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4 Ways Real Estate Agents Can Better Manage Their Wealth

January 28 2017

ipad clients matureReal estate agents are exceptional at helping people secure what's often the single biggest investment of their lives – their home – but they're often not as adept at managing their own wealth.

Wealth means different things to different people, but ultimately wealth comes down to the choices you make in life and what options those choices allow you to pursue.

One of the biggest options is an individual's plans for their retirement and the challenges that everyone faces in preparing for a retirement that's satisfying. But for real estate agents, the challenges are even more daunting: being most likely 100 percent commission based, agents don't have pensions, and for those under the age of 50, there's a realization that the overburdened Social Security system won't likely be paying out the way it did for our parents and grandparents' generations.

The social structures that have supported retirement are changing, and as if that weren't enough of a challenge, expenses in retirement are only going up. So with more expensive retirements and less resources to tap to fund our lives in retirement, we are at a unique point in history where we all will need to take a greater personal responsibility for our own retirement. And again, this is nothing more than a reflection of the choices we make throughout our earning years.

To respond to the changing retirement landscape, here are four ways that real estate agents can better manage their finances today and into their retirement.

  1. Get clarity: This is the most important first step that every real estate agent needs to take. Before you can do anything, you really need to be very clear on what your story is for your future, and what your story is for your retirement. Generally, we all have this vague notion of retirement – a vision of playing golf, spending time with the grandkids – and yet, we don't examine the nuts and bolts of what does that really look like or whether it's realistic in the context of a financial analysis.

  2. Look at your three buckets: When examining your retirement, look at the three buckets that determine your wealth: career, retirement and your expenses. For example, in terms of your career bucket, how much career is left for you or how many years of earning potential do you have left? Then you have to look at your career trajectory. For the average 53-year old real estate agent, who's pretty far along in their career and doing more listing business than working with first-time home buyers, these could be their prime earning years. But it depends on your story: you could be an agent with kids in college, or bringing in a junior partner, and it all comes down to what do you have to accomplish and how long do you have to accomplish it.

  3. Younger agents benefit from focusing on their expenses. Early in your career as an agent, there are many significant and predictable expenses that can be expected. Paying for college for your kids is most often one of those – that looming, terrifying number that we've heard about on the news, yet we haven't really tackled it. One client of ours, a real estate agent, has three kids – ages 8, 6 and 4 – so they have some time before they start writing checks. Yet there is a benefit to determining what their philosophy is now. Is it helping to pay for a portion of their kid's college education or paying for all of it, and what could the cost of college look like in 10, 12, 14 years from now? Understanding their philosophies is key to creating the right financial model. And that approach allows us to help them move into tactics, such as a starting a 529 Plan for college savings, to get them where they want to be.

  4. Diversification is crucial for your portfolio. This is often a big challenge for real estate agents, as they invest in what they know best – real estate. However there's an important reason why it's vital for real estate agents to have diversification across many asset classes: Call it "Modern Portfolio Theory" or simply call it capitalism, but the important point is that if one asset class were always the best asset class, then all the money would go there. And while there are many times when real estate is great, there are times when real estate has its challenges. The other big potential drawback of having all of your assets in real estate is liquidity: when you have an emergency and you need liquidity, it's very challenging to generate that cash if your balance sheet is entirely illiquid assets. That's why having a balanced portfolio with investments across all asset classes - cash, stocks, bonds, real estate and alternative investments – is important for liquidity and over time, will help real estate agents achieve their goals. What that right balance is can be different for every agent, based on their story and what they want to accomplish.

Retirement is that incredible time in your life when you transition from working for your money, to your money working for you. It's why investing time now to take these necessary steps will ensure you know your story and how you want it to turn out. This is what Opes Advisors does uniquely for real estate agents with our AgentWealth programAgentWealth program, providing the personal advice combined with the latest technology to run all the "What if?" scenarios that every individual story may have. In the end, retirement shouldn't be something you fear, because if you know what's really important to you and you take the right steps, retirement can be genuinely satisfying.

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