In our last article, we covered some passive income ideas for baby boomers. But getting a part-time or freelance gig isn’t the only way to earn additional cash.
This is part II of our Passive Income series. In this article, we’ll discuss earning a passive income from your investments. More importantly, we’ll discuss whether you can actually live off a passive income.
Growing Your Investments Vs. Earning A Passive Income
Here at Tremblay Financial Services, we use a powerful tool we call the Triad to diversify our clients’ portfolios. One of the foundational concepts of the Triad is that investments should both grow in their value and provide an income when the time is right. Now, that blueprint won’t look the same for everyone, but here’s an example of what we mean.
The Growth Mode
Simply put, the “growth” portion of our Triad Asset Allocation Plan focuses on investment decisions that help “grow” retirement wealth. While not a cold, hard rule, most investors in this mode tend to be younger. As such, they’re often in a better position to shoulder the dips and fluctuations that come with the market. They tend to invest more in traditional, managed stocks. Time is on their side, which goes a long way in mitigating the risk of loss.
The Income Mode
As the name implies, the “Income” portion of the Triad plan focuses on investments that investors can live off of in retirement. As such, the assets that fall into this category tend to be more important to older investors who are either already retired or getting close. One of the benefits of the Triad is that our investors can easily switch between “growth” and “income” modes with just a phone call.
What Types Of Investments Can Earn A Passive Income?
No two investors will be alike in terms of their individual goals and current assets. In turn, no two Triad plans that we build will be alike. But when it comes to earning a passive income, there are some common assets we tend to recommend. Here’s a look at three of them.
Insurance Policies
One asset you might not realize can provide a passive income is life insurance. Of course, the primary purpose of a life insurance policy is to provide for your family when you’re gone. But certain whole life, universal, or variable policies can also be a source of monthly income during retirement.
Fixed Annuities and Fixed Index Annuities
Another passive income-generating option is a fixed annuity or a fixed index annuity. Both assets have the potential of providing good returns during retirement. The difference between the two has to do with their respective market correlation.
A fixed annuity is not tied to the market. The interest rate is “fixed,” so it will grow at a steady rate for the duration of its “deferred period.” (i.e., the length of time you have to wait before you start receiving payments)
A fixed index annuity is tied to an index like the S&P 500. So, if the market is performing favorably, it might be the better option.
Real Estate Investment Trust
A real estate investment trust (REIT) is another “non-correlated” asset, meaning it’s not correlated to market performance. Again, that can be extremely important during periods of market volatility.
An REIT is a company that owns and operates real estate that can generate income. Perhaps the biggest benefit is that REITs compile resources from multiple investors. That makes it a good option for someone who doesn’t have the capital or knowledge to invest in properties on their own. The REIT company handles all of the buying, financing, and managing of the properties.
But Can You Really LIVE Off Passive Income From Investments?
That’s a tough question to answer. A good portion of the folks concerned about passive income in retirement is baby boomers. And the truth is that some baby boomers could live off of the passive income their investments generate, but most cannot.
Most baby boomers simply don’t have enough money to retire.
As responsible financial advisors, we at Tremblay Financial Services won’t sugarcoat the climate when it comes to baby boomers. The top concern among this demographic is outliving their money after retirement. The hard truth is that, for a large portion, that’s likely to happen. That, in turn, leads to unfortunate and drastic steps like selling your house and downgrading or foregoing all of the grand plans you had hoped for in retirement.
It could also mean going back to work, permanently.
Do You Know What Your Wealth Blueprint Looks Like?
If you’re a baby boomer, you may be sweating a bit at this point in the article. Some of the unfortunate scenarios we mention above may hit painfully close to home. But take a minute. Gather your thoughts. Breathe.
Now, congratulate yourself. You read through this article, right? You’re taking an active interest in trying to improve your situation. You’re acquiring knowledge.
But that’s just a small part of the battle.
Self-knowledge avails us nothing without action.
We’re here to help you take that action. It takes a robust blueprint to build an unshakable skyscraper. It takes an equally robust wealth blueprint to build an unshakable retirement plan. Get your free wealth blueprint today, and let’s see what we can build together.
