Are you concerned about having enough money to retire? Does it seem impossible to reach your retirement income goal?
I get it! About a decade ago, after facing the realization that income from stocks and bonds alone may not sustain our standard of living for life, we set a retirement income goal to replace our current income with multiple income streams.
In this post, I’ll address many truths about creating alternative income streams while sharing what we did to reach this challenging retirement income goal, amidst all time low interest rates.
Quick refresher: Low interest rates affect the amount of income you earn from your investments, while bear markets that occur every few years affect the value of your net worth, as you may have read here. Low interest rates have caused problems for many investors who planned on living off investment income. (Click here to read my article on How to Live Off Investments.)
Years ago, we saw that if we could match our current income level, with income from either investing or other more alternative income streams, we could have financial security throughout our lives. Our retirement income goal was simple then: It was to replace career income, at the time, with alternative income streams instead of eventually spending down our savings every month to live during retirement.
Previously, we had only considered stocks and bonds as the only potential income generating assets, along with one rental property I bought in my twenties before moving to Bermuda. Here was our reasoning to create more alternative multiple income streams ahead of retirement.
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Why Create Multiple Income Streams
First, we knew alternative income streams from endeavors other than stocks and bonds would allow us to have our savings in tact as we reached our seventies and beyond, as explained more below. (Click here to read my article on Retirement Withdrawal Strategies.)
Second, multiple income streams would also allow us to live comfortable in retirement by maintaining our current standard of living instead of reducing our spending after we retired, a common strategy.
Third, we planned to protect ourselves from inflation with some alternative investments. (Click here to read my post How to Not Outlive Your Money.)
Income Stream Ideas-Where to Start?
When we began, it seemed almost impossible to completely replace career income with alternative income streams given our net worth. We’d heard of Robert Allen’s Multiple Streams of Income, the only popular income stream book back then, but it seemed a stretch. We decided to start exploring the possibilities with a very open mind.
First, as you can read more about ahead, we began by considering buying an expensive brick and mortar business, or even a franchise, like many people approaching retirement. Fortunately, we ended up with income from stocks, alternative investments, real estate and online businesses, which we have today.
Is It Hard Setting Up Multiple Streams of Income?
There were many failures and successes along the journey to meet our retirement income goal ahead of retirement with multiple income streams, but we have met and sometimes exceed former “career income” several years ago. It’s been work, but it’s been fulfilling work.
We still work quite a few hours, although we consider ourselves semi-retired, and “work” on our own schedule, from home, while doing mostly work we enjoy. Our alternative income streams even allowed for an early retirement, and we plan to continue to manage and run them for several more years. (Click here to read my article that explains how much longer until you can retire.)
Admittedly, reaching our retirement income goal hasn’t come without a lot of effort. Larry and I, however, tend to get very bored without mental stimulation. You may enjoy relaxing full time. Looking at friends and clients, it seems the amount of time you want to spend generating income streams tends to depend on your interests and hobbies.
Only you know what you want for your life. Only you know the right balance between work, life and family that works best for you. It’s wonderful when you can choose. The beauty is that you can choose, and then create it.
Passive income Vs Active Income
Since our income streams are based on passive income from stocks and real estate, and also online businesses, we work a reasonable number of hours for our lifestyle goals. I address the reality of passive income vs active income more below.
We’ll tweak our income streams as needed along the way to adapt to our lifestyle and economic changes. We’ll eventually move toward all passive income as we age. For now, we enjoy the stimulation of investing and sharing information online, if we have control over our alignments, locale and schedules.
The truth is that it hasn’t been easy creating multiple income streams, and we’ve learned so much along the way. Again, it’s been work, but it’s been fulfilling work.
The Myth of Multiple Streams of Income
Speaking of tweaking our income streams as we go, we have already begun doing that based on what we have learned over the past decade. While there is a lot of hype these days promoting multiple income streams, here is what we have learned. Hindsight is so valuable.
It’s not easy to run multiple income streams unless at least some of them are truly passive. It’s best to carefully evaluate the best income stream for you to begin right up front, based on your own goals and investment capital.
As you’ll see from our progression, we began by evaluating the purchase of a small business that would have taken a lot of time and capital (risky!), and then moved into real estate and oil and gas. We wasted time and energy on the wrong type of income streams by exploring the time and capital intensive small businesses.
Granted, most retired people in the U.S. have social security, but the amount is very limited. Plus, you may want to retire early, as was our case. Or you may want to delay social security until you’re seventy, so you get higher payouts. This article won’t address social security income. It’s about more alternative income streams.
