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For many retirees, the real estate component of their investment portfolios feels safe.
- It’s tangible
- It produced income during working years
- In some cases, it helped build the wealth on which they rely
That safety, however, can be deceptive.
As a Florida-based adviser, I regularly see the retirees I work with carry real estate habits from their accumulation years straight into retirement, without adjusting for how dramatically the rules have changed.
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They don’t know to consider that what once worked well can quietly create tax friction, cash-flow stress and long-term inflexibility.
The most costly mistakes in retirement real estate planning aren’t sudden or obvious. They’re built into the structure of decisions made years earlier and allowed to persist without adjustment.
Mistake No. 1: Turning real estate into a retirement paycheck
One of the most common assumptions I hear is that rental income will naturally replace a paycheck in retirement. On the surface, it sounds reasonable. Properties generate cash flow, rent arrives monthly, income feels steady.
In reality, rental income rarely behaves like a paycheck once earned income is gone. Why? People don’t take every factor into account:
- Vacancies happen
- Repair needs arrive in clusters
- Insurance costs rise
- Property taxes rarely stay flat
A single unexpected capital expense can wipe out months of “income.” Unlike a salary, rental income is uneven, and only a portion of what looks like income actually makes it into a retiree’s pocket after vacancies, repairs, taxes, insurance and ongoing property costs.
This risk is magnified when retirees rely on only one or two properties to support a meaningful portion of their lifestyles.
A retiree with $8 million to $12 million in net worth might plan to fund $300,000 a year of spending with rental income. If two properties generate $180,000 of that cash flow, a prolonged vacancy, combined with a $150,000 capital repair such as a full roof replacement paired with multiple HVAC system failures, can quickly turn what felt like stable income into a liquidity problem. This could force asset sales or unplanned portfolio withdrawals.
Real estate can play a role in retirement; the mistake is treating it as a paycheck replacement rather than as one component of a broader, more resilient income strategy.
Mistake No. 2: Ignoring how real estate locks in tax outcomes
Real estate is often praised for its tax advantages, and during accumulation years, those benefits can be meaningful:
- Depreciation offsets income
- Leverage amplifies returns
- Capital gains can be deferred
In retirement, however, the picture changes.
Rental income is typically taxed as ordinary income, which can push retirees into higher brackets than expected. That income can also increase the taxation of Social Security benefits and trigger higher Medicare Part B and Part D premiums through IRMAA surcharges.
Then there is the exit problem.
Many retirees hold properties for decades without revisiting how or when they might sell. When the time comes, they’re surprised by the size of the capital gains tax bill, depreciation recapture and state taxes layered on top.
What looked tax efficient for years can suddenly create a rigid outcome with limited flexibility. I’ve seen retirees hesitate to sell properties they no longer want to manage because the tax cost feels painful.
The result is often worse. They keep assets that no longer fit their lives simply to avoid a tax decision that should have been planned for years earlier.
Real estate doesn’t just produce returns. It locks in future tax consequences. Ignoring that reality reduces options when flexibility matters most.
Mistake No. 3: Waiting too long to structure real estate correctly
The third mistake is timing — or, more accurately, waiting.
Many retirees assume they can address real estate structure later. They plan to think about ownership, trusts, gifting strategies or exit planning once retirement feels more settled. By then, the best opportunities are often gone.
Certain strategies work far better before retirement, before income drops and before health or family dynamics complicate decision-making. Others require time to implement cleanly. Waiting compresses choices and increases the risk of mistakes.
I’ve seen families hold properties purchased decades ago for modest sums that are now worth several million dollars. Without early planning, selling later in retirement can create seven-figure tax exposure once capital gains and depreciation recapture are combined, limiting flexibility at precisely the stage of life when options matter most.
The retirees who struggle are rarely those who made poor decisions early. They’re the ones who postponed good decisions for too long.
A better way to think about real estate in retirement
Real estate doesn’t need to be eliminated in retirement, but it does need to be re-examined. The role it played during accumulation is rarely the role it should play once work income stops and priorities shift.
The key change is moving away from asking how much income a property produces and toward asking how it supports flexibility, tax efficiency and peace of mind. Retirement changes the lens:
- Liquidity becomes more important
- Simplicity carries more weight
- Control over timing and outcomes starts to matter as much as return
Real estate that once felt empowering can quietly become a constraint if it no longer aligns with how you want to spend your time, manage risk or support the next generation. What worked for decades may still be valuable, but only if it fits the life you are trying to build now.
The most successful retirees treat real estate as a strategic decision rather than an emotional one. They think about exits as carefully as entries. They structure assets early, while options are still wide, rather than waiting until circumstances narrow the path forward.
Mistakes in retirement planning are rarely about intelligence. They’re about inertia. Real estate often rewards action during accumulation. In retirement, it rewards foresight.
Wells Fargo Advisors Financial Network does not provide legal or tax advice.
Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Edwards Asset Management is a separate entity from WFAFN.
