Securing Your Retirement Through Passive Income

Traditional retirement planning in the post-pension era generally consists of maxing out a 401k and an IRA, which most Americans, given a median salary of $50,233, simply cannot afford to do, if they also want to be able to eat or bathe or get to work. Saving $21,500 dollars a year in a non-liquid account is unreasonable for most people when you consider not just expenses, but also the need for liquid savings. It is also no guarantee of security as we have recently seen in the current economic recession. Ignorance of prudent investing principles, such as obtaining high fee low return mutual funds or a lack of diversification, can render decades of planning worthless.

The traditional 401k/IRA strategy of dollar cost averaging, annual asset allocation, buy and hold, and asset class diversification is inherently a passive strategy. To increase the probability of a secure retirement, one should diversify retirement savings strategies by building passive income streams, through a side business or other investment. When you are comfortably employed and years from retirement, you should spend time building another income stream. This could be something as simple as an Associated Content account, a blog, an affiliate-marketing website, either a freelance website development, graphic design, or writing business, rental property, or an eBay selling account, among other ideas. Even though it may take a while for your earnings to become significant, if you have a decade or more before you retire, you can leisurely build this side business into something substantial, and insulate yourself against job loss at the same time.

As an example, a friend of mine, a full-time grant writer in his early fifties, has spent most of the past ten years working on two Internet properties that, combined, now pay roughly $3,000 a month. He spends a few hours each month tweaking them to maintain this level of income, which he saves in a taxable account meant for retirement. Regardless of the return on this account, if he can continue to generate that kind of revenue for the next couple of decades, then he does not have to be overly concerned with the sizable hit his retirement account has taken, or the possibility of a layoff.

Of course, if you're unemployed or facing an imminent layoff, you'll need to focus on immediate income replacement. But if you are relative secure now, start working on building a residual income stream while you have time that could supplement and if necessary supplant the income intended for your Golden Years.

Sources

Public Information Office, Household Income Rises, Poverty Rate Unchanged, Number of Uninsured Down, U.S. Census Bureau