Everyone wants to find the right mix of investments, but it’s easy to become over-concentrated in a specific asset. Real estate investors will often run into this dilemma as property values rise and home equity increases.  In this show, Jake Doser, CFP®, CPWA® and Nicholas J. Colantuono, CFP® will answer a question about how much real estate is too much and how should you start shifting investments as you approach retirement.

With $250,000 in a 401(k) and over $2,000,000 in rental property equity, this person wonders if selling a property to boost their 401k is a wise move. It could be, but every person will have to answer that based on their retirement needs. A comprehensive retirement plan will take all the factors into consideration like cash flow, diversification, liquidity, and income.

The demands of property management should also weigh into your decision. Make sure managing multiple real estate properties fits into your desired retirement lifestyle. If not, the return on investment may be irrelevant if it doesn’t support the time commitment required to manage the properties. It’s also worth considering heirs and whether they would want to manage these assets.

The discussion always comes back to the idea of diversification and the risks of having too many eggs in one basket, particularly in real estate. The 2008 housing crisis serves as a reminder of the potential volatility in property values. Evaluate whether you can withstand a significant loss in equity or prolonged vacancies and what that would mean to your retirement.

Finally, let’s be thinking about tax planning as part of the planning process. With potential high taxes on property and rental income, having diverse liquid assets is crucial. It’s not just about what you earn but also about what you keep after taxes.

By addressing both philosophical and mathematical aspects of retirement planning, Nick and Jake provide a comprehensive guide for those looking to retire with confidence. For more strategies on maximizing Social Security, healthcare income, and taxation, make sure you check out our retirement planning workshops.

Here’s what we discuss in this episode:

0:00 – Intro and question

0:57 – First step

2:53 – What are your retirement needs?

4:38 – Over-concentration

6:09 – Numbers to address