50. Make $1,000 per month – Retire with $250,000 in savings and keep the house – retire smart
If you both have a house (or apartment) fully paid off and have $250,000 in savings and want to retire, it is wise not to sell the house in order to live on the interest of your sold house and your $250,000 in savings. Many people do that, but that's a mistake.
Interest on capital yields only 2-3% per year maximum, while inflation goes at 3-4% per year.
It is wiser to keep the house (or apartment), it is an appreciating asset (over 20-30 years, which beats inflation), then rent out the house for lets say $1,000 per month, while you slowly deplete your $250,000.
Here is an example; let's say you have a house of $250,000 and $250,000 in savings:
- If you were to sell the house for its full value, you have $500,000 in savings, which yields, at 3% annual interest, at the most $15,000 per year. Your $15,000 over 30 years is maybe only worth $7,500 of today's money because of annual inflation, so you will not have enough interest-income anymore and you will have to start depleting your $500,000.
- On the other hand, if you keep the house and rent it out, you have $12,000 per year of rental income let's say. But your house keeps on appreciating over 20-30 years, so you could still sell it later for great profit. While you depreciate your $250,000 in savings, by lets say $10,000 per year, which lasts for over 25-30 years, (you also have interest on the $250,000), resulting in a total income of $22,000 per year, which lasts for 30 years, then your $250,000 house has turned into a $500,000 asset which you could still sell or keep on living on the rental income. Your rental income on the house also increases with inflation.
Same way, if you have $250,000 in savings only and want to retire, you could buy for $150,000 a house with it and rent it out while you deplete the remaining $100,000 over 20-30 years, so you could earn over $12,000 per year for 20-30 years, while your $150,000 house appreciates to $300,000.
Even better, with $250,000, you could buy 2 houses for $125,000 each, which you could both rent out and which both appreciate, gives you most return on investment, although, you need to ensure you have 2 renters for those houses at all times. You could rent them out to family or friends for instance or place an ad on Craigslist.com.
Real estate prices have already tumbled by 50% as a result of the recession, but are expected to follow inflation at 3-4% for the next 20-30 years. Your rental income will also increase by 2-3% per year as a result of inflation-adjustment so in 20-30 years time, your rental income will be twice as it is today.
You could make an even greater return on investment when you buy 1-2 foreclosed properties at a 30-50% discount with the $250,000.
Conclusion: it is wise not to sell the house, but to deplete your savings first.
You could retire on $250,000 yielding you $1,000+ per month of rental income (for 2 properties) plus when you also have retirement benefits, you could retire in the US.
Or you choose to live abroad cheaply in a sunny country (like the Caribbean), you could live well on $1,000 per month of rental income on your $250,000 plus your retirement benefits.
