Five Sources of Income for Retirement - what is the Fifth one ?

Question

Hello BP community and for those who already made it :-) :-) (Baby boomers & Gen X)

when I was in school some one once said to me, to be financially free you need to have five sources of Incomes - at that time I was naïve and I translated that into having 5 Jobs :-). fast forward 20 yrs and that statement was stuck in my subconscious mind and as you know if something is stuck in your subconscious mind for a long period of time, your mind tries to achieve that goal with out you knowing it - basically it works out plan to achieve that goal(quote from Napoleon Hill's - Think and grow rich). most of these are aimed towards retirement or financial freedom -

so my question is what would be that ideal fifth source of income to add in portfolio :
I have :
1) a good paying job (W2 Income) - My first source of Income

2) a REI portfolio (anything & Everything related to REI) - My Second source of Income

3)  a strong 401k Portfolio (401k -good company matching, IRA's , Social security  etc.) - My third source of Income

4)  a growing stock portfolio - My fourth source of Income

5) ??????????????? I need your help determining what would be that ultimate "Fifth" source of Income

I know many have figured these income streams - specially baby boomers (born between 1946 and 1964) and Gen X (born between 1965 and 80) and I as a Millennial requesting baby boomers and Gen X to advice as they are the one's who have laid down a strong foundation for us "millennials" so that we can do the same for Gen Z , Y.

Bring it on!!!!!

Cheers

Otis Drinkard · Answer

@Sachin Amin

I threw out your w2 since this is for retirement.

My list is:

Social security

Put yourself together a strong portfolio of the below. Believe it or not, that’s what I was taught in high school.

Stocks

Bonds

Money market instruments

Annuities

Real estate ￼

Cheers

Jean-pierre Martinez · Answer

@Sachin Amin If you already have a stock portfolio and you are able to pick your own stocks consistently and continue to expand your account balance year after year I suggest looking into very conservative Options trading using Covered calls or selling Cash protected  puts. It will boost your account balance with good % returns. Research and you will be glad you did.

Chris Levarek · Answer

@Sachin Amin Well i'm no baby boomer :) but....Active, Passive, Residual. Income can be divided into these categories. If one can have income in all three categories, that's the best protection and path to wealth.

Active - W-2, active work, etc

Passive - Passive investments into stocks, real estate, etc.

Residual - Product that provides income with no effort. - selling a book, t-shirt, etc.

So I'd say maybe look at creating a product that sells. Write a Book?

Jeff S. · Answer

@Sachin Amin you are lumping together things and considering a 401k as a source of income.

1. Job, pension, or some kind of gig-little business- Walmart greeter, etc. Use to pay basic needs(house payment, car payment, food, gas)

2. Real estate cash flow, be conservative. Cash flow can become zero quickly.

3. Large cash reserves and/or credit lines-to be used to even out uneven real estate cash flow-this is back-up-or spent down if cash position is huge.

4. Social security. It happens. This is gravy money not intended to live on. This buys extra cars (classics, Porsches etc) and pays for motorhomes or vacations or whatever. You earned it, it is not an entitlement!

5. Dividends from stocks and interest from bonds and potential capital drawdown-either in or out of retirement accounts. Best to leave alone and let grow. Nursing homes are expensive and you should pay your own not rely on welfare or your kids.

Nicole Heasley Beitenman · Answer

No one under 50 should count on social security being around by the time they retire.

What about becoming a silent investor in an active business? Or a private lender for real estate investors.

Carlos Gonzalez · Answer

@Sachin Amin

W2

Rentals

Stocks

Stablecoins ( I know it’s a new thing but 5-8% rate of return is huge not to be ignored)

Create a product business or partner up with someone.

Write a successful book abs get the proceeds form it.

Stephen Brown · Answer

@Sachin Amin You got the right idea! I'd say throw in something that you're passionate about that may not necessarily be generating huge profits but it's something that you could do long term. Like a blog or something fun!

Eric Schultz · Answer

@Sachin Amin

Here is one not mentioned yet, though it may be only for 1 in 5 serious investors for building long term wealth and lifestyle funds in later years:

Overfunded cash value whole life insurance

I’m not talking about the “retail” whole life policies that get sold to the majority of the population. Those are the types of policies to skip, buy term and invest the difference.

I’m talking about the investment grade policies that only a small % of life insurance pros actually know how to design or are allowed to design. It’s usually the small firm you want to go with that brokers a specifically designed policy from companies like Penn Mutual or Mass Mutual. These policies have a lower death benefit than the retail version, but allow for much higher thresholds for annual overfunding the premiums (while still growing tax free with tax free withdrawals via policy loans). The death benefit grows with the paid up additions written into the policies. There are several other riders that can be included to benefit health related issue while the policy holder is still alive.

When designed properly with low fees, the policy break even point is about 3 - 4 years. Beyond that timeframe, the real long term wealth building kicks in. Again...that part on the break even point is not for everyone.

These policies are private contracts, so it is very difficult for creditors to look them up or get access to them. The 4% guaranteed interest + (1% - 2% dividend) is tax free growth and basically equivalent to an 8% - 10% return in the stock market before expense ratios, advisory fees and taxes. The cash value growth is also uncorrelated to the stock market or real estate markets, so you get that diversification.

The cash value (typically up to about 95%) can be accessed at anytime, typically 30 days after the policy is initiated. Keep in mind that the overfunded annual premiums do not equal the cash value in the policy until about year 4.

These policies, when brokered and designed properly, are backed by life insurance companies that have paid consistent annual dividends since as far back as the Civil War days with no bail outs along the way.

You never have to pay the policy loans back on the cash value while you are alive. The death benefit that grows over time will do that. Your beneficiaries will then be left with the remainder of the death benefit, tax free.

A family can rinse and repeat this for generational wealth, as you are basically buying net worth with cash value / income benefit along the way.

Most people write off this idea when they hear about whole life, which is why I shared some detail. Again, not for everyone but a “5th income” option for later years.

Niki M. · Answer

@Sachin Amin my husband and I also have annuities that grow with the market but have capped growth but also are guaranteed not to decrease if the market tanks.  It's a good retirement option in conjunction with IRAs and 401ks.

Jay Hinrichs · Answer

My wife and I SS since we were self employeed is not an insignificant number .. just have to wait 1.5 more years then we can earn as much as we want without the benefits being lowered.. with cars paid for house paid for we could probably live on it frankly

Five Sources of Income for Retirement - what is the Fifth one ?

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