Now that our family has moved to North Carolina, our next big financial goal, ten years’ hence, is retirement. We’ve decided to wait until Little ThreeYear graduates before we retire (although we could always change our minds). Since we’ll be retiring somewhat early, before the “official” age of 65, we’ll need to structure our retirement so that we have access to different pools of money, or streams of income, to tap into.
Though Mr. ThreeYear and I primarily invest in index funds (we have a “slow and simple-don’t get greedy” philosophy), we currently plan to have several streams of income available to us when we retire. Some will be passive, and others active. While this wasn’t necessarily a conscious plan on our part, life has worked out this way and we’ll take these streams of income we’ve developed along the way.
The idea of streams of income comes from a book published in 1999 by author and (potential racketeer?) Robert Allen. I’m mostly joking when I say that, because he’s written many books over many decades, but his advice can be borderline irresponsible, advising get-rich-quickish methods of wealth production, such as investing in options, that I wouldn’t recommend to anyone. (Another of his gems is called Nothing Down for the 2000s: Dynamic New Wealth Strategies in Real Estate. Hmm. Wonder how many people crashed and burned from that one?) But our dear Robert actually coined the term “multiple streams of income” and his was the book that first introduced me to the idea back in the ‘Noughts.
The book, and his ideas, were revolutionary for several reasons. First, 1999 marked the beginning of the movement of remote workers. With the recent advent of the internet, people were just beginning to explore the idea of contributing to their jobs remotely. Allen’s book took advantage of this emerging phenomenon and encouraged people to adapt to the changing world.
Second, his ideas encouraged people to break away from the idea that one job, one employer, and a fat pension at retirement were the keys to wealth production and a successful retirement. His book talks about the dangers of carrying debt, and how we must cultivate multiple ways to bring in money, especially during retirement.
There are many in the personal finance community who would disagree that we must have multiple streams of income to finance a successful retirement. And I agree that a large portfolio that generates a steady stream of revenue during retirement can, mathematically, be all that we need to have enough money during our early retirement.
But many early retirees struggle with the reality that their investment portfolios are holding steady or shrinking in retirement, rather than growing. For us, having many ways we can produce revenue will be psychologically helpful during those early retirement years. Also, if the stock market tanks during our first decade of retirement, additional income can help us avoid tapping into our investment accounts and instead spend this money first.
Here are the six main revenue streams we plan to have when we do retire:
Passive Income Sources
The first four revenue streams are (largely) passive. These all represent income that we will receive with very little effort on our parts.
- Dividend income from our taxable accounts. Part of our strategy for early retirement is growing our taxable accounts such that we can pull from them in the first part of our retirement, before we’re old enough to use our tax-free accounts. We plan to use dividend income from these accounts, trying not to draw down on the principal until necessary.
- Dividend income from our retirement accounts. Eventually, when we get old enough to pull money from these accounts, we’ll spend the dividends and stop reinvesting. The idea is to spend down as little principal as possible here, too. (Income streams # 1 and #2 will be our largest income streams, but the idea is to supplement them as much as possible so that we can largely live on dividends, rather than needing to draw on interest and principal).
- Rental income. We own an apartment in Chile. Currently, my mother-in-law lives there, but should she move in the future, to live with my brother- or sisters-in-law, this apartment will once again provide rental income for us. We will have a property manager overseeing the apartment, so there will be very little we’ll need to do and so consider this passive income. We expect to receive around $10,000 per year from this income stream.
- Online sales/revenue: From 2005 to 2010, I was involved in an MLM skincare business. While I don’t currently pursue it, I still earn income from products that my customers still purchase. I range from making $0-$250 per month from this business. I currently dedicate maybe half an hour a month to helping clients that still request it (that counts as passive in my mind). I don’t know if this income will continue into retirement, but so far it’s lasted seven years. It’s possible that other businesses, such as revenue from blogging or even book royalties could become income streams to replace this one.
Active Revenue Streams
The last two revenue streams represent income that requires work on our part to generate income. We may or may not utilize these income streams in early retirement, but we’ve cultivated the skills necessary to tap into these revenue streams should the need arise.
- An entrepreneurial venture: For as long as we’ve been married, Mr. ThreeYear has wanted to open a hot dog cart and sell special, Chilean-style hot dogs with the world. I think that in retirement, if he still wants to open the hot dog stand, he’ll get his wish. I’m sure I’ll be there helping him slather on mayonnaise and avocado and urging people to try this delicious combination. Or, we may decide to pursue a different entrepreneurial venture, as long as it doesn’t require too much time.
- Freelance writing/editing: I have been a freelance writer and editor for years. I have recently branched out into the world of freelance blog writing and look forward to developing this skill. I love writing so getting paid to sharpen or improve others’ writing, or share my ideas with different audiences, is my idea of a great paid hobby!
This list is by no means exhaustive, as Mr. ThreeYear and I have been hustlers and shakers our entire marriage, and have other abilities available to us. However, these are either labor-intensive or not our favorite things to do, so the chances of us pursuing these in early retirement are low. (Here’s a list of all the side hustles we’ve pursued throughout our marriage).
What about you? Do you have any side hustles or favorite income-generating methods you use now or plan to use after full-time work is done?