A Revolutionary Way to Invest for Retirement

A Spotlight on Passive Income as an Alternative

When I first started to invest, I wanted to invest and have a large amount of money in my account; now I invest for passive income.

By now, you may have heard stories about social security running out of money by 2035 according to Investopedia and other sources.

Social security was created in1935 under President Franklin Roosevelt as a way to assist older Americans in retirement. Before I even heard about this, I already started to save for retirement. I didn’t want to rely on social security when I finally retire.

How I First Figured Out Investing

When I finished college, my boss told me to start investing.

As a political science major, I was clueless about what investing meant.

So I did what I did best — I read.

I read anything I could get my hands on.

Money and Fortune magazine.

Mutual Fund pamphlets.

This was 1997 before the internet really took off and everything was either in magazines, books, pamphlets. The internet was just getting started and nowhere near where it is today with searches on Google only seconds away.

I had to wait weeks to months at a time for a new magazine issue or the letter to arrive in the mail.

You can say I was living in the stone ages compared to where now you can find information in seconds online.

In some of the magazine articles, I was reading about people in their 50s and 60s who amassed a million dollar nest egg. I said I wanted to do that.

So I started to invest. I cover more about that in this article.

Recently, I changed my focus. Instead of investing for a million, I invest for passive income.

Making the Shift to Passive Income

To me, passive income was more tangible and a way I could relate that to my current spending needs.

If I had expenses of $3000 a month, then I would need passive income totaling the same amount.

With a million in savings, you can draw money from that account. But even with the 4% rule, you could still outlive your investment.

The 4% rule was created in 1998 by three professors at Trinity College.

The idea is to withdraw 4% of your investment each year while in retirement.

I never really liked the 4% rule since it takes away from your nest egg.

With people living longer today, some people live into their hundreds. Would the 4% rule still work for them?

I highly doubt it.

I’m sure somewhere they’ll run out of money unless they find ways to supplement their current nest egg.

So that’s why I invest for passive income.

To me, passive income seems more realistic and achievable.

What exactly is Passive Income?

I first heard about passive income by reading Robert Kiyosaki’s Rich Dad Poor Dad.

Kiyosaki earns most of his income from rental properties which he learned about from his “rich dad” who was an investor with several businesses.

Robert’s poor dad was his real dad who was in the education field.

Both dad’s worked hard but they each achieved their income from different sources.

Investopedia defines passive income as:

Earnings derived from a rental property, limited partnership, or other enterprise in which a person is not actively involved. As with active income, passive income is usually taxable. However, it is often treated differently by the Internal Revenue Service (IRS). Portfolio income is considered passive income by some analysts, so dividends and interest would therefore be considered passive.

I have read several of Kiyosaki’s books and watched his videos on YouTube.

He repeats a similar message when you read his books but he always adds a little twist in his stories with more information.

We live in a culture where we are taught from grade school on to earn income from a job. Robert tries to teach you to have your money work for you so you can make more money.

How to Invest For Passive Income

There are several ways you can invest for passive income.

I will cover four specific areas that I currently use but know there are others out there.

Personally, I have used these systems for a few years. I have used some of these more than others.

1. Real Estate Rentals

Investing in real estate rentals isn’t easy unless you know what you are doing. This is also not the fastest way to build your passive income unless you have a good system in place.

I can say, I do like investing in real estate since, in addition to the passive income you receive from your tenants, you get tax deductions that you won’t see in other occupations.

For example, if you owned five rental properties and they each earn you $200 a month in rental income, this comes out to approximately $12,000 a year.

This number does not account for vacancy, home repairs, property taxes, insurance, and any rental management fee.

These other numbers will lower the amount of passive income you receive so you need to account for that.

Besides, you should have a separate fund for vacancies. There will be times when the property is vacant and you’ll have to cover the mortgage that month.

I never said this would be easy but this can be well worth it if you have the right systems in place.

2. Dividend Stocks

A second way to earn passive income is through dividend stocks.

Dividend stocks pay you a return on your investment in the stock either monthly, quarterly, or as scheduled by the company.

Companies have the extra income and can afford to pay their investors.

Just be aware that not every stock pays a dividend.

Some companies such as Facebook, Amazon, Netflix, and Google, do not pay dividends but they are well known companies.

These companies do well and do not provide dividends to their shareholders as their goal is to continue to build the company itself.

Other companies are similar but they also give back to their shareholders.

A few of these companies are also well known but there is no guarantee they will pay dividends.

This year, several companies stopped paying dividends during the epidemic we experienced this year. With the corona virus and then the oil supply, many companies did not have the income to pay their shareholders.

Many well known companies even took a hit such as Walt Disney as they stopped paying their dividend.

Some stocks I had lowered their dividends. I held on to the stocks since I would take a loss selling them if I sold less than what I paid for the stock initially. These stock prices dropped but I bought more stocks at lower prices.

3. Writing

A person who writes for platforms such as Medium you can receive passive income.

There isn’t a set standard of how much a person can make so it is determined by the person themself.

They can write one or two articles a month and make nothing. Worst case, they’ll make a couple of cents. Or they may write a few times a month and make a lot more money. There isn’t a set amount to get paid.

Some of the amount paid is determined by the topic of their article as well as the number of followers they have. Since I am a relatively new Medium writer I am sure there are more details but I don’t want to discuss this topic in much detail here.

4. Affiliate marketing

A person can make money as an affiliate for a company.

Wikipedia defines affiliate marketing as a:

type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.

An affiliate marketer serves as a representative for a company and sells a product on behalf of the company and receives a commission as a result of the sale.

Basically, you can sell these products from a platform such as a blog or website that you already have or a site you create.

Personally, I have sold items on blogs and social media platforms.

Many companies have an affiliate program but one of the most popular ones is Amazon.

I won’t say working with Amazon or another company will be easy but you need a large audience to market to. Not everyone will buy from you on the first day.

Your Way Ahead

Though I choose to work for passive income, this doesn’t mean you should do the same.

We each have our own systems and goals in life.

Some of these systems work with little effort while others require a lot more time and effort.

You have to know yourself and how much energy you want to put into your decision.

If the 4% rule is your goal, then stick to it.

I would make sure you have a lot invested in the system you use. As I mentioned earlier, people are living longer than before.

Many people want to live longer and advances in medicine are making a lot of that possible.

I encourage you to have a system in place since relying on social security or whatever retirement system you have, there may be some disadvantages to them.

I encourage you to read these other articles next.

Do you like the 4% rule?

Tom Handy is a top Investment and Bitcoin writer on Medium, and the father of two kids. He retired from the Army and sits on several non-profit boards. Tom is the top Yelper in his community and a top Google Guide. He’s on several social media channels and you can find him on Twitter @tomhandy1 and Instagram @tomhandy1.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.