Why Have Multiple Income Streams Vs One
Having multiple income streams requires getting good at several things. As Gary Keller & Jay Papasan highlighted in their excellent book, The ONE Thing, there is a lot to be said for getting very good at just one thing. The idea is that when you’re very good at one thing, you can be very successful with that one thing.
The issues with this theory are below.
1. Investments Create One or More Income Streams
If you have money, you’ll need to get very good at managing and investing that money. This is true regardless of whether you use a financial advisor because you’re the leader of your wealth; you’re the top level manager, because you hire and manage the financial advisor. This means investing is at least one thing you’ll want to get good at, or at least knowledgeable about, and here’s why.
If you choose generating income from your investment capital as your main source of income, you’ll need to know about various areas of investing.
For example, among the multitude of investment income skills, you could master stock dividends, individual stock transactions, covered call writing or other options strategies, high yield bonds, lending on small business, real estate lending, commodities, REITs, MLPs, or a combination of these investment income techniques.
Some of these strategies work while others don’t work so well, depending on the economy, your demeanor, and market trends.
Therefore, you’ll want to be skilled in more than one thing just within the traditional investments’ arena. (Click here to read my post Wealth Management Tips for Everyday Investors.)
Many investors confidently share that a financial advisor makes all their investing decisions. That can work, depending on the financial advisor that you hire. The question, then, is how will you hire a good financial advisor if you don’t know anything, or know very little, about investing? (Click here to read my article on Investment Strategies a Financial Advisor to Lower Risk.)
Investing knowledge is definitely at least one of the things that will take of your time, and awareness. This includes being aware of economic conditions, so you can understand and spot opportunities for income streams through wealth building assets. This is especially true if you plan to live off investments. (Click here to read my article on How to Build Wealth.)
2. A Low Capital Income Stream Can Be Powerful
If, like most people, you don’t have enough money to live off investments in retirement, you may want to create another income stream that is not dependent on your investment capital.
This is where a consulting business, or perhaps an online business comes can make a lot of sense. These income streams require very little capital whereas stocks and bonds are extremely capital intensive to generate a relatively small amount of income, unless you have a lot of wealth in your investment accounts. One million is an often quoted amount in mainstream finance for the minimum in your retirement account to live comfortably for life, but this depends on your cost of living, age and other income streams. (Click here to read my article Interest Off 1 Million.)
3. Diversification Lowers Risk
If you go with the one thing theory, and you are very good at that “one thing”, what if it stops working?
There are so many reasons and examples of how this can happen. Stock market crashes, interest rate changes, business trend changes, real estate trends, or unexpected liabilities to name a few. You could be without income to support your lifestyle. (Click here to read my post How Will a Stock Market Crash Affect You?).
4. Passive Income Sources
By creating at least two income streams, you can have one that is almost completely passive, such as stock dividend or bond income, and you can have one that is slightly more active, such as real estate rentals, or a partially passive type of online business. This allows you to maintain diversification while still having mostly passive income.
Alternatively, you could have one income stream that is passive, like stock dividends, and one that is more active, like consulting.
5. Leveraging Income Streams
It’s true that the more income streams you have, the more you need to hire others to help manage them. Hiring and managing the right people is a learned skill. It takes time. It can be a hassle.
Some income streams, however, can be done almost completely by yourself, outside of a good CPA. Other income streams require more team, but you can leverage that team as you learn the skills and expand.
An example is our rental properties that are just outside of Austin. We now have all the various maintenance people that we have used for years. It took time to find and trust them. I manage our properties now, but it doesn’t take a lot of time.
Some months it requires no time except to collect and deposit the checks. Other months, I may deal with a major repair or a tenant turnover. Fortunately, I have the flexibility to do this since I don’t work an outside job.
Often, I don’t even need to go to the property since I now have a good team that knows much more than I do about plumbing, painting and septic systems.
Now, in considering more rental real estate, I want to buy properties near the same area. This is because I already have a good team lined up. I can leverage that team. This is what I mean by leveraging as you expand.
If you have multiple income streams in entirely different areas, support can overlap among various types of income sources. This also allows you to leverage your team.
For example, one bookkeeper can do everything. One CPA can do everything. One local computer support person can do everything.
One virtual assistant can do many things. One software program can help manage multiple tasks. Ideally, you just juggle the balls and make sure it gets done without doing all the work yourself.
