How to Double Your Mom's Retirement Income

Table of Contents

Oooh Stats

Based on 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 savings portfolio holds $100,000 (rounded up from $95,000).

Under further scrutiny (nerdy words), those households 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 for Withdrawing in Retirement

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.

The Goal is to Avoid Dying Broke

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 4% retirement withdrawal calculation screenshot for $150,000 below:

One Fix: Retirement Rental Income vs Housing Debt

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 bedrooms, 3 baths 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 the 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 an 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.

Takeaway: Retirement Planning Matters

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 as I did, you might have a ball with this idea.

Free resource: Money Management estimator

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 hypothetical 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.