At a Glance:
- Generating passive income for retirement has become necessary for even high-earning corporate executives.
- Real estate, exchange-traded funds, dividend-paying stocks, and bonds are four passive income ideas for retirement corporate executives should consider.
- Seeking the advice of an executive financial advisor is critical to ensure you’re implementing the right passive income strategies for your financial plan.
To a corporate executive who has put in countless hours actively working over the years, the concept of passive income generation may feel slightly foreign. The idea that you are generating income to live out your retirement through these income-producing assets while you play the back nine at your local country club can be a little difficult to get used to. Also, the concept of working with an executive financial advisor to help you make income-generating investment decisions might feel unnecessary to a top-level executive who has executed millions of dollars worth of deals.
However, once you have worked with an expert to identify the passive income investments that best suit your personal financial situation, and worked with that advisor to implement a plan to begin income generation, it can be quite easy to get used to. With rising healthcare costs, increased cost of living, and extended life expectancies, it is more important now than ever to consider new ideas for income generation in retirement. Let’s take a look at four passive income ideas for retirement executives should consider, dissecting each one to help you better understand if it could be a fit for you.
Passive Income Ideas for Retirement: Real Estate
If you have any past experience investing in real estate, or even if you don’t, you likely know this type of investing has tremendous upside potential as well as a certain amount of risk depending on the type of real estate you choose to invest in. For example, if you are hoping to develop a new property, you will encounter a large initial investment along with additional risks associated with the building phase in hopes that you can sell or rent out the property for a large profit. On the other hand, if you choose to invest in an established multifamily housing complex, such as an apartment building, you could experience less risk and the potential for a steady income stream.
This passive income idea is a good one to consider if you are open to holding hard assets as well as spending some time managing the property or potentially hiring a property manager to manage the investment for you.
Passive Income Ideas for Retirement: Exchange-Traded Funds
Exchange-traded funds (ETFs) are a lower fee option to most mutual funds that offer the opportunity to invest in certain sectors, such as high-yield stocks or bonds as a whole rather than purchasing the stock, bonds, or other assets individually. This type of investment offers instant diversification, which can dilute some returns, but it also minimizes your overall risk exposure.
While you will be subject to capital gains taxation on any dividends or other income received from the fund, the ETF is less likely to subject you to long-term capital gains because you purchase shares of the ETF from an authorized participant (AP), who exchanges them “in kind” with the fund custodian. This is one example of why an ETF can be beneficial for corporate executives over a mutual fund as a passive income idea for retirement.
This type of passive income is a good one to consider if you are looking for a diversified holding position that mitigates the risk of investing in individual stocks or bonds but also exposes you to income-generating assets.
Passive Income Ideas for Retirement: Dividend-Paying Stocks
Dividends are regular cash payments from a company’s stock that can be a great source of income for corporate executives in retirement. When searching for dividend-paying stocks to invest in, there are a few things that you should consider: consistency, sustainability, long-term growth, and low volatility.
If you are relying on your stock dividends as a source of retirement income, you need to ensure the stock you choose to invest in consistently pays dividends over a long period of time, even in a recession. You also must ensure the stock shows signs of being able to sustain the dividends it is paying, has a long-term outlook on company growth as well as dividend payments, and has a beta of one or less, which indicates it experiences lower volatility than average. The last thing you want to do is sacrifice a large amount of your investment capital through stock volatility just to chase a larger dividend payment.
This type of passive income is a good one to consider if you are looking for a more concentrated investment that offers higher than average income generation. You also should be comfortable with more risk and volatility than would normally be found in a conservative investment, such as bonds.
Passive Income Ideas for Retirement: Bonds
Most average investors look to bonds in general when they are seeking an income-producing asset with low risk. However, you should know there are at least five different bond types to consider, each with a different level of risk:
- U.S. Treasury bonds are debt obligations issued by the United States government and are generally considered the lowest risk of all bonds. With that low risk comes lower than average yields.
- Agency bonds are issued by agencies of the United States government or government-sponsored enterprises. These are also on the lower than average side for income-generating bonds.
- Municipal bonds are typically issued by a state, city, county, or other public entity to fund public projects. You can expect an average income generation from municipal bonds.
- Corporate bonds are obligations of debt that are issued by companies to fund improvements, expansion, acquisition, or refinance debts. These types of bonds typically offer higher than average returns.
- High yield bonds fall below investment grade risk and are generally thought to have the highest risk of all bonds, although they often offer the highest yield opportunities.
As you can see, there are many different types of bonds that range from low to higher than average risk and that offer low to higher than average income generating returns. In general, bonds can be used on their own or in conjunction with other passive income investments to supplement your retirement income.
This passive income idea is a good one to consider if you are looking for a lower risk alternative to stocks and are willing to give up some income generation opportunity in exchange for less volatility in general.
Passive Income Advisory
When it comes to choosing the best passive income investment vehicle for your retirement, you need to consider many factors, including your own personal risk tolerance and time horizon. An experienced executive financial advisor can help you make these complex decisions by first understanding your situation and then laying out the passive income ideas for retirement that make the most sense for you. Between real estate, ETFs, dividend-paying stocks, and bonds, there are countless options. An advisor can help you to narrow your search and focus in on the areas that can benefit you most.
K. Wade Carpenter, CFP®, AIF®, ChFC®, CLU®, is an innovative wealth manager serving corporate executives and entrepreneurs from coast to coast. Throughout his more than 25-year career, Wade’s focus on C-level clients has made him a top strategist for passive income investments for executives planning their retirement.
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