The 4% rule in retirement planning is used to determine how much you should withdraw from your retirement account each year. Basically, the idea is to give yourself a healthy stream of income, while maintaining an active account balance during retirement.
The typical retirement portfolio is usually comprised of stocks, bonds, and cash. Each investment serves its own role.
- The stocks in your portfolio provide the potential for future growth which can help support your spending needs later in retirement
- The cash and bonds in your portfolio can add stability and can be used to fund spending needs early in retirement
However, did you know that you can potentially build greater wealth and maximize your portfolio by investing in real estate investments?
When you add real estate, it can potentially act as a hedge to inflation while additionally adding some more stability to your retirement portfolio. So, with a good mix of stocks, bonds, cash, and real estate, your portfolio is in a potentially healthier position to help you meet your retirement goals sooner.
Typically, asset allocation has a relatively small impact on the first-year sustainable withdrawal amount, unless there is a very conservative allocation and long retirement period established. However, over the long term, real estate investments could have a meaningful impact on your portfolio’s ending asset balance.
Diversifying Investment Income
Assuming the formulated 4% rule and going with a split between 60% following the S&P 500 and 40% invested in intermediate-term U.S. government bonds. Even among stocks, investors can diversify into a blend of small-, mid-, and large-cap funds.
The investment options don’t end with stocks and bonds. You can put your retirement fund to work and invest in real estate funds without the headache of core real estate ownership. Your investment is more liquid than holding core assets. This investment strategy could ensure you do not outlive your nest egg.
4% Rule in Retirement Planning Risks
Determining if 4% is enough to save for retirement is one of the bigger risks today because life expectancy is playing a major role. Retirees are living longer which creates some new challenges such as:
- Ensuring their portfolio lasts longer
- Considering their medical costs as the years add on
- Thinking about other general expenses to plan for which might include planning for emergencies, rent/mortgage, supporting a dependent, etc.
Another major risk to the assumption of the 4% rule includes the sequencing returns of the risk. For example, when a portfolio value drops due to primarily a stock market crash, that 4% needs to deplete a larger portion of its principle, which could affect its opportunity to participate in the likely recovery.
The historic lower volatility of real estate could help mitigate this, especially if the higher income associated with real estate is used to supplement the lower income from the cash/bonds and stock dividends.
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We offer multiple investment solutions from monthly income to aggressive growth, while also serving as one of the premier qualified Opportunity Zone Fund sponsors in Southwestern, USA.
With Caliber, all our investments are structured so you profit first. Additionally, we’re an expert on middle-market investments in the Southwest & Mountain West regions of the U.S.—focusing on Arizona, Colorado, Idaho, Nevada, Utah, and Texas. With years of experience in this market, we have specialized access to numerous unique groups, politicians, and local businesses that potentially create better processes and greater deal flows for our investors.
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As an investor, you can count on Caliber’s long-term track record, our mission of communication and transparency, and expertise in real-estate investment practices to help you potentially grow your wealth.
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