As I was thinking through my financial freedom plan (aka retirement plan) the other day, I started listing various forms of income available to me during retirement.
As I noted in The Goal: Financial Freedom, my plan basic plan has been to 1) put together enough assets and then 2) invest those assets so they generate enough income to more than pay my living expenses. This would allow me to never have to spend a penny of the assets themselves โ just live on the income they produce.
Whether or not I can achieve this objective is still to be seen, but if I am to do so, I will need to make sure the assets I have are income-producing.
So, what are the forms of income I might get from assets?
I broke the list into two groups: one that required me to still work in some capacity (which is more of a semi-retirement strategy than a retirement strategy) and one that earned income completely off the assets — no work was required from me.
I’ll share what I have for these two lists below and you can chime in with your thoughts and additions.
Income Generated from Still Working
- Stay in my current job — I could simply stay where I am and work fewer hours per week, maybe 3 days or so. This alone should get me the income I’d need to survive. Would my company go for this? Not sure. But maybe I could find some company that would.
- Consult — I could work the same 3 days per week as a consultant for either my company or other ones. I do know some consultants who I could work with/for and perhaps plug into their businesses.
- Teaching — I’d LOVE to teach part-time at the college level. I certainly have enough experience and I do have an advanced degree (MBA), so it’s a possibility. Even if I had just a few classes and could make $20k-$40k per year that would be great.
- Non-profit — I currently volunteer for a local non-profit helping them raise funds. If this experience goes well, perhaps they would hire me.
- Buy/start a business — I could buy/start/develop a business which required me to be part of it to be successful. Not sure I want to take this on as it could be a 60+ hours-per-week gig. But it could be something as simple as running this blog. Think I can get it to $20k or so a year? ๐
- Wife working — My wife spent the past 20 years homeschooling our kids, but now that they are preparing to leave the nest, she could go back to work. She was an audiologist, which according to Google has an average annual salary of around $70k. Unfortunately, she doesn’t want to go back to that. However, she could work part-time and earn $20k or so per year.
Income Generated from Assets
- Rental Real Estate — I’ve shared my real estate investment results. I can count on these properties to generate at least $50k per year after all costs. These alone represent a pretty good start on retirement income. Just wish I had more of them.
- Peer-to-Peer Lending — Quickly becoming my second strong income producer. Since I detailed my entry into P2P lending, I’ve made a few more contributions and am making good progress. At 10% return, that’s $12,500 per year in income. If I plow up to $500k into this option and maintain my return rate, That’s $50k a year. This and my real estate alone will get me where I want to go. Just need another $375k here. ๐
- Dividend Investing — I will still want some of my assets to have growth opportunities, so I could put a good chunk of assets into dividend stocks with some growth potential. Or instead of individual stocks, perhaps I’ll invest in dividend mutual funds. Vanguard has a lot of good dividend funds. I could invest $1 million this way, earning 3% or $30k per year. Problem with this money is that it’s tied up in retirement accounts that I can’t access easily until 59 1/2, still several years away.
- Annuities — I don’t know much about annuities other than half the people hate them and half love them. I haven’t made up my mind yet, but if I could take part of my retirement funds, give them to an insurance company, and earn income for life, perhaps that’s not a bad deal.
- Buy a business — Just like I could buy a business and work it myself, I might be able to find a business where I don’t need to be involved in the day-to-day workings. Isn’t that what managers are for? The risk would likely be high here but so could the return. $500k in the right place could earn a decent enough return to handle my entire retirement.
- Other Real estate — What about investing in REITs or in crowdfunding real estate investments? Both could have decent returns and generate some meaningful income.
- Social Security — If 59 1/2 is a long way away, getting any Social Security seems way out of reach. Still, I do hope to get something (not counting on it) so I’m putting it on the list.
Ok, those are my lists. Do you have anything to add?
There are a whole host of other options but I’m not sure any of them work for me.
One Other Option
Here’s another option (which I’ll cover in more detail in an upcoming post):
Why don’t I forget the “invest those assets so they generate enough income to more than pay my living expenses” part of my plan? I could retire now and spend the liquid portion of my assets at the rate of $100k per year and have enough to cover 20 years. Or I could spend less than that and have much more time. And these scenarios don’t account for any earnings I make along the way.
As I said, I’ll cover this more in a future post. I wanted to mention it here so you all don’t think I haven’t considered it. Plus I wanted to give you some time to think it over so you’ll be ready to advise me. ๐
Coopersmith says
Like you I am also looking at the options determining what sort of income I could generate from my current investments BEFORE I take the step into a semi retirement position. I don’t see myself as retired like my dad is but still working in some capacity and keeping active.
I have various hobbies that I LOVE to do. All though I do not actively develop, market and sell items currently I do make several items and give them as gifts for Christmas and I am exploring what I can develop and market. I have fixed furniture, modified pieces and created some custom installations, worked with stained glass, played with blacksmithing and metal casting. I could see doing this more as a micro business selling items on ESTY and other art sales sites or taking on small projects or repairs that I would want to do. I would be doing something I love to do, I could set my own hours and determine how much effort I want to put into it.
Granted determining the profit on the hours put into it may not be there but it will keep my mind occupied and doing something I love to do. I have most of the tools and supplies on hand to work with these hobbies without spending any money until I am able to start making money.
It is an option I am considering to have some fun and possibly make some money.
