top of page

Pension Vs. Real Estate

Pension Vs. Real Estate

The saying goes it's never too early to start saving for retirement. An important part of this planning should be how you save your hard earned dollars. Often employees depend on their employer for retirement planning. This is usually through a defined benefit plan such as a pension or a defined contribution plan such as a 403b or 401k where the employer contributes a fixed amount to your retirement savings each year.

Unfortunately while these plans are the most common retirement accounts, they leave a lot to be desired. Many of these faults can be overcome by including real estate in your retirement portfolio. Have you ever considered real estate as part of your retirement strategy? Lets take a look at the different retirement plans and how they stack up against real estate to see how real estate investing can maximize the benefits of each dollar you put towards retirement.

Pre-retirement Tax Benefits

All of the retirement accounts offer some benefit prior to retirement. 403b and 401ks allow you to contribute pre-tax dollars to your retirement account, reducing your taxable income. These dollars can then go on to grow tax free until the time of your retirement. With real estate your property can be purchased with post tax dollars for as little as 10% of the property's value yet the full value of the property will continue to appreciate over time. Usually this is above the rate of inflation.

For example: if you purchase a property for a $100,000 and you invest $10,000 to purchase the property. The property value may increase by 5% the following year to $105,000. This $5,000 growth is a 50% return on your initial $10,000 investment. This benefit is equal to if not better than being able to invest pretax dollars as it accelerates the growth of each dollar you invested.

If you still wish to have the pretax benefits, you can invest in real estate using some retirement accounts such as self-directed IRAs.

Early Withdrawals

You can borrow against all of the retirement accounts before retirement as long as you pay them back within a predetermined period. These loans may offer an additional benefit of not showing up on your credit report, meaning there will be less of an impact on future borrowing ability. Unfortunately when you make early withdrawals you have to pay taxes, penalties and fees. These withdrawals also decrease the cash value of the retirement account negating benefits of compound interest.

With real estate you can take out a loan secured by your property for up to 80% of its value depending on the property type. Once you have paid off your outstanding loan the left over funds are yours, free to use with no additional taxes to be paid. Best of all instead of you paying the loan back, it will be paid with income from your real estate instead of income from your W2 job. With real estate you are able to access retirement funds early with less negative impact.

Contribution limits

A downside to traditional retirement plans is that you are limited to how much you can contribute to them each year. And if you are lucky enough to have an employer who offers a retirement account match, your employer is also limited to how much they can contribute. Even then, chances are they are not contributing anywhere near their limit. You can have multiple retirement accounts but still the cumulative contribution amount would be limited. Even if your income goes up your maximum contribution limits do not so you are not getting the maximum savings towards your retirement each year.

With real estate these limits do not exist. You can buy as much real estate as you want each year meaning you can invest as much money into a real estate based retirement portfolio as you desire. The limiting factor would only be the funds you have available to acquire real estate. You don't even have to rely solely on your funds. You can partner with other people to acquire real estate. If this doesn't sound appealing, you do not have to acquire real estate every year to gain all of these benefits.

Impact of inflation

With pension plans, you have a fixed benefit meaning the employer promises to pay you a fixed amount each year during your retirement. For most pension plans this amount does not adjust with inflation. Real estate has been a reliable inflation hedge. As inflation increases, rents go up and property value goes up. This means your income from your real estate should also increase helping to offset inflation. This benefit continues into your retirement.

Career length/ employment flexibility

All retirement accounts have potential to increase in value the longer you contribute to them prior to making withdrawals. The earlier in your career you start these accounts the more time they have to grow and benefit from compound interest. Pension plans usually are based on years of employment and salary, meaning the longer you work for the specific employer or the higher the salary the employer paid the more they will pay you during retirement. This would limit your flexibility and tie you to one employer or field to maximize the pension payments you receive. Also if you are unable to continue working for any reason such as injury or needing to care for an ill family member this will reduce your years of work and thus your pension payment.

With real estate investing, your retirement portfolio is not tied to your employer or your career. So you are free to leave a job or career if you are unhappy or unfulfilled. If other life events occur you have the flexibility to manage them without worrying about the impact on your retirement.


While pensions are seen as stable because they are payments guaranteed from your employer until your death, 403b and 401ks are invested into the stock market and may be at risk to potential crashes and volatility until your retirement. 403b and 401ks also have the potential of running out of money if you live long enough or if you withdraw too much money each year.

With real estate your withdrawals do not decrease the value of your investment, and as rents increase with inflation your annual income may increase with time. The property is also insured so should there be a natural disaster or other calamity that damages the property, insurance funds will help to rebuild the property and restore your income.

Preparation time needed

With employer sponsored retirement plans you have to start planning decades before your retirement date to maximize benefit. With real estate you can achieve similar financial benefit after only a few years and start reaping benefits immediately. You can start even sooner by adding some REITs to your stock investments. Real estate can also be passed on to your family. So you are not only planning your retirement but also theirs as well.

If you're planning to retire early or retire at all, these benefits show how real estate can be used as your retirement plan or to supplement your current retirement plan. Not only will you put yourself on the path to retirement but you'll also give your family a head start on their retirement.

Interested in learning more about investing in multifamily apartments? Give us a call or check out some of the other free resources we have available at


bottom of page