The Best Income Stream to Start Before Retirement

man planning retirement

If you’re concerned about having enough income to live comfortably in retirement, you may want to start one or more income streams beforehand but you’re not sure where to start.

To choose the best income stream to start before retirement, consider your desired income, eventual capital gain, acceptable risk and lifestyle.

It’s easy to get excited about an income stream when you hear different experts promoting their method as being the best method.

You can quickly become convinced that any one income stream is the best one for you to start so you can move into retirement financially independent.

I’ve been there and done that. I still get lured off track now that I know creating diversified alternative income streams actually work to completely support our lifestyle.

After investing in stocks and bonds for almost 40 years and creating alternative income from real estate and small business for the past 15 years, I’ll share what I’ve learned about the best income streams to start before retirement so you can ease into it.

We began several alternative income streams before Larry stumbled into early retirement in his 50’s (and in my 40’s) and they eventually completely replace job income. We have lived off these diversified income streams from stocks, alternative investments, real estate and online businesses for over a decade now.  

The lessons have not all been easy. I am so excited to share them with you based on my experiences with the humble mission of making your journey easier.

The most important thing is to know that some income streams will work as planned but everything will probably not work as planned.

Start with clarity about what you want, believe you can create it, and keep moving forward even after setbacks, and you’ll get there. It worked for us and it can work for you.  

Like most things here at Retire Certain, it all begins with your wealth plan.

Create a Wealth Plan

The place to begin in deciding the best income stream to start before retirement is with your wealth plan. Your wealth plan will allow you to see, from a big picture viewpoint, what you need to accomplish from a financial perspective as it relates to your net worth and defined risk.

And it will clarify how you want to live so you can enjoy life now and later.

Many of the areas below will refer back to your overall wealth plan.

Click here to read my post How to Create a Wealth Plan as it will be your foundation. Then come back here to assess the best income stream to start before retirement based on what you discover in your wealth plan.

Amount of Capital for Your Income Stream

The amount of capital you want to put into creating an income stream is the starting point in assessing the best income stream for you personally. Defining this will rule out a lot of options and thus save time.

Wealth Building Strategies eBook

Get here for my eBook with our top 9 wealth building income streams with different capital requirements.

Income Streams with Low Capital to Start

For example, these income streams require little or no capital so they can work for any level of net worth:

  • Consulting Income
  • Many Online Businesses Including:
  • Blogs
  • YouTube Channels
  • Facebook Pages
  • Service Based Businesses

To see a list of 115 Businesses to Start Later in Life sorted by amount of capital needed click here.

Income Streams with High Capital to Start

On the other hand, the following income streams are very capital intensive so they will only work for high net worth individuals:

  • Stock Dividends
  • Covered Calls
  • Bond Interest
  • Income from REITs and MLPs

You can read my article How to Get More Income from Your Investments with 44 income stream strategies.

Income Streams Requiring Medium Capital to Start

Some income streams allow you to scale or use leverage, so they don’t need 100% capital to start. Some examples are:

  • Real Estate Rentals
  • Buying an Online Business
  • Online Product Stores

Click here to read my post with the different types of online small business models.

Income Stream Goal

The amount of income you wish to generate will also be an initial factor to rule out many potential income stream options.

Is your goal to make $500 a month or $20,000 a month?

Get clear about how much income you need based on your lifestyle expenses as explained in How to Create a Wealth Plan in case you didn’t do this earlier.

The amount of income will be a factor of the capital invested in most income generating assets with one exception as explained later.

Income from a Million Dollars in Stocks

For example, the income stream generated from stock dividends will be about 3% to 7% annually as of this writing.

Using assuming a generous 5% as the overall dividend yield on a million dollars in dividend stocks, the income is $50,000 a year before fees and taxes.

As you can see, with dividend income streams, the amount of income is a direct result of the invested capital.

The same is true with covered calls, but the income is significantly higher without increasing risk for stock investors. (Here I write more about selling covered calls for monthly income.)

Bonds income streams are also a direct result of the amount of capital invested, although the income is very low relative to historical yields from bonds as of this writing. Click here to read my related article What Are the Risks of Bonds?