Jon says
ESI, I like the list and it feels pretty comprehensive to me. My only thought is that the category of “buy/start a business” is so all-encompassing that it could be broken down further if you were so inclined. For example, owning a brick and mortar retail operation would be very different from running an online e-store or from running a food service business like a restaurant.
Great list and good food for thought as I start thinking about my own plans!
George says
I’m quite far from even early retirement, but I think I would definitely want to teach for a small income when I reach my 60s. My wife will definitely semi-retire as it is easy to do in her field. To me that seems like a great way to spend your late 50s and 60s: preferably pursuing an opportunity you enjoy while passive income supplements anything you need (and I assume all debts are paid off of course).
ESI says
I’ll let you know how my plan to teach goes — when and if I get there. ๐
Mike H says
ESI,
You will always be able to do part time work so long as you have the desire and capacity.
I’d recommend to break your passive income streams up into those that adjust with inflation while holding the asset (real estate, dividend paying stocks) and those that do not (bonds, annuities, lending)
I’d put buying a business as an active activity. If you want it to be fully passive you are better off buying a well established blue chip type company on the public markets provided the valuation is attractive. Smaller business tend to be riskier from a passive income perspective, but if you know the business well you may have an advantage.
Building and running a few blogs is another great source of income and one where you have proven that you can do it effectively.
-Mike
ESI says
“Building and running a few blogs is another great source of income.”
Nice thought! ๐
I’ll be detailing my blog/income plans in an upcoming post and sharing the progress with all of you.
Apex says
I understand the distinction of income generated from assets but the subtitle of “no work was required from me.” is probably too broad for all the items on the list. Less work, or even little work might be possible, but no work is likely dangerous for a number of things on that list.
Buy a business and hire managers to run it should not be fully passive.
Rental real estate should not either, even if you have a management company.
Any business (rental real estate is a business) requires a certain level of management by the owner. If you let it go fully passive you are at the mercy of how well those who run it are doing and how trustworthy they are and continue to be as times change. Mistakes or frauds they are making may not be immediately apparent even when looking at income and cash flow statements. By the time it starts having significant impacts there, they may have already drastically damaged your business.
Very few things are truly passive, and those that have better than average returns are almost by definition never fully passive. If they were then the financial industry would gravitate in that direction and offer bundled products to the masses and those returns would become the average.
Be careful with the idea of passive. A watched pot may never boil, but an unwatched pot will disappear.
JayCeezy says
ESI, you can retire now. Your prior stated goal was ‘$100K income, with $70K to expend’ (or something like that). You are there.
All your categories are fine, and, as other commenters have noted, comprehensive. My thought on any ‘business’ you may consider buying/starting, is that there is a downside to that. I rarely see it discussed on any PF site, seems like all the PF bloggers and their commenters are in the group of people that only succeed, never fail, and never have to pay off years worth of debt they might accumulate in 18 months or less.:-)
Seriously, working for someone else or consulting has no risk. Once you leave the worklife, as you are contemplating, RISK is the biggest item to consider. Losing $100K now, when you are gainfully employed, will be horrible but you will work another year and cover your expenses, taxes, and replenish that in savings. Quit your worklife, lose $100K in a business venture (no matter how good a manager you may be!:-)) and you have no way to recover that money without returning to the workforce (at a lower job with lower pay, believe it). Surprising the number of wannabe entrepreneurs who defer paying themselves or will continue to operate at a small(ish) loss for years, rather than face the ugly truth that they are depending on an ‘act of God’ to change the economy/marketplace/product demand/other.
This should be hard. Make a matrix with the ‘y’ (vertical) axis columns showing your age, from top on down to 100.. ‘x’ (horizontal) axis will show income sources, i.e. Column A ‘rental income’, column B, Post-Tax dividend, interest, capital gains; Column C, pre-tax sames, Column D, your S.S., Column E your wife’s S.S., etc.
For your Social Security (and wife’s) exact calculation, have your S.S. numbers and mother’s maiden names, input date on this secure site, and plug in the numbers into your Columns D and E at the correct age, i.e. 62 or 67, whatever. https://secure.ssa.gov/acu/ACU_KBA/main.jsp?URL=/apps8z/ARPI/main.jsp?locale=en&LVL=4
You will be very surprised that you won’t have to dip into your Net Worth. Of course, you will spend more before/after tax money up front, but that will be replaced by your Social Security benefits in later years (which you can count on if you are over age 40). Only the pedants will squirm at not touching the IRAs and 401(k) appreciation, because they don’t understand that money is fungible and $1 is just $1 no matter which pocket it comes out of. Let us know the number, my back-of-the-envelope calculation for you and family is that you will hit about $140K/yr right this minute if you quit your job. Good luck.
ESI says
You and I are on the same page, as usual. I have some upcoming posts that you’ll be very interested in.
I’m just counting on you (and others) to help me decide when to pull the retirement trigger. ๐
K D says
How did you arrive at the figure for teaching income? I think some make very little teaching part-time while others make more.
You blog inspires me to keep on top of our investing and retirement planning. I’m glad you’re back and producing new content. Thank you (and I hope you make money for providing such a valuable service).
ESI says
It’s an educated guess based on what a couple friends earn as college professors, so maybe it’s not worth much.
I’d definitely do the cost/benefit on any job I’d take and if it took too much time and paid too little, I’d pass.
Thanks for the kind words too. ๐
Jef says
Love the way you break it down above here ESI! Once you are able to create the various aspects it’s then about putting the plan in place, understanding the why and placing it on autopilot
Sure you’re still smashing the investing and keep up it up!