Passive income in retirement! Do you really think it’s possible? And even if it’s possible, how can I earn passive income in retirement now I’m close to my retirement days?
Relax! That’s why this article is coming your way now. Meaning perfect time for you to take action. First, you need to read this post. Second, implement the things you will learn from this article. Why? Trust me! You need it.
Generally, passive income is defined as income that comes from your investments or your business interests that require your minimal effort. You should understand that you don’t go to work daily to earn passive income. Although managing your investments will still require work. However, you can define retirement as an income gotten when you don’t bother yourself to work to earn a living. But instead you can still count on some reliable sources of passive income.
Table of contents
- Avoid these mistakes
- Why build passive income
- How to build sources of passive income
- Strategies to earn passive income for your retirement years
- Ways to earn passive retirement income
Avoid these mistakes
One of the mistakes people make when planning for their passive retirement income is thinking they can just put everything on autopilot. Managing your investments, whether in the form of retirement accounts, mutual funds, businesses, or real estate. Trust me! It takes time.
You might hire good people to help you out. Believe me, you still need to keep tabs on anyone you will hire and on the work they are doing too. Your cognitive abilities might decline rapidly after age 65 without you even being aware that it is happening. For this reason, it is important you have advisors and family members you trust so much. Share your passive income ideas with these people you trust and know betray you.
Why build passive income
I believe that you understand that your income is your greatest wealth building tool. It is a tool that basically requires your active participation in the form of a full-time job. You understand what I’m talking about! Even when you love your job. I’m quite sure you wouldn’t mind earning some extra income without the blood, tears, sweat and even time commitment of another job. Let’s understand what building a passive income will do for you:
- It will increase your wealth building plan
- Create an opportunity for you to retire early
- It will protect you from a complete loss of income if you happen to lose your job
- Serve as an additional source of income when you’re no longer able to work or if you outlive your retirement fund.
How to build sources of passive income
You should understand that many people build up sources of passive income over time by working, then saving and investing some of what they are able to earn. They will build up their savings and investments to the level where the investments will start generating enough income that they can even retire. And then just start to manage their investments or businesses.
I believe you know this book “Rich Dad Poor Dad”. This book will do a great job of helping you understand the difference between working for a living at a job. And working toward building your business and your investment portfolio that will be able to generate ongoing passive income. The moment you have investments, there’s need for you to learn how to manage them so they will keep generating reliable passive income. In retirement, it is best you follow a well disciplined set of investment management rules. Why? To make sure you won’t withdraw too much too soon and thus jeopardize your future passive income.
Strategies to earn passive income for your retirement years
Stocks that generate profits and dividends
Stocks is what represent ownership in a business. The core reason why businesses exist is to provide something of value, usually products or services, to the public in order to earn a profit for their shareholders. Stocks, then, represent the way ordinary folks are participating in the profitability of companies. Holders of these stocks are called investors, they buy them to be able to earn a reasonable return. Because they will be participating in the profits and cash flows of the underlying business.
For instance, let’s use GT&G. Please note that this is just to create an example and not necessarily indicative of any company. This is strictly based on imagination. GT&G, as a company is in the telecommunications arena. This means they are providing the ability for us to speak and interact with one another using mobile phones, computers and other electronic devices. Shareholders of GT&G will participate in the profitability of this business and will collect a generous dividend payment every quarter. Currently GT&G will pay a dividend yield of 5.5%, not really a bad passive return to receive while you are sleeping. There are many other companies that are paying dividends and some are paying monthly.
Stocks
Understand that over the long term, stocks have an averaged annual return of 8 to 10% yearly. And around 2 to 3% of this return will be in the form of dividends that they will pay out over time. Many of these successful long-term investors hold their own stocks for years, without frequent purchasing or selling. Though the prices of their stocks will fluctuate, their profits and dividends they received and overall portfolio will go up in value over the long term. This will only happen if they have been careful about purchasing the right stocks in promising companies. As well as holding on to them while still collecting their growing income streams.
Investing in real estate
As a homeowner, your monthly rental collection from your real estate will form a wonderful stream of passive income for you as an investor. Generally real estate is property consisting of land and buildings. The term is derived from the fact that this type of property is physical, immovable and tangible, meaning “real”.
Understand that apartment buildings, homes, timberland and many other kinds of real estate might be lucrative investments for passive income generation. Everyone always need a place to live but not everyone own a home. Those who do not own their own wil generally live in a rental property. They will pay a monthly rent to you, their landlord.
Interest income from loans and bonds
Another easy to generate passive income is lending money to people. Most loans will require borrowers to pay back with interest to the lender each month. This will give the lender a nice and reliable stream of passive income monthly. Loans might be short-term or even very long term depending on the agreement reached.
Understand that loans are only good if the borrower is able to pay them back with interest. This is why some lenders will secure money with collateral, meaning an asset of some substantial value. This can be real estate but could also be any other asset that will back up the promise of the borrower to repay the loan. If a loan has collateral, for instance a valuable piece of real estate, and the lender legally is able to secure the loan in the proper ways. By be able to establish and fill their interest over the collateral, then if the borrower fails to pay back. The lender is said to have legally taken over the underlying assets. Banks and private lenders are known to have expertise in finding and creating opportunities for their clients to generate passive income through secured loans. Participating in private loans may return high income streams from interest for you (often in the range of 4 to 8%) yearly.
