by Ali James
Fidelity now recommends having roughly nine times your final salary saved by age 65 — for someone earning $65,000 a year, that’s north of $580,000. Add in the 2026 reality that Social Security and Medicare costs are climbing faster than benefits, and it’s no surprise AARP and Fidelity are both warning that most Americans are falling short of that number.
As the majority of us don’t have anywhere near that figure set aside, generating income during retirement has become increasingly necessary — not optional.
Investing in real estate has long been recognized as a way to close that gap, and in 2026 it remains one of the more reliable paths to a fuller retirement. It can also let you split your time between locations, spending part of the year somewhere new while a property works for you back home.
The catch: borrowing costs are higher than they were a few years ago. Investment-property mortgage rates are currently running 7.1%–7.6%, about half a point to a full point above primary-residence rates, which sit around 6.65%–6.75%. That changes the math on any deal you run, so it’s worth understanding both the opportunity and the current headwinds before you buy.
Investing in Long-Term Rental Homes
A long-term rental is one you lease to tenants for a year or more. It’s still the steadiest of the real estate income strategies.
A longer lease gives you stability as the owner and can carry real tax advantages — residential rental property depreciates over 27.5 years, and you can deduct a wide range of operating expenses (maintenance, insurance, property management, mortgage interest) against your rental income dollar for dollar. You can reasonably project a set amount of income over a set period.
When setting terms, factor in maintenance and insurance costs so your rent keeps pace. Landlords in 2026 are contending with what’s being called “expense drift” — tax reassessments, insurance repricing, HOA increases, and maintenance inflation are all running ahead of rent growth in many markets. Building in a clause for periodic rent increases is a straightforward way to protect your income against rising costs.
Before you buy, run the numbers on your debt service coverage ratio (DSCR) — how much cash flow the property generates relative to the mortgage payment. With rates where they are, a deal that doesn’t pencil out at 7%+ financing isn’t one to count on a future rate cut to save.
You’ll also want to think through any modifications needed to make the property accessible to those with mobility impairments. That’s an added upfront cost, but it can be worthwhile — it widens your pool of tenants and helps market the property to people specifically seeking accessible housing.
This is especially worth considering if you’re buying in an area popular with retirees, whether in the US (Florida, Arizona) or abroad (Costa Rica, Panama, Spain, and similar destinations).
Related: Pros and Cons of Living in a Duplex
Holiday Rentals and Short-Term Lets
The short-term rental market has kept growing: US vacation rental revenue is projected at roughly $76 billion in 2026, up from about $72 billion in 2025. Rather than a single long-term tenant, you’re hosting guests for anywhere from a few nights to a few months, more like running a small hotel.
This option appeals to retirees who like to travel. You can rent out your primary residence while you’re away, or buy a property elsewhere and use it yourself when it’s vacant.
Income potential can be higher than a long-term lease, but so can the workload and the regulatory risk. Short-term rental rules have tightened noticeably: cities across the US, UK, and Europe are adding registration and licensing requirements, and in some markets — parts of France, and Barcelona by 2028 — new short-term lets are being restricted or phased out entirely. Nearly half of professional property managers surveyed for 2026 say they’re now operating under strict permitting requirements, so check local rules carefully before committing.
If you’re buying at a distance, hire a local property management company to handle day-to-day maintenance and turnover. It’s an added expense, but it buys peace of mind and protects your investment. You’ll also need to fully furnish the unit — dishes, linens, basic household essentials — and that cost should be built into your income projections from the start.
One thing worth knowing about: the so-called short-term rental tax loophole. If your average guest stay is seven days or less and you materially participate in running the property (the IRS gives several tests for this, most commonly 500 hours a year, or 100 hours if no one else puts in more time than you), the rental can be treated as non-passive income. Paired with cost segregation, this lets you use accelerated, and now permanent, 100% bonus depreciation on qualifying furniture, appliances, and improvements to offset other income in the year you place the property in service. It’s a legitimate, well-established part of the tax code — not a gray area — but the material participation requirement is real, and outsourcing everything to a manager can work against you meeting it. Talk to a tax professional before relying on it.
The cost of retirement keeps climbing everywhere. On top of saving diligently while you work, securing income for retirement itself is becoming essential.
Real estate — whether long-term or short-term rental — remains one solid way to build that income and enjoy your retirement.
Related: Earn Extra Income with a Truck and Trailer
This article is for informational purposes only and isn’t financial, legal, or tax advice. Real estate financing terms, tax rules, and short-term rental regulations vary by location and change frequently — consult a financial advisor, tax professional, and local counsel before investing.
