Living Off Investment Income | Advantages and Disadvantages

True financial independence is reached when you can live off investment income. 

Living off investment income has many advantages that often require a shift from traditional investing in stocks and bonds, but there are also a few disadvantages to living off investment income. 

In this post, I’ll share and explain the 22 advantages and 6 disadvantages of living off investments that are often hard to see in a world committed to traditional asset allocation investing. 

Advantages of Living Off Investment Income

If you’re a regular reader at Retire Certain, you won’t be surprised that I was able to come up with many more advantages to living off investment income than disadvantages when compared to retirement withdrawal strategies

I see choosing income strategies to live off investments as a way to provide a comfortable retirement for millions of people who haven’t saved enough retirement money. It just takes thinking in a slightly different way than traditional retirement thinking and a little more effort.

Income Generating Investment Options

One big advantage of living off investments nowadays is the many ways you can achieve this.

It used to be that stock dividends and bond income were the only easy way to live off investment income. Now, there are many different investments that make it easier for investors choosing to live off investment income instead of withdrawing savings to live every month in retirement.

Ability to Invest in Alternative Investments

Until recently, only accredited investors were able to invest in many alternative investments that exist today. 

For example, now investors can invest in newer income investment strategies like online real estate, online businesses, and even invest in startups. It used to be that you had to be an Accredited investor to invest in such assets. 

I like to equate the many income investment options to a kid in a candy store.    

My video below explains living off investments vs retirement withdrawals. (Keep reading and then grab my Living Off Investments Guide here.)


living off investment income


Click here to get my Living Off Investments Guide that I explain in the video.  

Information on Income Investments

Increased information is the next big advantage these days for living off investment income.

The amount of reliable and easily accessible information to research income investments is endless now.

It used to be that investors were limited to a few financial publications, their stock broker or the TV show, Wall Street Week, to get good information on investing. Now, income investors can check the yield of an investment with a 60 second Google search.

When I was in my 30’s, it’s hard to believe that I drove to the pharmacy to purchase a Barron’s every Sunday. Granted, I did live on the island of Bermuda (sometimes I went by boat), but it wouldn’t have been very different if I had lived in the U.S. 

Now, most information needed to research income investments can be obtained immediately and easily accessed. 

Despite all the negative sentiment, complaining and blaming, we live in an incredible time for investors with the plethora of reliable information to make it easier than ever to live off investment income. 

Increased Transparency from Income Investments

Increased transparency is another more recent advantage of being able to live off investments.

Since many income investments are now available online to the general public, regulations around those investments have increased. While increased regulations can be both good and bad, the good is that certain risk lowering guidelines must be followed to make public offerings. 

This means that many once questionable types of income investments are now safer. 

Increased Education about Income Investments

Increased education about alternative income investments is another advantage of living off investments now as opposed to the past.

While investors most commonly hear that the best way to invest for retirement (which equates to spending your savings in retirement with withdrawals) is through long term passive investing followed by a retirement withdrawal strategy, education about alternative income generating investments is finally increasing among investors looking to learn. 

Read my related post How to Get More Income from Your Investments

Ease of Managing Income Investments

The ease at which income investments can be managed now is another big advantage related to managing income investments. Online brokerage accounts and digital documents, for example, have made managing multiple alternative investment strategies easier than ever.

Gone are the drawers and drawers of files, copying documents and endless mail.

It’s simply easier now to manage investments, especially more alternative income investments that are outside of stock and bond index investing.  

Ease of Implementation 

Another new advantage of living off investments vs spending retirement savings is the ease of being able to buy income investments.

Only 25 years ago, it would have been impossible to log into my brokerage account and buy dividend stocks, much less sell covered calls, one of my favorite income strategies. 

Now, it takes about 2 minutes to buy stocks and sell covered calls against those stocks. 

Lower Transaction Fees

It’s cheaper than ever to create a portfolio of income generating assets to live on. Not only is it easier to sell covered calls, for example, but it’s cheaper than it has ever been to buy and sell stocks and options.

I recall the days when I paid an $88 stockbroker fee just to buy stocks! And then I had to pay the same commission again on the sell side. 

Tax Benefits for Income Investors

Fortunately, the government has created tax regulations that happen to benefit retirees living off investment income. This is a huge advantage. 

