Retirement planning is still the same as it has always been; it just seems more complex. To have an amazing retirement, you must generate income passively.
Most of us have never considered the idea of making money while we sleep, but the basic gist of the story is that the person with the most passive income streams wins.
It will take a lot of time, research, education, and humility to learn what the rich have always known—to live off the income that derives from your assets.
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Today, I want to take a quick tour of my retirement setup and then discuss how you can start planning for your own successful (and exciting) retirement. Let’s begin.
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Working for money. I waited until I was 38 to get on the passive income train. I worked hard for 20+ years in the workforce but was still struggling and in debt.
I finally had enough of the bulls*** and decided to make a change; that change was passive income. My wife and I started from scratch at 38 and retired at 42. Lucky for me, I had a hefty military pension to assist my efforts.
The rich don’t work for money; they work for assets. If you can understand this concept, you will retire in luxury. This is important stuff, so let’s dive in a little deeper.
Create an eBook Series for Passive Income 2
An average middle-class person works hard for money; let’s say they earn $8,000 per month. They spend $7,500 on expenses and save $500 in a savings account.
If that person wants to become truly wealthy, they need to convert $2,000 of that money into passive income.
Making excuses. “But Josh, how can someone save and invest 25% of their take-home pay?” If you are making excuses for my imaginary person, chances are you are making excuses for yourself. Don’t worry; I did the same thing for myself for 20 years.
The question to ask is what options this person has to save 20% of their income. Remember, I said the person needs to invest $2,000 monthly; it doesn’t necessarily need to come from their take-home pay.
We get so attached to the idea of working for money that we reject other ideas that could come naturally. In this case, our imaginary worker can rent a room for $1,000 and drive Uber for another $1,000—problem solved.
But what should our person do with the $2,000 per month? Well, once they have a decent emergency fund, they must start investing.
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Dividends are the first step. The most accessible type of passive income is dividend investing, and it’s also the most important. Let’s examine how cash flows through the average household.
When imaginary Josh receives his $8,000 paycheck, he formulates his budget using all $8,000. If he is lucky, at the end of the month, he saves a few dollars.
A rich person creates a $6,000/month budget, which stays the same whether he makes $8,000 or $20,000. The rich person invests everything outside of his budget on the first of each month; we call this “paying yourself first.”
Wealthy people invest in dividend-paying stocks because they are income-producing assets. For this example, Josh will invest in the monthly-paying mortgage REIT AGNC Investment Corporation (AGNC).
After one year of investing, Josh will have $24,000 in AGNC, which would create a passive income stream of $240 per month.
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Using simple math, if he invests for ten years, he would have a monthly income of $2,400. If he does it for 40 years, he would generate $9,600/month. Luckily for us, compound interest makes this process happen much quicker.
However, the moral of the story is that Josh took a massive part of his paycheck to purchase assets (dividend-paying stocks) to create passive income. This is the difference between the rich and the poor.
Real estate for the win! Many people say that real estate is unaffordable or that owning a home isn’t important. I beg to differ.
Owning a home is a vital part of retirement planning for the average person. In fact, owning multiple homes is even better.
Do you need lots of money to own multiple homes? Sure. Will it pay off immediately? No. Why is it so important to own properties? Control.
You cannot control your financial situation if you cannot control the land under your feet. Remember, you need to start thinking like a rich person.
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Once you learn how to budget before you receive your paycheck, you’ll make room for an emergency fund. The more homes you own, the bigger emergency fund you need.
You can solve all of the problems with your homes with cash. Trust me; I own three homes and a tiny house. Speaking of which, let’s look at my property situation.
My Arizona home rents for $2,300/month (mortgage $1,800, property manager $300), and my Florida house rents for $1,900 (mortgage $1,400), so I earn $700 in monthly profit.
But what happens when I pay off both of these properties? By then, I will have over $4,000/month in rental profits—that’s the key to success!
Everyone needs a business. Outside of real estate and dividends, you’ll need one final asset—a business. Your business can be small or online, but it needs to exist.
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A business does a couple of things for you. It gives you some tax incentives and additional revenue. But it also gives you something to leave to your kids. You might keep your business small, but your kids may see the potential to expand it.
I have a writing and publishing business. I like that it only has a digital footprint. I don’t make a lot of money, but I can write off a few things around that house that help lower my tax burden.
Your business will be your growth multiplier going into retirement. It will keep you mentally sharp and in tune with current events. It will also help you continue to fund your dividend portfolio.
Putting it all together. I have been retired for one year, and life gets better daily. Since I have retired, my net worth has grown by $100,000 (in one year). My total net worth is $800,000 at age 43.
Because of my assets, my net worth and passive income continue to grow. I keep putting money into my dividend portfolio, which pays me more money, which I then put back into my dividend portfolio (a glorious loop).
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My home values and rental income continue to increase year over year. My business is slowly growing. My military pensions grow along with cost-of-living adjustments.
What does your retirement plan look like currently? If you stopped working today, what money would still consistently come in?
The most important advice I can give you is to start looking past your monthly paycheck. The best thing you can do is start building passive income streams, no matter the size.
Conclusion. Try aiming for $100 per month in passive income. It may sound small, but it means you have a basic handle on your passive income situation.
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For reference, you would need $10,000 invested in AGNC to earn $100. You can also rent a room to a friend for $500. Whatever the case, the person who thinks outside of the box will win.
The average person is not concerned with passive income. They are perfectly content working their jobs, renting their apartments, and watching Netflix.
If you want an above-average retirement and, by extension, life, you must do something much different than everyone else.
My wife and I got roommates back in 2019. Everyone laughed at us. In 2024, we are debt-free, own four properties, and have a $300,000+ dividend portfolio. We became different.
Do you want to be average? Do you want to depend on Social Security from age 65 to 85? Or do you want to retire at age 50 while living on dividends, rents, and business income? It truly is your choice. 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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