The first home I bought cost far more than I could afford. Worse, it needed renovation from top to bottom. In spite of that, owning it was a comfortable experience. The monthly expense of living there was stable for the twenty years it was home.

How could that be possible?

Simple. It was a lovely Georgian townhouse in the Boston area. The two small apartments that I built provided rental income. It was enough to pay all monthly expenses except the mortgage. The rental income turned my shelter cost into a fixed expense.

Lots of people have done this. South Boston has streets lined with wooden “three-deckers.” And you can find duplexes in urban areas all over America. If you own one of these houses and pay off the mortgage before retiring the rental income can be a big part of your retirement plan.

You can understand how by considering the economics of a duplex. These are houses that have two complete living units. Since you are buying what amounts to two houses instead of one, you’ll be paying about twice as much as you can reasonably afford. But the rental income from one side should pay half of all expenses.  The mortgage is one big expense. But the real estate taxes, insurance, services and maintenance mount up, too.

You’ll also find that the annual cost of the mortgage will be larger than the annual cost of the operating expenses. This has major implications for your long-term future. Pay off the mortgage and the rental income will pay all the operating expenses for both units, perhaps more.

Yes, you read that right: Rental income can cover your shelter expenses for life.

Here’s an example. Suppose you buy a duplex for $500,000 with a 20 percent down payment. A $400,000 thirty year mortgage at 4.5 percent will set you back $24,320 a year. Now lets assume some expenses: a tax bill about 2 percent of home value; insurance and service bills at 1/2 percent of value each; and maintenance/repair expenses of 1 percent. So the annual operating expenses will be about 4 percent of value--- $20,000.  (Note: the Center for Retirement Research at Boston College suggests a lower figure, 3.25 percent of value.

Bottom line: If rent covers one half the total costs, it will cover all operating costs. Maybe more.

There are lots of variations on this. In Seattle and elsewhere you can find townhouses with small “in-law” apartments on the first floor. These won’t cover half the costs, but they will make ownership easier. Own a three-decker in South Boston free and clear and it can be most of your retirement plan. The rents would cover shelter expenses twice over. Add Social Security and you’ve got it all covered.

But let’s get back to the duplex solution.

Shelter is the biggest expense most people have, far ahead of whatever is in second place.  The usual guideline is that shelter should take about 25 percent of your income. That’s wishful thinking for most people, particularly those who live in urban areas. Many people have to commit a third of their income, sometimes more, to shelter.  So if the rent from property you own covers your shelter expenses, you’re well on your way to a nicely funded retirement.

How far on your way? Try this comparison. Do you earn enough to be near the top of the Social Security wage base maximum, currently $117,000? If so, Social Security benefits will replace about 24 percent of your pre-retirement earning power about 30 years from now, when you retire, according to estimates in the Trustees report. So owning a duplex can be as important for your future as Social Security.

Most people don’t earn that much. Are you what Social Security calls a “high earner”--- a current income around $71,000? If so, your future Social Security benefits are likely to replace about 30 percent of your earning power when you retire 30 years from now.

For a “medium earner”--- someone with a current income around $45,000---benefits at 65 are likely to replace about 36 percent of earning power 30 years from now. Whatever your income, owning a duplex and collecting rent is a powerful retirement tool.

Should everyone do this? Sorry, this option isn’t open if your working career calls for frequent moves. Also, collecting rent isn’t for everyone. A single Tenant-from-Hell can make a real mess of your life. And don’t even try it if you think fixing things is something other people do.