But in these examples, these income streams are close to a sure thing. In other words, if you own the stock, the dividend will go in your account unless it is cut or eliminated.

Small Business Income Is Less Certain

On the other hand, income from an online small business is much less certain, at least initially, but the income is not a factor of the money invested.

This is why online businesses can be the best income stream before retirement for someone who doesn’t want the risk from investing more savings in the stock market or bonds.

An investor can start an online business with $100 and generate income of $1,000 within a few months.

This is just one example. The numbers can vary greatly here.

For example, by spending $100 to start an online business, it’s possible to generate $4,000 a month income within a year or two. This is not uncommon, but it does require effort, strategy and a knowing of what works online now as opposed to five years ago.

The point here is that an online business investment can be tiny, and the income stream can be disproportionately and wonderfully large.

Usually, in this case the investment comes from time and not capital, which may not work for someone looking to retire in a few years with full time employment now.

But delegation of work through outsourcing is also very doable these days. This is how we manage our multiple income streams.

My Favorite Income Stream Before Retirement

If it sounds like I only like online business for income streams, this isn’t the case. I think online business are an amazing opportunity.

Those come long only a few times during your adult life when you have money to invest. If you’ve been investing for a while, like me, you probably remember a few of those, right?

But I think it’s safer to create at least two income streams, so risk is lowered from diversification in case one income stream decreases or the asset is sold.

This will be clearer after reading the remainder of this post.

Risk from Income Streams

Some income generating assets have more risk than others. Risk can be related to invested capital or other factors.

Your overall acceptable risk will stem from your wealth plan.

Capital Risk Related to an Income Stream

The first step was to define savings (capital) to be used for generating income. The next step is to address if your lifestyle could possibly be threatened if you lose that capital.

Financial mistakes early in life have plenty of decades for repairing. On the other hand, risk in the years just before retirement warrant very little risk since they can be irreparable. 

A Risky Income Opportunity We Declined

For example, we considered buying two different brick and mortar businesses when we first decided to explore alternative income streams before retirement. Almost our entire investment accounts would have been needed to secure the small business loans.

This risk was way too high for us personally since if the business failed, we would have lost almost all our retirement savings. This led us to real estate rentals initially, and then small online businesses later which we knew nothing about when we began.

But in comparing the fact that there was no investment capital and the high income potential, it made sense to start an online business.

Financial Risk Related to Income Generating Assets

Even though 100% capital may not be tied up in income producing assets, there can still be high risk.

Real estate rentals are a good example of an income stream with higher risk than the capital used to secure the income producing asset.

For example, if you buy a $500,000 fourplex with a $100,000 down payment, you’re still liable for the $400,000 that has been financed plus financing costs.

While the property can be sold if needed, if the property has declined in value, the sale proceeds may not be enough to pay off the mortgage.

On the other hand, a small online business purchase may cost $50,000 or less while having both income and capital gains potential as explained more below.

Once you clarify the amount of capital you want to risk in an income producing asset, you’ll rule out a lot of possibilities.

♦ Wealth Tip – Acknowledge that risk is a choice which investors make.

Income Stream Risk from Cycles

Bear markets present risk for dividend investors and covered call writers.

Recessions hurt businesses and the financial markets.

Cycle risk is a potential threat for almost all income streams and the asset that generates them.

Other Kinds of Risk

Obsolescence, poor management, competition, and liability risks can be present with income producing assets.

On the other hand, a blog and YouTube channel about interior decorating has almost no risk from a liability or investment standpoint unless the channel creator pays someone a lot of money to start the channel and a website (which is unnecessary).

Fortunately, there is insurance and also entity structuring that can alleviate many risks associated with income generating assets.

Capital Gains from Income Producing Assets

The amount of capital gain you’ll want from the income generating asset will guide the best income stream to start before retirement for you personally.

You’re right if you’re thinking: But wait, capital gains build wealth while income pays for your lifestyle plus any savings.

This is true, but most assets can generate income and also capital gains when done strategically. This has been the biggest shift for me since our income stream adventure began.

Wealth Tip – When strategies with capital gains and income generation also have tax benefits, I call this a triple wealth builder since they also lower expenses.

