By Richard Westlund
For an independent contractor, retirement planning can sometimes take a backseat to bills and business expenses. Here's how to change that.
Two decades ago, Mary Ellen zum Felde, a sales associate with John R. Wood Realtors® in Naples, began putting money away for retirement. She invested in mutual funds and land trusts, taking advantage of the tax benefits offered by her individual retirement arrangement (IRA).
Today at 72, Felde is still working in real estate because she enjoys it—not because she needs the income. "You're foolish if you don't start putting money away for retirement," she says. "You don't want to be in a position where you can't afford to get out of the business."
With many Florida real estate professionals in the baby boom generation thinking seriously about retirement, financial planners around the state say it's never too late—or too soon—to undertake a disciplined savings and investment program.
"After you set aside dollars for an emergency and for planned future expenses such as a home purchase, retirement needs to be at the top of the list of priorities," says Marcus Winchester, a Certified Financial Planner® with Winchester Financial Group, Tallahassee. "We tend to spend what we earn unless we hide it from ourselves. A retirement plan is a good place to hide it from taxes and your tendency to spend it all."
And Steve Bergen, a financial representative with Brooks, Bergen & McCoy in St. Petersburg, points to the substantial benefits of starting a plan at an early age.
A 35-year-old who puts away $5,000 a year with a 10 percent annual return will have accumulated $904,700 by age 65, Bergen says. But someone who waits 10 years and starts at age 45, will have only $315,000. "Time can be your friend or foe," he says. "If you start early enough and put $10,000 a year away, you can easily have $2 million waiting for you in retirement."
When it comes to beginning a savings and investment program, there's no hidden secret to success. All it takes is a bit of personal discipline, a sound monthly budget and a willingness to control your spending in order to set aside funds for the future.
"For most real estate professionals, the problem is [that they're] not paying themselves first," says Gary Polk, CFP, owner of the Polk Financial Group Inc. in Davie. "You have put away those dollars for your retirement."
Fortunately, brokers and sales associates have more options than a typical corporate employee when it comes to creating and funding a retirement plan (see "Types of Retirement Plans", p. 33). "Which plan is right for you depends on your individual situation," says Polk. "A lot is based on how much you want to put away and how much flexibility you need."
William Vasana, 37, a sales associate with Watson Realty's South Point office in Jacksonville, is one of the Gen-Xers who's already saving for retirement. He takes money from each commission and puts it into an individual 401(k) account until he reaches the maximum contribution each year.
"If you can put away funds and earn 12 percent annually, your investment will double in just six years," he says. "I'm an aggressive investor, but you can adopt a conservative or moderate approach as well."
Sean Deviney, a financial planner with Provenance Wealth Advisors in Fort Lauderdale, notes that one of the issues faced by sales associates is the inconsistency of their cash flows, which are based on commissions. Therefore, they need flexibility in their retirement planning.
For many associates, one of the more attractive types is the individual 401(k). "Previously, 401(k) plans were exclusive to large corporations mainly because they were expensive to administer," says Deviney. "Over the past few years, changes in tax laws have made these more popular and affordable to the self-employed. And you can take out loans against the plan assets, which you can't do with other retirement plans. Having short-term access to cash can make these plans more beneficial to associates."
From a planner's perspective, Deviney says, "Our typical process is to learn more about the individual's personal situation, family and goals for a future retirement lifestyle. We collect data on the current financial situation, analyze and discuss different options, implement the plan and monitor performance."
Talking to an expert to help you jump start your retirement planning is a sound strategy, according to Patricia Dahne, 56, broker-owner of Pat Dahne Realty Group in Coral Gables. She recommends hiring a fee-based financial planner for objective advice on building a well-diversified portfolio.
"Five years before thinking about leaving corporate life, I sat down with a planner who was able to do projections of my income needs," she says. A financial planner can also provide advice on insurance and estate planning, as well.
For her retirement plan, Dahne invested in mutual funds and real estate. She also refinanced her home, and took advantage of credit card offers with low introductory rates. "You need to pay attention to the little things," she says, "and you need to educate yourself about potential investments throughout the world, including international funds and real estate."
When it comes to a long-term investment strategy, real estate professionals typically fall into two categories. Some, like Susan Ball, 52, a sales associate with Coldwell Banker's Cape Coral office, are advocates of buying income-producing real estate.
Ball recently bought a residential rental property in Panama City that's now generating income and appreciating in value. "When I'm ready to retire, I plan on selling it," she says.
As a Certified International Property Specialist, Ball says she's always looking for good investments for customers, "I found this one and decided to buy it myself," she adds. "So far, its doing just fine."
Another believer in real estate investing is Dan Emerson, 50, a sales associate with Coldwell Banker in Lake Mary. "Early in my career," he says, "I attended a seminar and got a great piece of advice: 'Be your own best client.' Since then, I've purchased a number of properties, fixed them up and rented them out."
After 16 years as a landlord, Emerson now owns 13 rental homes that have appreciated in value and provide a steady cash flow. "I probably could retire now, but I'm going to wait a few more years," he says. "While I have a little money in stocks, most of my investing is real estate. This is the field I know, and it's easy for me to spot a bargain with a fixer-upper. I believe real estate is less of a gamble as long as you're in it for the long haul."
On the other hand, many Florida financial planners emphasize the importance of diversification. As Deviney says, "Don't put all your eggs into one basket. Real estate people don't like to venture outside the real estate industry. But diversification is a fundamental strategy for retirement."
A typical investment portfolio might include a selection of mutual funds, money market funds and/or real estate investment funds. Those funds, in turn, would hold different types of stocks and bonds, or other types of assets.
The goal is to generate a consistently high level of return without exposing the investor to excess risk. In other words, you might make 8 percent a year on your overall portfolio, but be able to sleep well at night without worrying about the daily ups and downs of the stock market.
"Diversification is a cornerstone of investing and retirement planning," says Winchester. "When you depend on the real estate market exclusively for your income or your investments, you expose yourself to market timing and valuation issues. Diversifying among different asset classes can help reduce your portfolio's overall volatility."
And Michael Hanley, a retirement planning specialist with AXA Advisors in Orlando, advises real estate professionals not to take a FSBO [for sale by owner] approach to investing and try to go it alone. "You need a specialist with the education and expertise to help you achieve your goals," he says. "Then, it's just a matter of discipline—setting aside money consistently in order to pay for your future."