Retirement planning. Two little words that have been turned on their heads in today's era of high government debt and low interest rates. For my entire life, retirement planning consisted mostly of how to save enough money over your working life to help cover your living expenses after you retire, and hopefully, retire with enough to insure that you can have a comfortable life style for the rest of your life.
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But thanks to high government debts and the resulting monetary policy of forcing interest rates to near zero, retired seniors and boomers nearing retirement are discovering that 'retirement planning' ain't what it used to be. Seniors, like my own mother for example, are discovering that it's quite a challenge to play the retirement game today, in a world that is in the process of changing all of the rules.
For many years, a low interest rate was 6% and a typical interest rate was 9%. The idea of saving for retirement meant that you could expect to earn enough to pay all of your living expenses, without drawing down your savings. But the rules have changed. Today's monetary policy is challenging retirees because it's resulting in a major reduction in income from savings, while inflation in food and fuel prices is adding to the cost of living in a way that was impossible to predict a mere 10 years ago.
The new challenge for retirees is earning income in a world where the traditional savings and investment vehicles are no longer as effective or predictable as they once were. This is why real estate investing remains one of the most popular investment vehicles for everyone from wall street funded investment companies to mom and pop entrepreneurs. Both groups realize that passive income is an essential part of today's retirement and financial planning landscape.
Real estate investing is one of the few industries that can provide a variety of passive income models for investors, from your basic 'mom and pop' owners with a small portfolio of single family rental houses, all the way to a sophisticated investor like Donald Trump, who probably does not own any single family properties but likely owns hundreds if not thousands of apartments. And if you don't like the idea of managing rental houses, and you don't have millions to buy apartment buildings in New York City, there are plenty of real estate investment trusts, or REITs, that can take your small investment and pool it with many others so that you can earn passive income from things like office buildings and apartment complexes.
The internet has also brought a new ability for individuals to start and operate web based businesses for much less than the traditional 'brick and mortar' operation costs. Opportunities for passive income abound both online and offline.
Many folks today figure that they cannot save enough for retirement, even if they are working and have a good income. But passive income streams can alleviate that problem by allowing you to have a consistent stream of income for years on end, even if you have not saved a million dollars for retirement. Passive income models are the answer to the question of how one can retire when they have little savings, or their savings are earning way less than expected 30 years ago, when you set up a retirement account.
Passive incomes ideally have three main components:
1. Automatable - can this business operate without me being there? Will I earn money from this investment even if I am unable to work? A REIT or a rental house fits in this category because income is earned from rents, not your labor.
2. Duplicatable ' is this model a business that is easy to duplicate? How about writing a book? Once written, a book can potentially sell copies for years to come. Not everyone can write a good book, but many enterprising authors have created incredible passive income streams by creating products that only have to be made once, but can sell thousands of times without having to recreate the labor. There are many categories of passive income such as books, songs, jingles, video games, movies, etc., that fit into this category. If you don't write books or program video games yourself, look for people or companies that do and invest in them.
3. Residual ' the ideal passive income models not only create income today, they produce residuals from future sales for owners and investors. Some companies such as MLM's are popular because of their residual component. But beware when choosing business models, and be sure that you won't have to spend 40 hours each week recruiting folks in order to keep your 'passive' income. Many entrepreneurs own a glorified job, not a passive income stream, because they did not realize that they'd have to work to keep the whole thing going.
Real estate investing is a perennial favorite of investors the world over because it's never too late to generate passive income from real estate investments of various types. Even with simple, single family rentals, you find elements of all three criteria. It's possible to automate the buying or selling process to an extent, either through agents or using technology. It's relatively simple to duplicate. Building a portfolio of 10 properties over a 5 year span is something virtually anyone can understand and implement. And it's residual. As long as you keep your properties occupied, and manage your expenses properly, your properties can continue to put money in your pocket for years on end. Or you can keep it simple and find companies to invest in that will do all of the work for you, and send you a dividend check.
Whichever model you choose, focus on these three criteria. Even if you think it's impossible to save enough for a comfortable retirement, that does not mean that you can't have a decent income for life. We can't depend on social security checks as our entire income. You must have an income of your own that will pay you regularly even when the day comes that you can no longer work. And rest assured, that day will come. There are many passive income models out there to choose from. Many of them do not require expertise, though you should check out any companies or opportunities carefully. But when done correctly, owning passive streams of income is the true lazy mans way to riches, because you are creating an income you don't have to work for.
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Donna S. Robinson is a real estate investor, author and entrepreneur located in Atlanta, Ga. Follow her on twitter at donnaconsults. Her latest book, 'Basics Of Real Estate Investing' is now available for Amazon Kindle.
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