Real estate agents don’t retire, they expire.
It’s true: it is difficult for real estate agents to retire. It doesn’t have to be this way – which is why Agent Wealth Hustle exists. Solving this problem is our mission!
Reasons why real estate agents never retire:
- No 401K tax-advantaged retirement accounts
- No retirement contribution matching by an employer
- Having to pay more taxes and healthcare costs than wage employees
- Difficulty saving enough for retirement (for reasons 1-3)
- Not taking advantage of real estate as an investment
- No company revenue share or stock options
Reason 1 – No 401Ks
Most Americans save for retirement using tax-advantaged accounts where they invest in the stock market (401Ks, IRAs). This allows us to grow a retirement nest egg to draw from once we stop working.
One big reason why real estate agents never retire is because agents don’t have access to a company-sponsored 401Ks. This is because most agents are 1099 employees: self-employed independent contractors working under brokers. 401Ks are generally for salaried employees.
So what retirement investing options are agents left with?
If real estate agents want to retire the “traditional” way of drawing from a nest egg, then they have two options:
- Traditional or Roth IRAs ($6,000 per year limit)
- Regular investing outside a retirement account (more taxes)
Unfortunately, saving $6,000 a year isn’t going to give you the retirement of your dreams. Even doubling that may not be enough to support a cushy retirement (keep reading).
Reason 2 – No Retirement Contribution Matching
Most W-2 employers will match 5% or more of your retirement investment contributions. So if you contribute 5% of your paycheck, they match that with another 5% – that’s FREE MONEY. Another big reason why real estate agents never retire is because they don’t get matching from their brokers.
Why Matching Matters: A Million Dollar Difference
Some companies even match up to 8%! If you made $100,000 a year and put $8,000 of that into a 401K, your employer would GIVE YOU another $8,000! It’s as if you actually made $108,000!
An extra $8,000 invested every year at a conservative 6% interest would equate to an extra $1.3 MILLION in retirement money after 40 years. That’s easily an extra $40,000 a year in retirement income. (Try this calculator)
Instead, real estate agents are left contributing ALL of their retirement investments out of pocket, making contributing enough for a dream retirement more financially difficult year after year.
Reason 3 – Agents Pay More Taxes & Healthcare Costs
Adding on to the already abundant reasons why real estate agents never retire, we get the pleasure of paying over 15% of self employment taxes: social security plus medicare.
Doesn’t everyone pay these costs? Sort of. Real estate agents will pay that full 15%+ while W-2 earners typically get around half of that amount PAID for by their employers.
So if you bring in $100,000, expect to pay more than $15,000 in self employment on top of your regular income taxes. You’ll typically pay 7-8% or more in taxes than W-2 employees, or $7-8,000 more a year.
On top of that, many W-2 employers pay a large portion of heath insurance costs for their employees. The average cost of health insurance is over $6,000 a year. Employers cover, on average, 82% of health insurance costs.
That means that a real estate agent will pay around $5,000+ a year more in health insurance than a W-2 earner. And that goes up for family insurance plans.
Reason 4 – Difficulty saving enough
To understand why real estate agents never retire, we have to acknowledge how difficult it is to save and invest enough money. To do this we will use a few examples. We’ll assume a 6% annual return for 40 years, as if we started saving in our early twenties and retire in our early sixties.
Example: Maxing an IRA
At the time of writing this, the contribution limit on IRAs a year is $6,000. That is total you can contribute to ANY IRA. Having multiple types of IRA or IRAs with different companies does NOT increase your contribution limit. Here is a potential max IRA retirement picture:
If you can use 3% of that million dollar nest egg a year in retirement, that’s only $30,000 a year or $2,500 a month in retirement income. If you had paid off your mortgage and other large expenses, that’s STILL not much money.
Creating $10,000 a Month Dream Retirement
When we ask what the perfect monthly income is for retirement, we almost always get the same answer: $10,000 a month. If you’ve paid off a mortgage and don’t have many other bills, $10,000 a month can provide a fun and comfortable retirement.
To determine how much to save to achieve this, we simply work backwards. You’d need a whopping $4 Million saved up (3% of that = $120,000 a year). Here is what it would take in monthly contributions to achieve that:
So to achieve $10,000 month (before taxes) in retirement using these numbers, you’d have to contribute about $2,000 a month for 40 years. That’s $24,000 a year. There are some apparent difficulties here which further demonstrate why real estate agents never retire:
- You’d have to save most of that outside IRAs, meaning it wouldn’t be tax advantaged – consider saving a little more to offset taxes
- $24,000 a year is a LOT of money and difficult to save every year
- You may not want to work for 40 years or have that long to retire
Luckily, there are lots of ways to increase your agent income so that you can contribute more, as well as leverage additional wealth building vehicles besides stock market investing!
Reason 5 – Not considering real estate as an investment
This is always a mind boggling reason for why real estate agents never retire. How many agents do we know that don’t own rental properties? Most of them!
Despite having many insider advantages in real estate investing, many real estate professionals overlook the value of owning rental properties – even as they sell properties to investors! Here are some reasons agents aren’t investing in real estate:
- They may not know how to analyze an investment property
- All the benefits of real estate investing – such as monthly cash flow, equity, and tax benefits – are known by so few
- Agents may perceive owning property as another job even though management can be outsourced
- The type of property that agent specializes in may not make a great investment in that area
Let’s make two things absolutely clear:
- The advantages of real estate investing are amazing and downright unfair!
- Real estate agents have MANY inherent advantages over the public when investing in real estate
Reason 6 – No revenue share or stock options
Many, if not most, brokerages don’t offer a lucrative revenue share program or company stock options for their agents. However, some do!
Revenue share is when agents get paid by their broker for their efforts in recruiting real estate agents to that brokerage.
Example: Let’s say it costs your broker $3,000 and hours of interviews to recruit an agent. If instead you bring an agent to the brokerage, that agent might net the broker $30,000 a year. The broker paying you $3,000 a year to you to thank you for your recruiting effort still leaves the broker with an extra $27,000 income from your recruit’s transactions. Win-win!
Revenue share can be structured in many ways. The models that can help an agent build wealth are generally structured like this:
- Agents are paid indefinitely for their efforts rather than one time
- Attracting other agents to that brokerage can be done on a national or international scale rather than just for a local franchise
- Agents are paid for the attraction efforts and productivity of their recruits as well, in a tiered structure
Just by showing a new and profitable model to agents you already interact with, you can bring a few agents a year to your brokerage, who over time bring more agents. In this way, you can steadily build another income stream to launch your retirement from!
Let’s talk stocks. If you could buy Google stock at a 20% discount right now, would you? Now what if your brokerage:
- Awarded you company stock for your first transaction each year
- And awarded you stock when each agent you attract to the company completes their first transaction?
- And gave you the option to put some of your commission toward earning company stock at a 20% discount?
- And gave you all of your commissions back as stock if you are a top producer?
Would these stock perks help you get closer to your retirement goals? Many brokers don’t issue stock to their agents because they don’t consider the agents as owners of the company. But a few believe the agents ARE the company and therefore should have part ownership in it by owning stock!
How to Enable Real Estate Agent Retirement
Now that you know the many reasons why real estate agents never retire, it’s time that we all did something to change that! We built Agent Wealth Hustle to solve this exact issue – and even go a step further: enabling agents to build wealth and reach their retirement goals.
Check out some of the links in this article to learn more, and check out our introduction to the revolutionary wealth building brokerage to get started.
You can also check out our comprehensive post on Stock Market Investing For Real Estate Agents