REITS Secret to Retire Early That Changes Everything
Tax Advantages and Growth Potential
One of the lesser-known secrets of REITs is their tax efficiency. While dividends from REITs are typically taxed as ordinary income, investors can benefit from the Qualified Business Income (QBI) deduction, which allows for a 20% deduction on dividends received2. This can significantly enhance after-tax returns, making REITs an even more attractive option for retirement planning.
In addition to tax advantages, REITs have shown strong historical performance. Over the past 25 years, REITs have outperformed the broader stock market, with an annualized return of 10.8% compared to 9.6% for the S&P 5003. This growth potential, combined with their income-generating capability, makes REITs a powerful tool for those looking to accelerate their path to early retirement.
Real-World Examples and Considerations
Consider the case of Simon Property Group, a leading retail REIT that has consistently delivered robust dividends to its shareholders. Despite the challenges faced by the retail sector, Simon Property Group has maintained a strong balance sheet and continues to invest in high-quality retail properties4.
When investing in REITs, it's crucial to evaluate factors such as property type, geographic location, and management quality. Some REITs focus on specific niches, such as healthcare or data centers, which can offer different risk and return profiles. By carefully selecting REITs that align with your investment goals, you can maximize your potential for early retirement.