This May marks Inman’s sixth annual Agent Appreciation Month. Look for profiles of top producers, opinions on the current state of the industry and tangible takeaways you can implement in your career today. Plus, the prestigious Future Leaders of Real Estate return this month, too.
For real estate agents, whose income ebbs and flows with market cycles, traditional retirement vehicles may not offer the flexibility and security needed for long-term financial stability. While most Americans default to employer-sponsored 401(k) plans, self-employed real estate professionals need more adaptable solutions to maximize their irregular income patterns and provide guaranteed income during retirement.
Why traditional plans fall short for agents
As independent contractors, most real estate agents lack the employer-matched 401(k) contributions that traditional employees enjoy. This absence of steady retirement benefits, combined with the unpredictable nature of commission-based income, makes conventional retirement planning particularly challenging for those in the real estate profession.
Recent statistics paint a concerning picture for retirement readiness among self-employed professionals. According to a 2024 Clever Real Estate survey, the median retiree has only $142,500 in savings — four times less than the recommended minimum for starting retirement ($572,000). Even more alarming, 25 percent of retirees have nothing saved for retirement, and 40 percent worry they will outlive their savings entirely.
The irregular cash flow typical in real estate sales often creates a scenario where agents find themselves working longer hours with less stability than traditional employees, all while lacking a clear exit strategy. Many end up perpetually chasing their next closing just to maintain their current lifestyle, rather than building wealth for the future.
This feast-or-famine income pattern makes traditional retirement planning exceptionally difficult — during the good months, agents have surplus cash to invest, but during lean periods, they might need to tap those same funds to cover basic expenses.
Solo 401(k)s: A flexible option with ‘gotchas’
For self-employed agents, a Solo 401(k) offers significant advantages by allowing you to maximize retirement contributions through both employee and employer contributions. This dual contribution capability makes it particularly valuable for high-earning professionals.
In 2025, the maximum contribution to a Solo 401(k) is $70,000, with additional catch-up contributions available for those over 50. This substantial limit makes it possible to save significantly during high-income years.
For many agents structured as S Corporations, a Solo 401(k) can solve the notable limitations on retirement contributions that often come with this business structure. However, it’s worth noting that Solo 401(k) plans do involve more paperwork, including potential Form 5500 filing once plan assets exceed $250,000.
Beware of a few gotchas with the Solo 401(k), including the following:
- Tax deferral does not mean tax-free. If you choose a Traditional 401(k), you get a tax break now, but you could be paying higher taxes in the future when you use your funds.
- Restricted options for use. Before 59 ½ years old, there’s a pesky 10 percent penalty for early withdrawal. When you turn 73, you must worry about Required Minimum Distributions (RMDs), at least as of this writing. The RMD age has changed recently and could change again. Thinking of taking a loan? You’re limited on the amount, and the interest you pay is taxed twice.
- Be careful who you choose as your 401(k) administrator. The fees and investment options vary, so be sure to get clarity on what they are and whether they align with your needs.
SEP IRAs: Simplicity and flexibility but more ‘gotchas’
SEP IRAs are particularly well-suited for real estate agents because of their simplicity and flexibility. Unlike other retirement vehicles, SEP IRAs allow you to adjust contribution amounts annually based on your income, even skipping contributions entirely during down years.
The maximum contribution to a SEP IRA is $70,000 for 2025, though actual limits will depend on your income as contributions are capped at 25 percent of net self-employment income.
Setting up a SEP IRA is straightforward and inexpensive, with minimal paperwork required, a significant advantage for busy agents who don’t want to deal with complex administration. There are no annual tax filing documents required for SEP IRAs, unlike with Solo 401(k) plans.
However, SEP IRAs have a few gotchas.
- Like the Solo 401(k), you have to worry about tax-deferral, early withdrawal penalties and RMDs, fees and investment options.
- Moreover, SEP IRAs do NOT allow for loans, which takes away one of your options for accessing your money if times get hard.
- Have employees or think you will in the future? Be careful. SEP IRAs require contributions for your employees as well.
