If you are smart, you're buying a few rentals when you are in your 30's, 40's and/or 50's. If so, you will enjoy added benefits when you get to your 60's and beyond, but there is one catch if you're a full-time landlord.

1. Rental income is not Earned Income for purposes of Social Security

If you take Social Security retirement benefits between age 62 and full retirement age, rental income does not count toward income that reduces social security payments by $1 for every $2 of income above $17,040. You can find additional clarification of this at https://www.ssa.gov/pubs/EN-05-10069.pdf

That means that if you want to take social security benefits before your full retirement age, your monthly benefit payments will not be reduced by your rental income. They also won’t be reduced by money you withdraw from your IRA, pension plan or other retirement vehicle. However, if you are flipping houses, that is considered earned income and will reduce your social security benefit payments when you reach and exceed an earned income of $17,040 in 2018.

2. Waiting to take social security retirement benefit payments by a few years, reduces the number of rental properties you are likely to need during retirement to achieve a target amount of passive income.

Let’s say you and your spouse need $6,000 per month of pre-tax income to live when you are in your 70’s. Let’s also say that one of you is eligible for $1,500 per month of social security benefits at age 62 and the other is eligible for $1,800 per month of social security benefits at age 62. Let’s further say that you were smart enough to buy 5 single family home rentals with median income tenants (one every 2 years) in your 30’s and 40’s each with a 20-year amortization term. By the time you reach 62, you should have 5 free and clear such rentals and each one is likely to generate roughly $1,000 per month of positive cash flow. That means that you can achieve the $6,000 per month of pre-tax income from the 5 rental homes plus the social security benefits of the lower income spouse. If so, then the higher income spouse can wait until age 70 to start taking social security benefits and instead of collecting $1,800 per month, that spouse will collect about $3,100 per month. That means that the couple can live off 5 single family home rentals plus one social security benefit payment until age 70 and then after age 70, they only need 4 of those single-family home rentals to meet their needs (ignoring inflation and special expenses). They can either sell the fifth rental home and use the cash to enjoy life or they can keep the fifth rental home for cushion and inflation.

Regardless, if you are smart enough to accumulate 5 rentals before you are 45 years old, your financial security in retirement is so much more secure without driving yourself crazy.

Remember that one out of every three 65-year olds today will live to age 90. So, unless you have a reason to believe that you will expire before then, you are almost forced to plan for a long life.

3. If you don’t pay FICA during your “working years,”, you don’t get paid Social Security benefit payments.

This is often overlooked by full-time real estate investors who are landlords and brag that they don’t pay FICA on their profits and cash flow from rentals.

A part-time investor who has a few rentals on the side (like me) has earned income most of his/her life and pays into the social security system.

The average social security benefit payment in 2018 is $1,404 per month. That is equivalent to the cash flow from roughly 4 financed rentals or about 1.5 free and clear single-family rentals. An advantage of being a part-time investor with a job you enjoy with earned income for most of your working life is that you don’t have to have as many rentals in retirement. In other words, you enjoyed the journey and you don’t have to drive yourself crazy with too many rentals in retirement.

There are many reasons I am very happy that I was a part-time investor with less than 10 rental properties while I enjoyed my primary occupation for decades.

What is your situation?

Are you happy?

Are you financially secure?

If not, you should explore coaching for part-time investing from an experienced and successful part-time investor, Marc Halpern. Better yet, purchase the 22-hour “Smarter Investing” home study course by Marc Halpern, successful part-time investor and learn how to achieve financial freedom through part-time real estate investing without driving yourself crazy.