Never have to worry about money during your retirement again with these 10 ideas!
What is Passive Income?
Passive income is often thought as having a stream of income without doing anything. Unfortunately, that's a common misconception.
Creating passive income requires you to have at least one of the following 2 requirements:
1. Upfront time investment; or
2. Upfront monetary investment
2 Characteristics of a Retirement Income Stream
For a home owner preparing for retirement, your income stream has to meet these 2 requirements:
1. Guaranteed Income Stream
Your income stream has to be consistent and flowing.
Once you are retired, you don’t want to wake up one day and realize that your income stream is clogged and you have to drag yourself back to work again!
2. Capital Guaranteed
It is ideal for your retirement funds to be in a safe place that ensures you can get your full capital back as you cannot afford to risk losing any money.
Here are 10 ideas on how you can achieve those requirements.
Rental income is one of the most popular forms of passive income for a retiree.
Although capital is not involved here, take note that the consistency of your income stream depends on whether your leasee (the person who pays rent) pays you on time.
1. Rent out your car
If you own a car and you want to save costs, you can lease out your car and use the income to fund the car ownership costs as well as fund your retirement expenses.
Check these sites out for leasing your car.
2. Rent out your house
When your children becomes financially independent and move into their own homes, you'll have 1 or maybe even 2 rooms empty.
If you don’t mind living with others, you can lease out these rooms and earn rental income from it. You can even make new friends and you won’t be so lonely during your retirement years.
Check these sites for renting out your homes.
Alternatively, you can sell off your current home, buy a smaller home and use the proceeds to invest. Which brings me to my next point.
Interest income is what you earn on your money by lending it.
It’s income that’s promised to you by a contract which makes the borrower obligated to pay you interest for the money that you lent him.
This means this passive income stream is guaranteed.
3. Singapore Savings Bond
Singapore Savings Bond is offered by the Singapore Government which has a “AAA” credit rating, so you can be assured that your money will be well taken care of.
Take note that each bond only last for a maximum of 10 years, so you’ll need to buy additional bonds every 10 years if you want your passive income to last throughout your retirement.
Learn more about the Singapore Savings Bond here.
4. Fixed Deposits
Fixed Deposits are usually offered by banks. Although your capital and income is guaranteed, fixed deposits usually require you to invest large amounts of capital for a period of time with very little returns.
Compare fixed deposit rates using moneysmart here.
Unlike interest, dividends are a share of profits that you get for being part of the company. You are not guaranteed anything as a shareholder.
Dividend income is an option you can consider if you have the knowledge, skills and time to pick and monitor your investments.
5. Real Estate Investment Trusts (REITS)
REITs are basically securities that pool funds from investors and invest them in income generating properties like shopping malls, hotels etc.
A REIT investor can invest in these properties in bite-sized chunks, making it extremely affordable compared to owning an individual property.
They are increasingly popular among the retirees as they:
The downside is that not all REITs are able to pay dividends regularly, some may even be forced to shut down due to poor management or an economic downturn.
6. Dividend Stocks
Stock picking is both an art and science.
You’ll need a certain level of skill and knowledge before being able to pick the right stock.
A stock that pays investors high dividends doesn’t necessarily mean it is doing well.
In fact, some companies that are in trouble give out high dividends to attract more investors in an attempt to rescue the company.
However, if you manage to acquire the knowledge and skills, dividend stocks could be a lucrative option for your retirement income.
The only downside is that you’ll need constant monitoring to ensure that the stocks are doing well enough to pay you dividends regularly.
Income from Funds
Returns from funds is another option you can consider as your retirement income.
These funds are like REITs where they pool money from investors and invest in financial securities.
Before you read on, one thing to note about funds is that they are not capital guaranteed nor income guaranteed.
I’ve included them in this list because some of these funds are relatively safe and have really high returns compared to the rest.
7. Passively Managed Funds
Index funds and Exchanged Traded Funds (ETF) track the market index such as the Straits Times Index(STI).
For example, if an index fund is tracking the STI, it is trying to replicate the performance of the STI by buying and holding whatever stock that’s in the STI.
Both index funds and ETFs are passively managed. This means that they don’t require much buying and selling of financial securities, thus the fees are lower.
8. Actively Managed Funds
Actively managed funds (unit trusts) buy and sell securities regularly to try and beat the market index(eg. STI) and will incur more fees.
However, the advantage with actively managed funds is that you could get a lot higher returns than a passively managed fund. Some of these funds can give you guaranteed dividends too.
Unfortunately, you’ll still need to pick the right funds to invest in and monitor them after that.
Thus, if you want to free up time to enjoy your retirement, you can let a professional pick and monitor the funds for you by investing in intermediaries like banks and insurance companies.
Income from Annuities
In my opinion, annuities are one of the easiest forms of passive income to create as you don't need to spend time to acquire the knowledge and monitor these passive income streams!
9. CPF Lifelong Income For The Elderly (CPF LIFE)
Whew that’s a mouthful!
There are currently 2 plans for you choose from:
Bequest is a sum of money you leave for your loved ones when you pass on.
The payouts for both plans are fixed throughout the years.
CPF is implementing a new plan called CPF Escalating Plan which grows at 2% each year to address the concern of rising living costs.
The downside about our CPF LIFE is that you have to meet a really high Minimum Sum (now known as Full Retirement Sum) to activate your payouts which increases at about 3% every year and many Singaporeans have trouble meeting it.
Also, you don’t have much options to choose when and how much you want to receive as your payouts too.
Learn more about CPF LIFE here
10. Retirement Plans
Retirement plans are one of the best forms of retirement income out there. here's why! Most of them these characteristics:
Here are 2 of the greatest retirement plans in the market. AXA’s RetireHappy and Aviva’s MyRetirement Plus.
Incomes of both plans grow at a rate of 3.5% each year, 1.5% more than the CPF Escalated Plan and is more than enough to grow above the inflation rate.
Furthermore, there are 120 ways of customising AXA’s RetireHappy to suit your desired retirement lifestyle, thus it’s recommended to seek advice from a Retirement Planner to help you out.
However, even superman has weaknesses, no matter how super retirement plans are, they have their disadvantages as well.
Like your CPF, all retirement plans have an accumulation period which you cannot withdraw any money from.
But this feature helps you to grow your funds and prevents you from spending all your retirement savings away!
The Bottom Line
There are tons of ways of generating passive income for your retirement and you don't have to restrict yourself to having only 1.
In fact, an average millionaire has 7 sources of income!
Whichever type of passive income you intend to create requires certain amount of time and/or monetary investment, so it's best to start creating one now. before it's too late.
As we have seen earlier, the easiest way to generate passive income is through annuities. It's a good place to start if you don't have any form of passive income yet.
If you wish to start creating your passive income stream through investments or annuities, please seek advice from a Financial Planner.
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