For example, qualified stock dividends have a reduced tax rate, some bond income is tax free, covered calls can be sold inside an IRA, real estate investing has beneficial tax strategies, and small business investing (or creation) has tax benefits. 

These tax advantages for income investors allow you to lower expenses while also increasing investment income.  

Benefits of Income Investing Outweigh Budget Cutting

Structuring a portfolio so you can live off investment income drives you to focus on income generation while living off withdrawals drives you to cut expenses.

Don’t get me wrong: conscientious spending is important. But let’s compare the amount of money you’ll have if you cut out your lattes and save $50 a month vs obtaining a yield of 5% vs 2% on $200,000. (2% is common investment income on a typical investment portfolio as of this writing.)

This is entirely doable by a proactive income investor. 

Let’s do the math to see the impact of a yield focus for someone living off investment income. 

.03 x $200,000 = $ 6,000 / 12 = $500/Month vs. $50/Month Saved from Latte Cutting

And much higher investment income of 8% to 9% is more common from some of the financial publications I follow but I’ll play conservative here.

It’s clear that the upside is much bigger to increase investment income than trim a few dollars off spending. Out of necessity, investors living off investment income must assemble a portfolio with higher income generating assets.  

Living Off Investment Income Vs Retirement Withdrawals

If you generate enough investment income, you don’t have to make withdrawals from retirement savings. In my humble opinion, that’s the biggest advantage of living off investment income. 

This is because spending investment savings to live can have many negative consequences. Living off investment income, on the other hand, replaces (or reduces) the need to make withdrawals from retirement savings.     

Living Off Investment Income Vs Employment

While I’m not sure I buy into the popular FIRE (Financial Independence Retire Early) movement until those investors promoting it have been through a nasty bear market, living off investment income can sure increase life enjoyment. 

Given all the advantages of living off investments, many people can, however, safely and reliably live off investments instead of doing work that is stressful, exhausting, or otherwise distasteful.

And real wealth includes enjoying life. One of my favorite authors said it beautifully. 

“Wealth is the ability to enjoy life fully.” Henry David Thoreau

Less Dependence on Low Interest Rates 

Investors choosing to live off investments are freed from interest rate dependence with higher yielding income investments. 

For example, extremely low interest rates make it extremely hard to live off traditional bond income, especially when those rates don’t even top inflation rates. 

Financing for Alternative Income Investments

Financing can be obtained at historically low interest rates, this can be an advantage for some alternative income investors.

Examples are real estate rental investors or others using sensible leverage to purchase income generating assets.   

Living Off Investment Income Equals Financial Independence

The best advantage of living off investment income is that doing so is truly financial independence. Enough said. 

You Have More Control

Increased control is yet another advantage of living off investment income. When compared to retirement withdrawal methods, living off investments usually gives you more control since several assets are used for income generation. Let me explain. 

Most people living off investments own alternative investments such as real estate rentals, small business ownership or lending, or own a diversified portfolio beyond simply traditional stocks and bonds. 

This makes them less subject to the risks from bear markets, inflation and low interest rates. 

Inflation Hedges

Most people living off investments have at least one good inflation hedge. Examples are real estate or MLP’s (Master Limited Partnerships). 

On the other hand, most people using traditional retirement withdrawal strategies are heavily invest in bonds for fixed income. 

Inflation eats away at the value of bonds while the income provided from them buys less and less each year that inflation exists, which is usually the case.  

Time Flexibility

There is a big lifestyle advantage when living off investment income: time. When living off investments, you control your schedule.

In my opinion, this is one of the best advantages of living off investments. 

Locale Flexibility 

Another big advantage of living off investment income is locale freedom. Most investments can be managed from any location where there is Wi-Fi.

The exception may be real estate rentals, but this can be resolved by delegating property management or simply having a reliable handyman. 

And many people living off investments own very passive income from investments such as dividend stocks, REIT’s or other income generating paper assets.  

Wealth Building from Income Investments

The ability to add wealth building to income generating assets is a huge advantage to proactive income investing.

Many assets that are used for living off investments can eventually be sold for capital gains. This means that in addition to generating income, often for many years or decades, these assets can build wealth.

On the other hand, the foundation for traditional asset allocation investing is based on choosing between investing for growth (capital gains) or investing for income. While traditional asset allocation is the easiest way to invest, the more proactive way to invest seeks to build wealth from capital gains and also generate income from those same assets.