Capital Gains on Securities and Real Estate

Realistically speaking, stocks, bonds, alternative investments (MLP’s, REIT’s, baby bonds, etc.) and real estate can have excellent capital gain potential over several years when they are purchased at or near low valuations relative to historical valuations.

Occasionally, buying income producing assets under anomaly conditions can result in eventual capital gains, too.

You can read more about this in my post How to Build Wealth. 

Small businesses have the highest capital gain potential, but it probably won’t come without some work unless you’re naturally a rainmaker and/or very savvy businessperson.

Wealth Building Step – By choosing an income stream that also has high potential for a capital gain, you can grow your net worth significantly, not just your income.

Selling Small Businesses

You may be wondering if you can sell a small business that you create.

As a general rule, the more passive an asset is, the more marketable it is.

In other words, a consulting business with revenue only from one on one work with the owner is much harder to sell or will sell at a lower multiple than a passive income model.

When choosing an income stream to start before retirement, consider a potential exit strategy if a capital gain is one of your goals. I cannot imagine why it wouldn’t be?

If you’re going to put effort into something, it’s as easy to do something that has capital gain potential as something that doesn’t.

Income Stream Tip – Begin with the end in mind when choosing the best income stream to start before retirement based on your desired outcome.

Time Frame for Income

The next factor to consider is the time frame for which you want to receive income. This may be based around your target retirement date.

If you want to retire at 58, for example, and you’re 57 now, you’ll want your income stream to begin asap so you can get it well established before retiring.

On the other hand, if you want to retire at 60 and you’re 50, you have a decade to establish income streams.

It won’t take that long, but you will have time to lean test a few income stream ideas and get several income streams started before you retire.

Click here to read my post How Many Income Streams Should You Have?

Time to Manage Income Streams

Decide how you want to live after you retire. Do you want to work part time on your income stream? Or do you want passive income streams?

Knowing this will guide you to the best income stream to start before retirement so you don’t end up working too much after you retire.

Many people find retirement mentally boring and desire to work at least a few hours a week. There’s nothing wrong with that.

Do any of the Sharks need to work?

Does Richard Branson need to work?

If you’re at Retire Certain, like me, you probably enjoy the mental stimulation that comes from income generation and investing. That’s not a bad thing.

Desired Lifestyle

Define how you want to live after you retire and start your income stream from that decision.

Do you want to be around other people, or do you prefer to be alone?

Do you want to work from anywhere or do you want to be local?

All the income streams addressed in this post can be done from anywhere. On the other hand, photography services will require your presence.

Neither is wrong. It depends on what makes you happy.

Skills in Creating an Income Stream

If you start an income stream based on skills you already have, if will be faster and easier.

On the other hand, you may be ready to learn something new and different later in life. In this case, it can take longer to start an income stream.

Quite honestly, though, you can spend a week or two learning just about anything nowadays with all the online learning platforms and virtual consultants available.

Plus, you can easily hire and delegate any tasks you want to delegate, even if this means delegating errands or bookkeeping so you can focus on mastering skills needed to start a new income stream.

Interests in Choosing Income Streams

What we like to do tends to get done, and we’re happier doing it.

While I don’t think that your hobbies or passions should be the main driving factor behind the income stream you start first, I think it’s important to consider the things you’ll be doing to generate the income.

For example, if you are thinking of starting a consulting business but you are a complete introvert, this wouldn’t be a good fit. A consulting business will require networking to get clients and working with others to generate income.

On the other hand, if you love financial analysis, creating multiple income streams from securities such as dividend investing or selling covered calls may be great income streams to start before retirement to make a smooth transition.

Summary for the Best Income Stream to Start Before Retirement

By now your head is probably swimming with factors to consider before creating an income stream. This is good for brainstorming.

The last thing you want is to put a lot of effort into creating an income stream that doesn’t meet your lifestyle or financial goals.

Clarify each of the factors here so you’ll know the best income stream to start before retirement for you personally.

Feel free to share this post on social media with anyone who you think may enjoy it. 

Wealth Building Strategies eBook


You can get my free eBook here with our top 9 wealth generating income streams. 


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