A Real Estate Agent’s Guide to Retirement Planning

As a real estate agent, you spend years helping clients find the perfect home or investment property, but what about your own future? Unlike traditional W-2 employees, you don’t have access to employer-sponsored 401(k) plans or pension benefits. On top of that, your income fluctuates based on commissions, which can make it challenging to set aside money consistently. But just because your financial path is different doesn’t mean you can’t build a strong retirement plan. In fact, with the right strategies, you can take full control of your financial future and create a retirement that allows you to enjoy the same level of freedom and flexibility that you’ve had throughout your career. Choosing the Right Retirement Accounts Since you don’t have a company setting up a 401(k) for you, it’s up to you to take advantage of tax-advantaged retirement accounts that allow independent contractors and self-employed professionals to save efficiently. •  SEP IRA. A Simplified Employee Pension (SEP) IRA is an excellent option for real estate agents because it allows you to contribute up to 25 percent of your net earnings, with a maximum contribution limit of $69,000 in 2024. This is a great option if you’re looking for a tax-deductible way to save a substantial amount during high-earning years. •  Solo 401(k). If you’re a solo agent with no employees, a Solo 401(k) could be a strong choice. This plan allows you to contribute both as an employee (up to $23,000 in 2024, or $30,500 if you're over 50) and as an employer (up to 25 percent of your compensation), making it one of the most flexible retirement savings options available. •  Roth IRA. If you expect to be in a higher tax bracket during retirement, a Roth IRA could be an excellent tool. Unlike traditional IRAs, Roth accounts are funded with after-tax dollars, meaning withdrawals in retirement are tax-free. However, contribution limits are lower ($7,000 in 2024, with an extra $1,000 catch-up contribution for those 50 and older), so it’s best used as a supplemental savings vehicle. Having a mix of tax-deferred and tax-free accounts can provide flexibility in how you withdraw funds in retirement, helping you minimize tax burdens down the line. Managing Irregular Income for Consistent Savings One of the biggest challenges real estate agents face is the unpredictability of income. Some months are flush with commission checks, while others are painfully slow. The key to a strong retirement strategy is learning how to smooth out these fluctuations so that your savings efforts remain consistent. Setting up automatic transfers to your retirement accounts is one of the best ways to stay disciplined. Even if you can’t contribute the same amount every month, committing to a base contribution – say $500 per month – ensures you’re always putting something away. During peak seasons, when commissions are rolling in, set aside a larger percentage of your income for retirement. A good rule of thumb is to allocate at least 30 percent of your commission checks toward savings, including both retirement and emergency funds. Building Passive Income Streams for Retirement As a real estate agent, you have a significant advantage when it comes to retirement planning: your knowledge of the housing market. Instead of relying solely on traditional retirement accounts, consider leveraging real estate investments as part of your long-term wealth strategy. •  Rental Properties. Investing in rental properties can provide a steady stream of passive income, which can help supplement your retirement savings. Since you already understand the market, you can identify undervalued properties and turn them into income-generating assets. •  Real Estate Investment Trusts (REITs). If managing physical properties isn’t your thing, investing in REITs allows you to earn passive income from real estate without the hands-on work. REITs are companies that own and manage income-producing properties, and they distribute earnings to investors in the form of dividends. The Role of a Financial Planner in Your Retirement Plan Because of the unique challenges that come with fluctuating income and self-employment, it’s smart to work with a financial planner who understands real estate professionals.  A well-respected financial planning firm like Lighthouse Financial can help you develop a tax-efficient retirement strategy that fits your specific needs. They’ll work with you to understand your full financial situation and help you build smart growth-conscious strategies that put your specific needs and goals first. Tax Strategies to Keep More of Your Money Because real estate agents are independent contractors, taxes can take a significant bite out of your earnings. Implementing smart tax strategies can help you keep more money in your pocket for retirement. For example, you can deduct business expenses such as marketing, vehicle costs, home office expenses, and professional development fees to lower your taxable income. Then there are specialized savings accounts. If you have a high-deductible health plan, contributing to an HSA can provide triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Adding it All Up As a real estate agent, having the right retirement strategy in place can remove a huge weight from your shoulders – allowing you to worry less and focus more on the future. Now it’s up to you to surround yourself with the right people and plans to get started.