6. Income from Skills
If you’re married, you each naturally have various skills. Why not put them both to use should you desire? Larry dreamt of teaching people to trade securities one day based on his long term career.
I enjoy providing financial coaching services, writing about investing and income streams, and managing many elements of our financial education online businesses. We’ve even brought our sons into various parts of our income streams. This has all kinds of benefits, including spending time together, education for them, and financial benefits.
A powerful reality is that it can be a real lifesaver to have more than one income stream when you need it. Let the amount of capital you have, your interests, skills and financial goals be your guide.
Balancing Your Money, Life and Financial Goals
Enjoying your life is probably the primary goal of all of income and wealth creation. It’s important to have the money to live comfortably, but it’s important to have time for the important things in your life.
The amount of capital you have, however, is the starting point to define your options. In other words, if you have enough money in your investment account so that you only need to manage your investments, being a good income investor is an option for you, fortunately. You may need to do no more than manage your wealth.
Investing is all my father did eventually, for example. This was an option given the 25% tax free interest he was able to lock in with municipal bonds. Having said that, his “one thing” was being a good investor, but he also worked full time until his late 50’s, so he was combining passive with active most of his life.
He preferred stock and bonds investing to real estate investing; he focused on the one thing, but this was outside of his full time work until his early retirement. Then he spent more time on investing, and golfing.
Not every economic period, however, is so income generous at the early 1980’s, as we see now with terribly low interest rates. Most investors need simply another income stream outside of traditional assets given the low yields from stocks and bonds.
Fear of Failure
Once people move beyond the huge disbelief hurdle that they can truly create alternative income streams to, at a minimum, add extra income, fear of failure begins.
Fear of failure holds many people back from creating income streams beyond traditional stocks or bonds because most people like to do things the “normal” way. This leads them to ask, “What if I try and fail?”
The reality is that almost all entrepreneurs (and investors) have made numerous mistakes before their successes. Walt Disney, for example, was turned down hundreds of times before he got financing for Disney World. Countless others had made big mistakes before success, including Thomas Edison, Bill Gates, J.K. Rowling, and even Bill Gates.
Notorious investor and one of the richest people in the world, Ray Dalio, shares in his book Principles that he made many mistakes losing millions of his client’s money.
Alternative Income Streams Is “Different” for “Normal” People
Friends and family often chime in about your income generating activities because it’s “different”, adding to the lack of confidence. People understand stock dividends, writing a book, or maybe even buying a franchise, but they don’t understand why anyone in their right mind would expose themselves on a YouTube channel or host a webinar.
Interestingly, Joanna and Chip Gaines fame began with Joanna’s blog about their real estate adventures and lifestyle. Now it’s no longer weird, it’s brilliant. The same can be said for thousands of other bloggers, You Tubers and pod casters.
I’m not saying that online businesses are for everyone, they are not. But it has been a fun and successful way to create income streams for us. This is because it fit within our goals and skills. In hindsight, we see this more clearly, and we would have probably begun with online businesses even earlier.
Thanks Shark Tank
With the popularity of shark tank, starting an online business has become less odd, especially with the millennial’s and under. (Click here if you want to read my article on whether it’s too late to start an online business.) While shark tank is inspiring, for the most part, the businesses that we see there are much more work with less flexibility than our smaller scale income stream endeavors. Those shark tank investors want business owners who work long and hard.
When I began the process to meet our retirement income goal with alternative income streams, it felt risky, because it is outside of the norm. I asked myself “Which one is riskier; Doing nothing to generate income streams or giving it a go?” I knew if we limited our risk, we’d be okay. This meant that the downside was limited and under our control, while the upside could be fantastic. It’s turned out pretty good.
Retirement Income Goal Reality
Having significant multiple and often passive income streams just seems too good to be true, since employer based hard work (often with a long commute and travel), saving and investing in stocks and bonds have been the envied mainstream retirement plan. And this traditional retirement plan can still work well given decades to work, save and compound wealth.
The reality is that most people in their late 40’s, 50’s and 60’s need “catch up” wealth building strategies. If at least some of these wealth strategies generate income streams, investors can reach their retirement income goals that they previously thought were impossible. (Click here to read my article with 33 Wealth Building Steps.)
My true belief is that skill based income streams are the answer for the millions of people who do not have enough money saved to reach their retirement income goal due to occasional, but devastating bear markets, and extremely low interest rates. Very humbly, and with much gratitude, I write this based on our income stream adventures over the past decade which did, in fact, exceed our retirement income goal.
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