Passive Income Strategies For Retirement (And Now)
September 28, 2015Last week, I had lunch with my good friend Brian who just happens to be a local realtor. Normally when we hang out, it is on the soccer field so as a result, we don’t get to discuss business too often. However, our recent discussion was a little different because we actually had time to talk about some passive income strategies.
Most of the time when a real estate professional is talking about passive income, the primary topic of interest is investment real estate. While the rental real estate market may be booming in the metro-Charleston area right now, that wasn’t the only focus of our exploration of different passive income strategies. Our goal was to bounce ideas around in a mutually beneficial way of identifying future investment opportunities. Since it is always a smart idea to discuss potential investments of time, energy, talents, or money with trusted advisors, this was an exercise in due diligence that I thought may benefit readers of this blog.
From a personal perspective, one of my goals is to be able to generate enough passive income by age 55 to cover all of our family’s basic living expenses. This would be my true definition of “financial freedom.”Passive income is defined as any source of regular income that requires little effort to maintain it. It can come from investments such as dividend stocks and bonds or from other sources that may involve some upfront work but eventually generates an extra income stream. Passive income can be a key to bridging any potential retirement income gaps and helps reduce the need to focus on earned income to meet expense needs.
The concept is pretty straightforward when it comes to generating passive income streams. Be creative, do your homework, stay diversified, and realize that the term “passive” income is really a misnomer as it often does involve some work upfront. Here are some examples of passive income sources that could supplement your retirement income or potentially cover your current lifestyle expenses:
Some of the most common passive income sources
Rental real estate. Investing in real estate can be an excellent source of passive income. However, as an “accidental landlord,” I must admit that this is not a completely passive endeavor. You are on call 24/7 unless you decide to use a property management company to deal with your tenants and property maintenance.
REITs. Not ready to commit to investing directly in real estate? You can still pool your money with other investors through real estate investment trusts.
Dividend stocks. Dividend paying stocks provide a source of income along with growth potential.
Fixed income investing. Bonds and CDs may not be the most exciting way to generate extra income these days due to low interest rates. But they do provide the ability to generate passive investment income and may start looking more appealing as interest rates gradually start to climb as expected. Another growing area of interest is peer-to-peer lending where you can be the bank and start backing personal loans for individuals. Lending Club and Prosper are examples of peer-to-peer lenders.
For the entrepreneurs
Creating a small business. I may be a little biased here, but I am a big fan of taking something you are passionate about and turning it into a for-profit business enterprise. This requires proper planning, vision, and lots of motivation. If you are considering entrepreneurship, a great source of business planning guidance can be found through SCORE. Technically, this is an alternative source of active income but could eventually become more “passive” over time depending on your level of involvement and if you decide to hire someone to manage the business.
Franchising. If you aren’t quite ready to build a business from scratch but have money to invest in an existing business concept, there are numerous franchising opportunities to consider as well.
Selling your items (or other people’s stuff) on eBay or at thrift stores . This may not be a limitless money tree (unless you qualify to participate on the TV show Hoarders) but can be an effective way to turn old items into cash.
Thinking outside the box ideas
Creating online content. E-commerce isn’t the only way to earn money with an online presence. If you have web design talent, like to create web videos, or have a topic you enjoy blogging about, this is another potential source of passive income. If you generate enough buzz on the Internet, you may even have enough traffic to start earning ad revenue or offer your design services to others. Informational and entertainment sites can rake in ad revenue from Google AdSense and other sources.
Online surveys. If you are like me, there is a never-ending stream of online surveys popping up in my inbox. Don’t rush to delete all of these. You can actually get paid for completing surveys.
Cash back rewards credit cards and other reward cards such as airline and hotels. One of the best ways to earn passive income is to generate rewards points or earn cash back for purchases you were planning on making in the first place. Of course, “un”-planned spending can lead to financial stress and “you spent how much $$$ on this” conversations with your spouse. But if managed effectively, you can let the rest of America who carries a balance on their credit cards help pay for your rewards.
These are just some of the most popular ideas that I’ve seen floating around recently to generate passive income. Again, I use that term “passive” very loosely because some of those activities are a little more time consuming than others. Hopefully, you get the idea that the more passive income streams you can generate, the more diversified your retirement income plan will be. What kinds of passive income opportunities are you considering to help bridge any retirement income gaps that may exist in your financial life plan?