Real Estate as a proxy for a Pension


I’ve always been jealous of those people who can retire with a fat pension. Unfortunately for me, my itty bitty pension from my past employer will only pay less than a $1k when I hit 65. So I’ve come to the conclusion that to replicate this income stream, I can either buy an annuity or buy real estate as a proxy for a pension. Now with 3 investment properties under my belt, I’m realizing that it takes a bit more work than sitting back and receiving a nice check every month, like any side hustle, but I think it’s working.

Does anybody else think this way?


I own several rental properties as well and agree that it is not truly passive particularly if you self manage your properties as I do. It essentially does almost double as a pension though in that you have reasonably predictable, inflation hedged income albeit with more uncertainty with the surprises that come from owning rental real estate between vacancies, unexpected repairs and captial items. When you have a good chunk of your net worth in rental real estate how do you treat that for purposes of your FIREcalc? I either deduct my real estate income from my expense needs or include the net equity in my properties as part of my portfolio to which you can then apply a withdrawal rate.


We don’t own any real estate yet but are having plans to step in rather soon. We also see it as a continues stream of income to supplement our pension. Thing is that we want to retire/stop working for a boss before we can claim our pension funds. We want to outsource the maintenance and contracting so we have almost no work on it.

I will be adding the value to our portfolio worth, only we will not apply the withdrawal rate since it’s not a liquid asset. Selling might be an option at that time, but we rather live fully of the income it generates.


I think the discussions around SWR have always been based on stock/bond market returns, so I don’t think it should be applied to real estate. Similarly, if you own a business, you’d never put the enterprise value of the business and assume a 4% withdrawal rate.

The way I’d approach it is similar to a pension, which is your first option. Budget - net operating income from rentals is the amount you need to live. 4% of your total “investment” portfolio is needed to cover this spend.

Now if NOI from rentals (similar to a pension) is higher than your projected budget, then technically you don’t need any money in a portfolio. This is similar to a pension.


If one is comfortable with rental property, it can certainly be an additional source of retirement income. I would not consider it a proxy of a pension, like an annuity would be. Real estate takes time to acquire/sell and manage. It also carries more risk than a pension/annuity. Property values may drop, large repairs incurred, a non-paying tenant that takes time to evict, extended vacancy, etc. are some of the potential risks of renting property. The only work required for a pension/annuity is writing the monthly payment in your check register!

I see rental real estate as a part-time (or more!) job in retirement. That’s a great plan (if you’re comfortable dealing with it) but it’s not the same as a fixed monthly income provided by a pension/annuity, in my opinion.



I think those are good points about being realistic comparing rentals to pensions. But like everything in the investment world, there is a risk premium you can build into your rentals to more than compensate you for those issues.

For example, an annuity may pay 3% (I have no clue the real rate) and a rental may pay 8%. For $100,000 invested that’s $3,000/year vs $8,000/year. Big difference when we all need to make the most of our limited net worth.

And bought correctly, that 8% is AFTER paying for property management, reserves for vacancy, maintenance, and reserves for capital expense big ticket items.

And while it’s very true rentals require more work up front, they can be extremely passive depending upon the property you buy. For example, two free and clear single family houses in good neighborhoods with long-term tenants and third party management will require VERY little time. Based on my experience, it’s 3-5 hours per month (and that’s just reviewing reports and bookkeeping from any location).

Beyond all of that - real estate protects you from the risk of inflation, economic chaos, and even deflation if you own your properties free and clear. Pensions are nice for what they are, but they’re brittle and inflexible for those risks.

Just food for thought! Great topic.


That has been my experience as well. The real estate that we’ve purchased are in very good locations with excellent schools, and we easily found quality tenants. I’ll admit the upfront work to fix the minor items was a bit of a pain, primarily due to having to manage the contractor. We’ve been doing property management ourselves just to learn, but over time, I suspect that we’ll use a property management company. Once I pull the trigger, we’ll pay off the 3 mortgages, and it’ll generate about $36k per year (after ongoing PM fees, expected repair costs, insurance and taxes). For me, real estate isn’t a path to wealth - it’s to diversify my assets and add a passive income stream, in addition to my dividends, so I’ll never need to touch my retirement accounts and something I can leave for my kids. It also allows me to go a bit more aggressive in terms of AA because real estate almost functions as a bond.