Though the debate between property investments and pension plans oftentimes leans more towards pension plans as the better choice, the truth is that more than half of 30-64 year-old Americans fear outliving their money after they retire. And it is this fear of not having enough money to retire on that is driving many people to begin looking for additional ways to pad their retirement fund and even boost income long after retiring.
If you are debating whether to invest in Baltimore County rental property even though you have a solid pension plan in place, keep reading.
Today we will discuss what a pension plan is, the hidden risks involved in relying solely upon a pension plan, and the appeal that owning rental property can have on potential property owners when it comes to supplementing your monthly income before retirement, and keeping you afloat during all of your golden years.
What is a Pension Plan?
In short, a pension plan is a retirement account maintained by your employer that pays out a fixed sum of money to you upon your retiring. The length of time you worked for your company and your annual salary will largely determine how much of a pension you will receive when you have officially retired.
Your employer manages your pension during your working years by regularly investing sums of money and placing that money into a pension fund. This means when you retire, you are paid your entitled pension amount from the reserved pension fund your company has set up. None of the pension money paid out to you for your retirement will come from the company’s payroll. Rather, it comes directly from the pension fund your company has been building while you worked for them.
The Pitfalls of Pension Plans
Additionally, the security that comes with a pension plan easily outranks many other retirement fund options. This is because with a pension plan, you will always know upon retirement exactly how much money you will receive on a monthly basis. It doesn’t matter what the market looks like at the time of your retirement because your payment will always remain the same.
That said, there are several pitfalls associated with pensions that may cause you to reconsider your reliability upon them as your sole source of retirement income:
- Inappropriately used funds. Some employers allow, or even require, their employees to contribute a specific sum of money into their own pension plan. Unfortunately, this money is then invested as the company sees fit, regardless of how you feel. This means some of your hard-earned cash may be invested in ways that do not directly benefit you or your pension fund.
- Possible pension reductions. Though pensions are supposed to be guaranteed at the time of retirement in terms of monthly payouts, if your company goes under, declares bankruptcy, or faces other serious legal troubles, there is the possibility your agreed upon payouts will be reduced.
- It is taxable income. Despite what many people think they know about pensions, the money you start receiving from your company upon retirement is taxable income. In addition, be aware that receiving a pension check each month during retirement may disqualify you from other governmental benefits, such as Social Security.
- Long employment requirements. If you are lucky enough to stay with one employer the length of your career, good for you! However, for many people this is simply unrealistic. Many pension plans require you work for the same company for a decade or longer before becoming vested with the company. This creates a battle between a guaranteed retirement payout and better career opportunities elsewhere. In the end, if you leave a company that was offering you a pension plan, you lose out on all of those benefits and must start your retirement savings over.
- Loss of control. Many people seek to have full control over their retirement funds. This cannot be achieved with a pension plan since you have zero control over how your money, or the company’s money that is added in on behalf of you, is invested.
In the end, pension plans come with many restrictions and hidden risks that you may not want to deal with come retirement time. This is especially true if you are relying solely on your pension for retirement. Though pension plans are generally a wonderful benefit given to many American workers, there are ways to offset these risks and help better guarantee a successful retirement.
Investing in Baltimore County Rental Property
If you are worried that your company’s pension plan will fail to suffice come retirement time, this is the perfect opportunity for you to consider investing in rental property. There are many ways investing in a rental property can supplement, provide for, and exceed your goals when it comes to padding your retirement fund.
Steady Income
Rental properties provide steady income for years to come if done properly and managed by an experienced Baltimore County property management company. This income not only funds your retirement needs before hitting retirement age, it also carries over and continues to provide you income well into retirement. And, if a property management company manages your property while you are retired, this mostly passive income will serve you well as you enjoy life after work.
There is No End
There will always be people leasing homes, whether they are leasing because they prefer it over buying or whether they are leasing because that is their only option. Knowing that the market for leasing will always exist, you can rely upon the fact that you will always have some sort of cash flow coming in on a rental property in Baltimore County so long as the home doesn’t go vacant for long periods of time.
With pension plans, there is always the risk that your company will go under, you will quit or get fired, or that the amount given will not be enough to suit your retirement needs. With a rental property investment, you can rest assured that everyone needs a place to live. This means that with the right advertisement, tenant screening, and lease drafting compliance, you can have high quality tenants placed in your properties at all times. This equates to regular rent collection and money in the bank for you to enjoy both pre- and post-retirement.
In the end, the best way to fulfill your retirement dreams is to diversify. There are many ways you can fund your retirement, including a pension plan and investing in rental property. And while we do not think you should entirely forgo having a pension, we do believe that investing in rental property under the management of a knowledgeable property management company is a more secure route to retiring in peace.
If you are close to retirement age, or are just looking to plan ahead and want to get into the rental property business in Baltimore County, contact Bay Management Group today. Working solely in property management, Bay Management Group has what it takes to bring your retirement plans to the next level financially. Call today and watch your golden years unfold with the peace of mind that you will have plenty of money to enjoy the next major chapter of your life.