Bank On Yourself: The permanent insurance strategy
The Bank On Yourself strategy represents a compelling alternative to traditional retirement planning approaches. This method utilizes specially designed dividend-paying whole life insurance policies with specific riders added that accelerate cash value growth. These features make it substantially different from typical whole life policies most financial advisors criticize.
Real estate agents use Bank On Yourself to bypass Wall Street volatility while creating a source of predictable retirement income with unique tax advantages.
Unlike market-based retirement accounts, the Bank On Yourself approach has reportedly never experienced a losing year in its more than 160-year history. It’s weathered the Great Depression, the Great Recession and every economic downturn in between.
The strategy utilizes specially designed permanent life insurance policies that build cash value over time. This cash value can be accessed tax-free under current tax law, creating both emergency funds and retirement income without the market risks associated with traditional investment accounts.
For agents dealing with market volatility or seasonal shifts in business, the cash value serves as a liquid emergency fund that doesn’t penalize for early withdrawal like retirement accounts do.
Perhaps most appealing for real estate professionals is the ability to become your own source of financing for major purchases or business expenses. Entrepreneurs like Walt Disney and J.C. Penney used similar methods to fund their businesses when traditional banks wouldn’t extend loans.
Many real estate professionals use policy loans to fund down payments on investment properties, essentially leveraging their insurance policy to build a real estate portfolio.
Deferred Income Annuities: Guaranteed future payments
Deferred income annuities (DIAs) allow agents to lock in guaranteed income streams years before retirement, effectively reducing the impact of market volatility on retirement planning. This security can be particularly valuable for real estate professionals who’ve experienced firsthand how housing and stock market crashes can devastate retirement accounts.
A key advantage of deferred income annuities is that they function similarly to a pension, providing regular income that supports you for the rest of your life once payments begin. For agents who appreciate stability, this creates a bedrock of reliable income regardless of what happens in the real estate market during retirement.
According to Fidelity Investments, the primary benefit of DIAs is the certainty they provide: “no matter what the market does between when you buy it and when you retire, you still get guaranteed lifetime income.”
For older agents nearing retirement, DIAs offer a way to ensure that essential expenses will be covered, providing peace of mind and allowing for potentially more aggressive investment of remaining assets.
Creating your personalized strategy
When determining the best retirement approach, consider questions like:
- Are you self-employed without employees and hoping to invest in higher contributions?
- Do you need to include employees in your plan?
- Are you looking to diversify your savings into multiple retirement income streams?
Many real estate agents find that combining multiple approaches works best, perhaps using a Solo 401(k) for tax-advantaged growth while simultaneously using Bank On Yourself to develop a real estate investment portfolio that generates passive rental income.
Some agents nearing retirement move a former SEP IRA or Solo 401(k) to a Deferred Income Annuity to protect its value and create a stream of income they can’t outlive. Diversification through multiple retirement vehicles can help agents manage the inconsistent nature of their earnings.
Take action now
The real estate profession offers tremendous income potential, but without intentional planning, that income may not translate to retirement security.
Consider these steps:
- Consult a financial planner familiar with real estate professionals’ unique needs. Look for a planner with experience working with people with inconsistent income. Understanding the specific retirement options available to self-employed, commission-based individuals is crucial for making informed decisions.
- Evaluate which alternative strategies align with your income patterns and risk tolerance. Self-employed professionals should thoroughly assess each retirement option based on their specific situation and goals.
- Start implementing your plan immediately, even with small contributions. It’s never too early to begin retirement planning, and making it part of your regular cash flow is essential for success. My favorite strategy is to use percentage-based contributions toward long-term financial goals. Start with 1 percent and adjust 1 percent to 3 percent per quarter until you hit the appropriate savings amount for each commission you earn.
- Review and adjust annually based on your income and changing market conditions. Regular consultation with a financial planner and CPA ensures your retirement strategy remains optimal as your business evolves.
Remember, the goal isn’t just maximizing tax deductions today, but creating sustainable income that will maintain your lifestyle long after you’ve sold your last property. By exploring alternatives to traditional retirement plans, you can build a more secure future tailored to the unique realities of life as a real estate agent.
Amanda Neely is a Certified Financial Planner with Wealth Wisdom Financial. Connect with her on LinkedIn.
