The short answer is that rental properties can be good retirement investments, but they aren't the best fit for all retirees.
Before we get into the specific pros and cons, there's absolutely nothing wrong with investing in a 401(k) for retirement. In fact, while I own a few rental properties, the bulk of my retirement savings is in my solo 401(k). I'm generally not a fan of index life insurance policies, simply because they tend to have rather high fee structures.
As far as owning rental properties goes, they can be a great way to not only generate income that can be used to cover day-to-day expenses in retirement but to preserve your capital as well. Real estate tends to hold its value better than other asset classes (particularly stocks) and is historically less volatile, tool. So, if your priority is to preserve your nest egg, as opposed to simply gradually drawing down your money, rental properties can definitely help you achieve your goals.
Rental income also has some big tax benefits that retirees often benefit from. Specifically, because you can deduct the property's depreciation each year, it can help minimize (or even eliminate) tax liability on your rental income.
There are some drawbacks to owning rental properties as well. Some aren't likely to be too concerning to retirees, such as the greater time commitment required to research and maintain rental property investments as opposed to the other types you mentioned.
On the other hand, retirees could find some other drawbacks particularly concerning, especially the nature of rental property income. Specifically, it isn't always consistent and reliable to the extent retirees generally want. Your rental properties are likely to be vacant from time to time, which can result in several months of income disruption. Rental properties also need maintenance and repairs, and the timing and amount of these expenses can be unpredictable, especially with older rental properties.
If you decide to invest in rental properties as a retirement income strategy, my suggestion would be to set aside a reasonable amount of the rental income each month (I typically do 15% to 20%) to cover these unforeseen expenses. By doing so, you can help minimize income disruption. For example, if one of your properties brings in $1,000 per month, set aside $200 of this. Then, if your property becomes vacant or unexpected repairs are needed, you can draw from these reserves.
The bottom line is that if you're comfortable with the somewhat unpredictable nature of rental property income, and you plan appropriately, rental properties can be a great way to invest for retirement.
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