We should all be winding down in our 70s. We want to enjoy our days and love our nights, but we don’t want a lot of stress from the financial markets.
If you have all of your finances squared away in your 60s, then your 70s and 80s will just be a continuation of those strategies.
However, if you prefer to move all of your money out of stocks and into bonds, options trading can provide another avenue to generate cash flow.
Dividend Investing in Your 40s
Avoiding the stock market. I plan on staying heavily invested in equities until the day I die. However, I also use a government pension for my day-to-day operations.
- Dividend Investing in Your 70s
- Bond Investing in Your 70s
- Stock & Bond Investing in Your 70s
- Staying Debt-Free in Your 70s
- Real Estate Investing in Your 70s
- Retirement Planning in Your 70s
I can envision a world where an older person wants to avoid the stock market altogether. They would rather put their money in safer products like high-yield savings accounts, certificates of deposit, or US treasuries.
The problem with these investment vehicles is that the interest rates can leave you lacking. The chances of these securities yielding over 5% are slim to none.
If you want your cash flow to outpace inflation, you need to generate 10% yields on your invested cash.
Therefore, although our seniors want to avoid the stock market, we must create a small options trading portfolio to earn yields over 10%. Let’s dive in.
Successful People Need the Most Help
Converting a 401 (k) into a lifestyle. Let’s say John retires at 66 with $600,000 in his 401 (k) and a $2,500 monthly social security check.
John requires $4,000 per month to cover all of his expenses. The first thing we do is generate enough income (or lower expenses) so he can cover his bills without his 401 (k).
In this case, John’s kids would love to have him move into their home. This reduces his monthly expenses to $2,500, plus he rents his current home for $1,500/month in cash flow.
Now, John earns $4,000 per month in cash flow against $2,500 in expenses. He is in a much better position because of some sacrifices.
Once he has situated all his income, he decides to liquidate his entire 401 (k). Remember, John doesn’t want any of his money in the stock market.
Passive Income Road Trip #7: Automated Business
John takes $600,000 from his 401 (k) with a whopping 37% tax hit. However, John’s biggest fear is that his portfolio loses half its value in a market crash.
Building bonds better. John wants to make his $378,000 portfolio last until the end. He starts by setting aside $100,000 in his high-yield savings account to use as a fully funded emergency fund.
John creates a certificate of deposit ladder with $78,000 and a $100,000 Treasury Bill ladder with $100,000. These ladders help him keep his money liquid while earning interest.
This leaves John with $100,000 that he can grow as he wishes. For now, he invests $50,000 in a money market fund and $50,000 in an options trading portfolio.
Passive Income Road Trip #6: Royalties
John aims to earn $1,000 per month from his options trading portfolio. Because John has a large lump sum of cash, he doesn’t have to take massive risks inside his portfolio.
Trading options for income. There are many reasons to trade options (cash flow, wealth building, speculation, ego), but in John’s case, it is for the cash flow.
John can use the options wheel to trade options with reduced risk. Trading cash-secured puts and covered calls require a lot of capital upfront.
With enough capital, he can sell 10+ calls or puts at once to generate enough income to cover his goals. Even better, he doesn’t have to set his strike price in the danger zone.
John can also use leverage against his portfolio to double his income. For example, let’s say John has $100,000 in his brokerage account.
Passive Income Road Trip #5: Real Estate
He can invest $80,000 in high-yield products like closed-end funds and preferred shares. He can keep $20,000 in a money market fund.
When using margin, the brokerage firm lets him borrow up to 40-50% against his entire portfolio—in this case, $40,000 or $50,000.
He can’t sell covered calls or cash-secured puts on margin, but he can trade long strangles. John should easily earn $1,000 per month against a massive $50,000 backdrop.
John can use the money from his money market fund to cover the margin loan if things go awry. The good thing about long strangles is that you can only lose what you put in, nothing more.
Putting it all together. The best thing John did for himself was move in with his family. He also rented his old home so that he could leave it to his kids later in life.
Passive Income Road Trip #4: Cryptocurrencies
Don’t be fooled by the allure of trading options; often, the best financial decisions you can make are in the physical world.
Once John figured out his financial situation, he created an emergency fund and a bond ladder. These strategies give him peace of mind, knowing that he has protection if his income suffers.
Finally, John created a safe options trading portfolio. Although he had a large amount of money in the fund ($100,000), he didn’t use it all for options trading.
He invested most of it in dividend-paying stocks, so he earned yield while trading options. He used leverage to double his trading income.
John took a very measured approach to trading options. He focused on real-life first because that is what truly matters.
Passive Income Road Trip #3: Dividends
You don’t want to start trading options because you “need money.” This mindset guarantees that you will make bad decisions using fear and greed.
Instead, you want to trade options as a “nice to have.” You can use the proceeds to grow your options portfolio, CD ladder, or emergency fund.
You can also use it to be generous with your kids and grandkids. The world is your oyster when you understand how money works.
Passive Income Road Trip #2: Retirement Planning
Conclusion. John’s highest rate of return was moving in with his family. Similarly, he could have decided to get roommates or move overseas. These are the true financial decisions that build wealth.
Options trading can help evaluate your lifestyle, but making sound financial decisions in real life is paramount to success and financial freedom.
John can also pass on his options-trading knowledge to his kids and grandkids. Few people will ever be able to trade an option.
Passive Income Road Trip #1: Financial Mindset
Earning money from a pile of money is a life-changing skill. You now see how money works and can grow your own pot of income without working a job.
Your 70s should be a great time. Most of us will need to make some sacrifices to secure a good financial future.
If we make tough choices outside the markets, the markets cannot dictate our lifestyles—only make them better. Good Luck.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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