I'm not retired, but I'm working on it. Another 30 years and I'll be there, but I'm planning as early as possible so that I don't get stuck working when I should be enjoying my golden years on my creaky front porch or a beach in Costa Rica.
Whatever your current age is however, you need to know that given two options of having a huge lump sum of money sitting in an account or a steady monthly cash flow (of less total value than the lump sum), you're better off with the cashflow.
For me, it's about stability of income, and beating my own personality. When I have $100 dollars and go shopping, I usually spend about as close to $100 dollars as possible. If I have a lump sump of 1 or 2 million in retirement, I'm going to want to spend it, and spend it ALL.
But you never know how long retirement is going to be, and how much it's going to cost. You might have a couple of years enjoying the ‘easy life' at home, then get bit by the travel bug and want to go overseas for a few years.
The point is that cashflow is going to help me budget.
It's also going to ensure that I'll have enough money if I live longer than I plan to. One of the biggest worries of retirees is not having enough money to last. Remember, you're going to need money coming in for the next 30 or maybe even 40 years!
Can you save a sum of money large enough to support yourself for 40 years?
Your situation may be different, but I highly doubt that I'll be able to count on the government to provide me with any kind of support in my retirement years, plus being self employed, and currently unmarried without kids, I don't have a lot of options other than to plan for self reliance during my golden years.
It's one of the downsides of being financially independent, but I'd still rather do this than anything else!
So let's get down to the facts. Below are three ways to get cashflow in retirement. I think they are achievable for anyone at any age, so long as you take the time to properly learn and implement these plans.
This will come as no surprise because real estate is on everyone's mind when it comes to having residual income in retirement. My dad always talks about buying a rental, and many of his friends have them.
Here are some tips.
a. Don't deal with tenants. You don't want to spend your retirement dealing with broken things and annoying people. Even if you think it's tolerable, and you'll have plenty of time, you really shouldn't have to. Plan to buy a place that the rent will be able to cover the cost of a property management service plus a bit of income. That'll free up your time to focus on other things, and save you the headache of learning how to do that.
b. You don't have to watch the housing market as much as you think. You're buying to rent it out, not to sell at a profit. If the value of your home goes up, great. If not, just keep renting. Actually, if the housing market decides to tank, you'll probably get more renters knocking at your door than if it was booming.
c. Don't get greedy. Get good people who will take care of your house. Even if this is counts for just a small portion of your monthly cashflow, you can always get more properties later. Renters are brutal, so if you find nice people who take care of the place, keep them. Don't worry so much about how much you're getting per month, but focus on the reliability of having that payment.
2. Dividend Stocks & Bonds
Another popular source of cashflow, dividend stocks can be a great source of passive income. The problem with these is that you have to know which ones to buy, and if you hand over all your assets to a financial advisory, you're going to have to pay fees.
Here are some tips.
a. If you choose to opt for a financial adviser get someone that works for a flat fee. Even a small percentage can be a huge chunk of change when all is said and done, plus, they get paid even if you lose money.
b. Don't get into ‘hot' funds or anything you hear in the news. Everyone else is on the same train, and when things cool off, they're going to dump it, along with your money. Remember that you are investing for steady income, not for growth.
c. Choose stocks with a strong dividend history as opposed to a huge dividend. Large dividends are hard to maintain. You may make more in the short run, but your portfolio turnover rate is going to be higher, which means you'll pay more in costs
d. Neither past performance nor predicted performance are indicators of what will happen in the future. No one knows. This is yet another case for index funds, but if you must get specific, get some mutual funds that follow a sector you like. If you don't know which one is the best, get an index fund and follow the broad market.
3. Own a Business
A business can be brining in way more money than either of these two comparatively. Especially an online business, which requires very little startup capital ($100 or less), you can actually be profitable very early.
Growing your business takes time, and getting exposure in Google and various social media channels will take some learning, but it's not beyond anyone's ability. I knew very little 3 years ago, and now I've got a full time income from it.
So today we looked at 3 important sources of cashflow in retirement: Real estate, dividend paying stocks & bonds, and online business. Each of these individual topics are discussed, analyzed, and taught on the internet through video and text, plus, you can get any book you want at amazon delivered to your door or sent electronically to your Kindle.
There's really no excuse for not LEARNING. Once you are more familiar with these subjects, you'll be able to make better, more informed decisions about your finances, and better prepare to be financially independent in retirement, or maybe even earlier! (I'm trying to retire at 40)