Bonds
However, bonds that you trade in the fixed income markets, like mortgage back bonds, treasury bonds, municipal bonds. As well as corporate bonds are all just various categories of loans that you can also tap into for your passive income. Nowadays, public bonds might offer lower yields, currently within 1% to 3% range, so using them in the correct proportion might be supplemented by private loans to generate higher returns. Only if you know exactly where to look and how to add them to your portfolio.
Focus on assets that generate income
Starting the process toward creating passive income, there is need to accumulate some assets whose particular purpose is to generate income for you. Just like a seedling grows into a large tree by constant watering and fertilizing. You will need to look for and constantly add to your portfolio of your passive-income producing assets.
It’s a step by step process, first you will have one or two passive income streams. You can then accumulate more income generating assets by reinvesting the income you earn from those you already own. While you are working, earning and saving, making the effort to add more money from your constant employment or business income on a regular basis. This can be monthly or quarterly, and will significantly increase your progress towards a retirement passive income stream. That you won’t have to work for in your later years.
More insight
With time, the infusion of new cash and reinvestment of more money. You will be amazed that the total income produced by your passive investment assets just keeps growing. At some point, when you are able to generate income from two or three different streams. Your passive income will enable you to partially cover your living costs. This might be particularly important when you are getting closer to or even ready to retire.
Understand the major assets that generate passive income for you
Some of the major assets that generate this passive income are businesses. For instance, privately owned or public stocks, loans (for the lender) and income real estate (for the owners). You need to understand that passive income generated from owning stocks will include the profits of the company, which might be reinvested back into funding the company’s growth. And the dividends they often distribute, which are basically derived from the businesses cash flow or from profits.
Usually, lenders who loan money often receive their passive income in the form of interest payments paid by the borrower. The borrower also need to repay the amount that they borrowed either over time or at the end of the loan term (this can referred to as balloon payment).
More
The passive income you receive from your real estate is called rent. After you must have done expenses for property taxes, maintenance, management, and mortgages. The rest may be distributed to the owners as their own share of the profits. Understand that buying real estate on a small scale do tend to be difficult to manage and often produces little passive income. Because of the work you have to put in managing single properties, this approach will be hardly passive at all. However, having high quality income producing commercial real estate will certainly generate worthwhile streams of passive income for you.
Optimize your passive income from social security
For many working families, your social security benefit which you accrue by working and contributing into the social security system for at least 10 years. This is another source of passive income. Social security is known to be a very valuable benefit because it is a life-annuity that’s provided by the Social Security Administration. It is an income “insurance” meaning those who will pay in are the ones who will later get a benefit.
One of the keys to maximize the value of passive income from this social security benefit you will receive is to determine when to start taking the social security benefit in the first place. This determination is much more involved than it may appear at first glance and doing it badly might cause thousands in lost income. Most inexperienced participants will try to defer their benefit to 70 because the monthly income will eventually be higher, not accurately considering the lost income in the their first 3 to 8 years.
Start early with a sound plan to maximize long term passive income ppportunities
There’s this popular saying that goes this way, “Rome Was Not Built In A Day” and neither are the best portfolios of passive income streams you may know built overnight. The power of working towards your passive income consistently and over a period of years cannot be overemphasized due to the will power of steady compounding.
The key for you to have a good plan is education on the different alternatives and how they come together. Many people are very busy and still lack the expertise to make all these decisions needed to find. As well as to assemble these passive income opportunities together in a way that will serve them and even their goals. One of the greatest benefits of having a plan is that it will also help you avoid most common mistakes. That might get you sidetracked from achieving your passive income goals as efficiently as possible.
Ways to earn passive retirement income
From a business
At the point that you are looking for ways to build your business, first, start by evaluating the areas where you have both passion and experience. You can decide to go back many years to things you did when you were much younger and dig out that old hobby combined with your years of business experience may turn into something more exciting and lucrative. This process might help you find more business ideas that will leverage on the skills you already have.
From multiple investments
Now, learn as much as you can on how to invest for income from these forms of investment:
- Interest income from bonds
- Dividend income from stocks
- Retirement income mutual funds, there can described as high yield investments
- Annuity income: This one has its own pros and cons.
Understand that there is no such thing as a perfect investment, so mixing up your portfolio with different choices is basically the best approach.
From rental real estate
Creating passive income through your rental real estate might be an effective strategy, but you have l to do your homework very well before heading down this path. Successful real estate investors will look at it strictly as a business, not as a get rich quick scheme.
From network marketing business
Many network marketing businesses, also regarded as multi level marketing will convincingly tell you their business model is the best way to build passive income. People may have a tremendous amount of success building these kinds of businesses, but understand that there is nothing passive about it initially. Just like building any business, it will require lots of hours and hard work from you. But you need to be careful because there are numerous network marketing businesses out there, that are scams. So, you need to be careful and make sure the business is legitimate. Avon and Primerica are companies into network marketing businesses that people have found out to be lucrative and successful. They have been tested and trusted!