Passive Income is the Key to Freedom–and Retirement

November 2, 2007

You might think of “passive income” as a gimmick, complicated and risky investments, a very sophisticated strategy, or something that isn’t important to you, but you’re probably striving for it whether you realize it or not.

You do want to retire one day, don’t you? Even if you think you want to work forever, you’re probably saving for retirement anyway, right–just in case? “Retirement” is upheld as such a wonderful, ubiquitous goal because it’s equated with total fiancial freedom: you can quit your job and do whatever you want, be it start a business, spend time with family, travel the world, volunteer, or just hang out in your fishing boat for 6 hours a day.

But retirement is only possible when and if you have sufficient passive income. Maybe you don’t look at your 401k as a source of passive income, but that’s exactly what it is. You’re building up that asset until it’s large enough to provide you the income you need. Other typical sources of passive include pension plans, social security, and annuities, all of which are associated with retirement.

But who says you have to wait until your 65 to taste total financial freedom? Sure, you might not be able to access typical “retirement” passive income until you’re older, but why not build up some other income-generating assets in the meantime? You’ll either end up with a higher income later or acheive financial freedom sooner-or both!

Personally, I don’t feel comfortable relying solely on the stock market as my ultimate source of passive income, which is primarily what my retirement funds are invested in. I also have no pension and am not counting on much from social security. That’s why I plan to accumulate rental real estate properties as well, along with bonds (a great income source) which will also act as a reserve fund for that real estate. Other passive income sources can include distributions from your own business, ad revenue from a blog or website, or royalties from a book, song, dance, or other creative work.

Your alternative income sources don’t necessarily have to be 100% passive–maybe you like managing your own rental properties or writing your own blog posts. But once the assets are generating enough income, you can also choose to pay someone else to manage them–and then you’ll REALLY be free. You’re income will just keep rolling in no matter what you do.

Many people dismiss the concept of passive income because they associate it with risky investments, greed, the super-wealthy, or late-night infomercials. But in truth everyone needs and seeks passive income, and the sooner you understand and embrace the idea, the sooner you can acheive financial freedom.

More from Meg at The World of Wealth

20 responses to Passive Income is the Key to Freedom–and Retirement

  1. Passive income is the way to escape the trading dollars for hours perpetual lifetime problem. To generate sustainable wealth, it really requires consistent investment in passive income generating assets.
    -Raymond

  2. Totally agree, there’s nothing better than passive income, and the great thing is that the internet has given rise to endless opportunities to earn passive income without needing lots of money to invest in real estate or shares.

    For example, I earn a nice sum of money every month as an affiliate promoting an autoresponder service and other monthly membership sites.

  3. I definitely agree. Passive cashflow should be the goal for any person. However, with real estate as of late, there has been too much emphasis on capital gains(buying low selling high) or in other words, speculation. I wouldn’t invest in RE unless that asset cashflows higher than a bank CD rate.

    Great article, I just don’t really agree with blogging/online business as a passive income source. It’s not truly passive since you have to upkeep it and keep writing. Once you stop you can pretty much bet your income will slowly deplete.

  4. I’ve managed to accumulate real estate by paying off mortgages on my home as fast as possible, then either selling or renting it while I buy another home. I owe one mortgage with an interest rate of 4.75% while I collect on another mortgage paying me 7%.

    You can sell property while you still owe a mortgage if you use the right type sales document. You probably can’t issue a warranty deed without the approval of the company holding the mortgage you owe–but there are other methods such as a “contract for deed” which goes by various names in different states.

  5. Definitely good advice. There’s a lot of hucksters out there which will tell you the same advice that you need to develop passive income streams, but tell you that the only way to do it is through some hokey investment scheme or other scam. I think that’s why the phrase ‘passive income’ sometimes gets a bad name.

  6. I invest in equities that pay dividends. I currently get an average of $1000 per month from dividends. Hopefully this, with my military retirement and Social Security (less than 10 years) will be enough to keep me from living in the poor house.

  7. Equities pay a lot of $$ in dividends. They can be that extra income you need for vacation money when you retire.

  8. Passive income is what we strive for. And the earlier you start the better you will be later. Although, blogging and the web aren’t exactly passive because of the upkeep, if you start building now, you can grow sites that will require less effort as time goes on. And as long as you have internet access you could spend a few early morning hours while on vacation, updating them.

    Also, it was pointed out that if you build enough of them or enough revenue you can pass the day-to-day management on to someone else.

    There are other vehicles as well, but each must be researched carefully.

  9. My definition on passive income is something that I can do or spend a few time on it each week and bring massive of income for me. So blogging or running an online business are some kind of passive income source for me. Maybe I spend 1-2 hours per day and make $10K from it. For me I’m not really active in it so it is passive income for me.

  10. I am 63 years old and have been in the insurance and annuity business for 30 years. I am self employed. I want to semi retire and make about $12,000 in new commissions. I have about $36,000 in renewal commissions. Can I draw my social security without being penalized?

  11. I currently have a passive business that I work an average of approximately 2-4 hours a day. It took me some busy work for the first 6 months but after that referrals from my customers have kept the business going without having to sell very much. It requires billing customer credit cards. I would like to franchise this but not sure where to start. Anyone interested or have advice I’d like to hear from you.

  12. I totally agree with what has been said. In this day and age if you do not look into having some sort ofresidual income passive income then you are going to be in trouble when you retire. Mey not be straight away but it will happen.

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