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How the ROI of Solar Compares to Traditional Retirement Saving Methods

Solar for Homeowners | 5 min read
Using solar energy for retirement savings

First things first, we want to say we’re solar energy experts, not financial experts. While we’re knowledgeable on the financial side of solar energy, you should consult a trusted financial advisor before making any decisions.

Seeing America through an RV. Spoiling your grandkids. Exploring the hobbies you’ve always been curious about but never had the time for.

The perfect retirement looks different for everyone, but one fact remains the same: when you stop working, you’ll need to have something to fall back on.

Many of us save all of our working lives so we can enjoy financial security in our golden years. The more we save, the more we can do. But with all the expenses that pop up each month, it’s easier said than done.

Sometimes, we put the needs we have now before the needs we have in a couple of years or decades. But as any financial adviser would urge, investing your money wisely at a young age can do wonders for your retirement account.

However, there are so many options when it comes to investing your hard-earned money that it can be hard to know which is the right one.

In this blog, we’ll explore a retirement investment you may not have thought of: solar energy. We’ll compare it to other common retirement options to see how it stacks up.

A Solar Energy Retirement Investment

When we think of retirement investments, we think of stock-backed IRAs and 401K accounts from our employer, not necessarily a solar system. However, solar energy can offer huge financial benefits to those who choose to invest - both now and later.

Reducing an Expense

One approach to retirement is to reduce the money you’ll have to spend each month, like moving to an area with a lower cost of living or downsizing your home.

If you install a solar system, you could drastically reduce your electric bill for at least 25 years. Depending on how much electricity you use, this could save you hundreds of dollars each month.

But installing solar isn’t exactly free. You’ll still have to pay for the equipment and installation labor. The good news is solar systems last more than long enough to pay for themselves with the electricity savings they generate, while still leaving years of free electricity.

Most solar panels are guaranteed for 25 to 30 years by their manufacturer, and inverters are typically under warranty for 12 to 25 years. While your system can certainly outlast the warranties, that still leaves plenty of time to enjoy free electricity.

In addition to reducing your electric bill, you’ll be protecting yourself against future increases in electricity costs. Keep in mind, your electric bill now is probably less than what your electric bill will be in 20 or so years. Between 2005 and 2015, electricity prices increased by 34%.

With solar energy, the amount you pay per kilowatt-hour stays the same: $0. As electric rates increase, so will the amount of money your solar system will save you.

Financial Benefits Now and Later

One of the unique things about a solar investment is that it has both an up-front and long-term payoff, so you can feel the benefits now and when you retire.

If you pay taxes and own your solar system, you’ll get 26% of the system’s cost back in year one through the federal government’s solar investment tax credit (this credit decreases to 20% in 2021). If you’re installing solar for a farm or a business, you’ll also be eligible for accelerated depreciation, meaning more money in the first year.

On top of that, you could be saving thousands each year by dramatically reducing your electric bill over the entire life of the system. That’s money you can put towards something much more exciting than electricity. And as an added bonus, the return from your solar system isn’t taxable, unlike other common retirement investments.

But the benefits of solar energy don’t stop there. If you live in a state where you can sell your solar renewable energy certificates (SRECs) you can generate even more income from your system. SRECs are awarded for every 1 megawatt-hour (or 1,000 kilowatt-hours) your system generates. You can then sell this on the SREC market for additional revenue.

Stability

One of the biggest benefits solar energy has over other retirement investments is its stability.

You’re not beholden to the whims of the stock market or the general uncertainty that comes with investing your money. With solar energy, you’re not making a bet on what other people can do or how hard they work. The return on your investment is based on two things: that you’ll keep using electricity, and that the price you pay for electricity will continue to get more expensive. Those are pretty safe bets.

That’s why investing in solar energy is one of the smartest investments you can make during unstable, and stable, times. 

Solar Increases the Value of Your Home

When you’re planning for retirement, you need to look at net worth. That means factoring in all your assets and liabilities, even ones that aren’t liquid, like real estate.

Installing a solar system at your property raises its value, so you’ll get more for your building when you go to sell it than if you hadn’t installed solar panels.

To be fair, this increase in your home’s value may also come with a higher insurance payment. But this increase should be factored into the payback and ROI of your solar system on the solar proposal or estimate you receive from your installers.

How the ROI of Solar Compares to Other Investments

While investing in solar energy offers a good amount of benefits, it’s important to understand how hard your money is working for you. As with any investment, understanding the opportunity cost is key to making the most of your money.

To help quantify this, we’ll take a look at the ROIs of common retirement investments and how they compare to solar energy.

Solar Energy

The ROI of your solar system will depend on how much electricity you use, and how much electricity your solar system produces. The more electricity your building uses, the more money you stand to save with solar, and the higher your ROI will be.

Our commercial and agricultural clients from 2019 saw an average ROI of 13.91% and 15.55% respectively, averaged across Delaware, Maryland, Pennsylvania, New York, Ohio, and Virginia.

The ROI for an average-sized residential system will likely be smaller than that. Some homeowners with large electricity bills may see ROIs around the 10% range.

Stock Market

Most financial advisors look for a 7% ROI on stock-heavy retirement plans for their clients. The chances that your account actually gains that return is dependent on luck and how long you leave your money invested. The Motley Fool does a great job explaining why this is.

Essentially, the best way to get around the volatility of the stock market is by holding on to your stocks for several years. The longer you have your stocks, the more likely you’ll be able to cash out at 7%. The less time you have, the more likely it is you’ll have to cash out during a downward period for the market, which could mean a significant loss.

Bonds

Bonds may be a little less risky than the stock market, but they will offer a lower return. From 1926 to 2018, the average bond yielded a 5.3% ROI. If you’re willing to invest in more risky bonds, your return could be higher. If you want to play it safe, you can count on being on the lower side of average.

Real Estate

Who doesn’t love a good fixer-upper reality show? A team buys a dirt-cheap, rundown property, puts in a whole lot of elbow grease, and flips the property to a new buyer for way more than they paid.

Or, some investors opt to be landlords, renting out the property that they own and gaining money that way.

Real estate investments can be smart financial moves, or they can flop, leaving you with a property no one wants and a big hole in your wallet.

Mashvisor.com states that the average return for a residential real estate investment is 10.6%, and the average return for a commercial property is 9.6%. You could even increase the value of your property by installing a solar system. Because what buyer wouldn’t prefer a building that has a tiny electric bill over a standard electric bill?

But the downside is that flipping properties takes a lot of work, talent, and money, and you could be sitting on the property for months or longer before finding the right buyer. If you invest in solar energy, however, you’ll start seeing payback within the first year of your system.

What’s the Best Investment for Retirement?

There’s a lot to consider when choosing where to put the money you have saved for retirement. It all comes down to how much money you have, how much time you have, and your risk tolerance. Diversity is a good way to control the risk inherent in investing.

However, an investment in solar energy is relatively low-risk, meaning you can just about bank on free electricity for the first 25 to 30 years (at least) of your system’s lifespan. A solar investment can be a great compliment to your retirement plan.

Investing in solar for retirement

 

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