lender and manage the property and tenants. With HomeUnion®, investing in SFR real estate for retirement is as easy as investing in stocks or bonds.