I Retired a Millionaire: The Best $20,000 I Ever Spent Preparing for Retirement
Written by
G. Brian Davis
Edited by
Zuri Anderson
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A high income certainly helps you retire a millionaire — but you also need strategy.
As family attorney Julia Rueschemeyer transitions into retirement as a millionaire, she credits three reasons for her plush nest egg. And while they required plenty of money invested, they didn’t require much in the way of fees.
Cash Balance Plan
Rueschemeyer spent a decade as a sole practitioner, which opened the door to a retirement account type not available to most Americans.
“As a solopreneur, I could use a cash balance plan, which allows self-employed people to save hundreds of thousands of dollars every year pre-tax,” she explained. “If you work for a paycheck, you are likely limited to just $8,000 a year in an IRA.”
These technically work as a defined benefit plan, but because you set it up for yourself, it works more like a defined contribution plan (see details from the Department of Labor). Setting up and managing cash balance plans can get complicated quickly and costs money.
“Many [certified public accountants] CPAs can administer these plans for $2,000 [to] $3,000 a year,” Rueschemeyer added.
That’s the cost of contributing up to hundreds of thousands in a pre-tax account each year.
A 100% Equities Portfolio
Yes, administering a cash balance plan costs money. But inside that account, Rueschemeyer keeps it simple with low-cost index funds — and no bonds.
“I do not own a bond: 100% of my retirement investments are in low-cost index funds,” she stated. “If you are investing for the long term (minimum 10 years), stocks are likely to give you much more money in retirement. And if you have other sources of retirement income, you can easily weather a few years of market downturns.”
Rental Properties
That “other” source of income that Rueschemeyer alluded to? For her, that comes from rental properties.
“My spouse and I began investing in rentals 20 years ago, and now own four properties including a duplex and a triplex,” she said. “Real estate investing has three incredible financial advantages: Leverage (buying with other people’s money), depreciation and the qualified business income deduction.”
Rueschemeyer gets to write off “losses” from depreciation, and the QBI deduction (see the IRS rules) further slashes her tax bill, even as she collects cash flow in real life. She sums up the tax benefits succinctly: “People working for a paycheck don’t get this.”
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