This wealth building capability is what I call “icing on the cake” for those living off investment income. 

Income Potential

Another advantage of living off investment income is higher investment income. For example, most traditional stock dividend funds pay income of only around 3% these days while also subjecting investors to bear market risk

On the other hand, proactive alternative income investors are getting yields of two to four times the income provided from traditional stock dividend funds, often with less risk. This can be accomplished from more alternative income investment strategies, such as covered call writing, individual higher yielding stock portfolio selection, real estate and more.      

Self Sufficiency 

Self sufficiency of another advantage of being able to live off investment income.

When you are living off income from investments, you are not living off social security, at least not solely living off social security. You’re more proactive in creating your financial existence and future, and this feels good to most people. 

Disadvantages of Living Off investment Income

There are several disadvantages to living off investments which I address below. Note that the disadvantages of living off investment income will vary based on your age and the investments you choose. 

Many of the disadvantages stem from the challenges that firms, society and systems have in thinking differently beyond mainstream investing with asset allocation, social security and traditional retirement withdrawal plans. (This all concerns me deeply but that is another post entirely.)   

Lack of Public Awareness

Lack of public awareness and education is a disadvantage to living off investment income. It’s not normal to structure investments so you can live off of them, and people don’t relate to those who don’t follow the crowd.

Again, the most common way to invest and retire on investments is based on long term investing in stocks and bonds and then hoping a retirement withdrawal strategy will provide a comfortable retirement for life. 

While there is more education than there used to be on alternative income investments, there is much less information on it than there is on highly promoted cutting expenses and long term investing with asset allocation.  

Management Effort

There is no doubt that investing in a way that allows you to live off investment income takes more effort than asset allocation investing based on your age and risk profile. And this effort can be considered a disadvantage by many, although we find it mentally stimulating. 

At a minimum, it takes researching beyond the most common dividend stock funds that yield only 3% nowadays. 

But the good thing is that you get to choose the income investments you want to make based on the lifestyle that you want. All of this stems from your wealth plan. Read more about this in my related post How to Create a Wealth Plan.  

Monthly Income Varies

Income inconsistency can be a disadvantage for many income investors. When living off investment income, monthly income usually varies from month to month, especially when compared to the consistency of retirement withdrawal methods.

The amount of monthly income variation will, of course, depend on the investments you choose. 

Given the many advantages of living off investments, this isn’t a huge deal for most people. It just requires a little more cash flow management. 

Increased Tax Preparation Fees

Higher tax preparation fees are a common disadvantage for income investors. The more proactive and alternative you are with the income investments you choose, the more you’ll want to plan for higher tax preparation fees.

Even common income generating investments like REITs and MLPs demand extra tax preparation work.

And rental properties, covered call writing and small business ownership are even more time consuming when it comes to tax preparation.  

Not Knowing Where to Start

Another disadvantage of living off investments is that creating a portfolio of more alternative income generating assets can be intimidating.

Given the many options for alternative income strategies, it can be hard to know where to start and whom to trust when first structuring income generating portfolios that provide enough income to live. 

Most financial planners aren’t knowledgeable about many alternative strategies for living off investment income since they are taught that traditional long term buy and hold investing with later retirement withdrawals is the only way to go. 

If only this worked for everyone. Check out my related article How Much Money Do You Need to Live Off Investments.

After we saw that we didn’t want to depend only on stock and bond income in retirement, we began exploring ways to live off investment income with higher yields. 

You may have read here that we began exploring buying a local business with good income but decided the risk was too high. Next we ventured into oil partnerships, real estate rentals and then online businesses

We made a lot of mistakes, which is what inspired me to write about our quest to live off investments here at Retire Certain.

It’s one thing when you have decades to save and invest before retirement. It’s another situation entirely when you’re over 50. 

Medical Insurance

If you’re not old enough to be covered by Medicare, medical insurance can be a real disadvantage if you’re living off investment income vs employment income.

Fortunately, some lower cost medical insurance options have become available for self-employed individuals (investors), but the ones I researched don’t allow you to choose your own doctor.   

Summary for Living Off Investment Income Advantages and Disadvantages

Now you have seen the advantages and disadvantages of living off investment income. The advantages to living off investment income far outweigh the disadvantages. 


living off investment income Click here to Get my guide to living off investments here with a template you complete to see how close you are. 


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The information on this website is for education only and is not to be construed as personal financial advice.