by Gina Lynell Smith
Our retirement was to be a combination of Social Security, Pension Plans, and Personal Savings, but today all three are in jeopardy and an alternative is needed.
Social Security is billions of dollars in debt-essentially now defunct. Personal savings are in danger of bank failures like IndyMac. Pension plans are either being discontinued by our companies for lack of money, or they are under performing in the volatile stock market and mutual funds or they are at risk like the Enron disaster.
What is the Solution? One suggestion is that youth now need to make more than $60,000 in order to save for retirement and continue to pay down the debt of (or be taxed for) Social Security. But, what if you do not have a college degree or even a high school diploma, how will you make an income of $60,000 or more? And during these turbulent times – bank failures, where do you keep your personal savings in order that it will be safe and available when you need it at retirement?
Some economists have suggested a government 401k started at birth for low-income kids, but the same problems that we are facing with Social Security today could also become the problems of the 401k. Also two threats to the 401ks are volatile stock market losses and bank failures.
In my opinion, carefully chosen land purchased by a self-directed IRA is the answer.
In fact, if the banks fail, such a purchase would not be initially effected. The deed of trust or grant deed that was received for the purchase is still good! It is easily transferable and easily inherited. The retiree can sell it to another person in the U.S. or to a foreign investor once it has appreciated in value, or the retiree can lease out the land and live off of the rental income.
A low-income(below poverty) child or any child given a valuable piece of land at birth might receive the best protection against retirement our government or parents could give.
Imagine, how land ownership would make below-poverty people or any person more productive and more actively involved in the community. The land will increase in value over a time period of 30 – 40 years and many things would then occur.
One Scenario would be for the retiree to sell the land and live off of the interest (assuming the banks did not fail.) This one transaction per child would lift several generations out of poverty. The family would no longer have to live off of the government assistance and low wages. The government would also be alleviated, over time, of its trillions of dollars in debt.
A $5,000 to $25,000 investment in an acre of land purchased with an IRA results in deferred taxes and could be worth $1.5 million after the 30 – 40 year period. (The government actually spends $25,000 or more in the first five years of a below-poverty child’s life.) The child could actually retire at 40 years of age instead of 67 or 71 expected by the Social Security Department, and he or she would still be able to effectively be trained to work/volunteer in hospitals or senior assisted care programs.
Also $1.5 million invested in a T-bill at 4% is $60,000 per year income before taxes. Two years of paying taxes on $60,000 would pay the government back to original $5,000 to $25,000 investment.
Even after paying taxes on $60,000, the income is not bad, especially when you are healthy and when healthcare costs have been reduced by the results of mandatory training and volunteer requirements of those receiving the land IRA. Such volunteer work would reduce the salary expense and overall costs of healthcare.
The $1.5 million is still available, after death, to be passed on to his or her child, thus reducing the government’s obligation to invest in another $5,000 to $25,000 per acre at birth, but also it reduces the government assistance needed for welfare or AFDC to raise this new child. This new child can grow up with self-esteem knowing that the interest from $1.5 million is available to him or her for college, a business venture or real estate.
Another scenario would be to sell the land and lease a portion of it back, use only $500,000 to improve the leased land with real estate income property. The retiree could live on the income of the interest from the remaining $1 million and from the income of the rental property minus the land lease. This scenario is risky, but now the retiree is a productive developer who has created jobs and hopefully is building more wealth to invest in the community.
Both of these scenarios rely on the banks not failing. Should the banks fail, the last scenario would be to simply lease the land out for more than $60,000 per year, and the retiree could live on the rental income until death, and such land and income can be passed onto his/her child. Regardless of bank failures, this plan could work.
Some considerations need to be in place—how to distribute the land to whom, and which land to buy (most land should be in the U.S., but as land availability decreases, it can be purchased outside the U.S.); Ten criteria must be considered to ensure the land value appreciation needed to reach at least $1.5 million per acre.
Read my next week’s post to see “The Ten Criteria Needed for Purchasing Land with an IRA.”
Live happy and wealthy!
