Saving for Retirement as a Real Estate Agent

As a real estate agent, your first few years in the business were likely spent—or are being spent—establishing your reputation and business network within the community. Ultimately, though, it’s critical that you shift your focus toward turning your success into long-term stability. A key component of your future-proofing process is saving for your retirement. Without preparing for your eventual exit from the business, you may find yourself at the tail end of a lucrative career without a way to sustain yourself and your family. 

Instead, Parks Realty encourages every agent to begin investing in retirement as soon as possible. Financial experts today recommend that one begins to seriously invest in a retirement plan from the age of 25—and never cease thereafter. For many Americans, this simply isn’t possible; however, as a real estate agent, you have several avenues of investment open to you.

Today, we’ll cover each of these common retirement solutions. Depending on your lifestyle, one or more may stand out to you clearly as the best strategy on the table; if not, that’s all right, too! Parks Realty recommends that any agent who is wavering between options speak with a financial planner. A savvy financial planner can, with a few powerful suggestions, give you the tools to tweak your trajectory toward a successful landing.

Roth IRA

A traditional Roth IRA (Individual Retirement Account) is ideal for real estate agents who are in the early stages of their career development. Due to income caps, higher-earning agents are often priced out quickly.

Roth IRAs make use of post-tax income, so you will not be able to count your contributions as a deduction. If you currently only use one or two deductions (which is common for individuals who are earning less than the current income cap of $139k), this hitch may not be a deal-breaker.

Traditional IRA

If your annual income is higher than the current limit for Roth IRAs, consider setting up a Traditional IRA instead. Since they are taken out of your pre-tax income, a Traditional IRA helps to reduce your income tax. There’s a catch, though: if you or your spouse currently contribute to an employer-sponsored IRA, you’re not going to be eligible to take advantage of this tax benefit. This is an area where you may wish to consult with a financial advisor in order to settle on the best route for your situation.

A pro of the Traditional IRA is the allowance of one 10k withdrawal to use toward the purchase of your first home. If you already own a home, you will be ineligible for this benefit. 

Consider, too, that once you’ve invested in a Traditional IRA, you won’t be able to access the funds until you’ve reached 59 and a half years of age. If you must reclaim your investments early, you’ll be subject to a whopping 10% penalty.

Sep IRA

If you’re in a solo real estate practice, a Sep IRA may be ideal. Keep in mind that if you choose this option, then add employees to your practice later on, you’ll be required to invest into each employee’s fund equally. That means that any funds you place into your own Sep IRA must be matched across the board.

The benefit of a Sep IRA is that you may deduct either 25% of your income, or your total contributions—but it must be whichever is less.

Solo 401k

Even if your employer doesn’t offer a 401k, you can still take advantage of the program through a Solo 401k. This avenue is only available to solo proprietors who have no employees; although, if your spouse earns money through your practice, their income can also be included, making this a particularly appealing option for couples. 

Your contributions to your 401k cannot exceed $56k, which could be a prohibitively low amount if you already have a thriving real estate business.

Real Estate Investment(s)

Due to your entrenchment in and familiarity with the real estate industry, we encourage you to consider investing in real estate properties as a retirement strategy. At present, mortgage interest rates are 3.2% or lower, while rent prices have continued to rise. If you’re financially capable of expanding your real estate holdings, you’ll be able to establish an ongoing revenue stream that requires minimal work hours – making it an ideal way to bring in supplemental income throughout your working years. By applying all supplemental income from your real estate investments toward a retirement savings account, you’ll be able to breathe easier when you reach retirement age. 

We hope that this guide has empowered you to begin, or continue, planning for your retirement. Even though you have chosen real estate because you truly enjoy (and excel at) the work, you must consider that there will come a time when you’ll be ready to slow down and enjoy your golden years without having to worry about making money. Any efforts that you put toward your eventual departure from working full-time will reward you greatly when you’re ready to retire.