- I want to retire soon as a millionaire and I know I will need passive income to support myself.
- Financial planners say their millionaire clients often have income from rental properties.
- They also use Social Security strategically and invest in businesses that offer cash flow.
As someone who didn’t get serious about retirement planning until I was in my 30s, I found myself playing a catch-up game. Not only am I contributing to my SEP IRA monthly, but I’m also always looking for additional ways to build my
so I can retire early as a millionaire.
If I can achieve that goal, I want to make sure that when I retire, I have passive income to support my lifestyle and cover my bills. In an effort to learn how today’s retired millionaires make money without working full time, I asked financial advisors to share how their clients earn passive income. These are the three most common forms.
1. Rental and investment properties
There are plenty of advantages that come with owning an investment property. That’s why financial planner Darren Colananni says it’s one of the most common passive income streams among millionaires.
Colananni says that having homes that are rented year-round, or most of the year, can receive not only a steady stream of income, but can also have tax benefits.
“You can take a rental income tax deduction by depreciating the property,” which means deducting the cost of buying or improving a rental property., Colanani says. You can also use any expenses (including your mortgage, utilities, normal repairs, etc.) to help offset income from your rental property by deducting it from your own personal tax obligations. “This means that a portion of the income comes to you tax-free while you continue to build equity in the property,” he says.
2. Social Security, strategically collected
According to financial planner Scott Sturgeon, a passive income stream that most working Americans earn when they retire, Social Security, is one that millionaires also rely on. He says that while Social Security is a common income stream, there’s usually a strategy that needs to be put in place when a person starts taking the cash.
“Planning for Social Security can get surprisingly complicated,” says Sturgeon. “For my clients, I run various analyzes to determine when the optimal time might be to initiate those payments based on their specific financial situation.”
Although you can begin receiving your Social Security retirement benefits at age 62, if you wait to receive payments until you are 70, the amount you receive will increase. This will not help me if I withdraw earlybut I can count on later in life.
3. Invest in a business
Even once his millionaire clients stop working full time and retire, financial adviser Brian See has noted that they are still involved in business as investors.
See says that clients invest in businesses in many different ways, from investing in startups to providing a capital injection to a company.
“Investing in these businesses gives you ownership of a business with the opportunity to potentially access royalties, profit sharing, or the opportunity to sell the businesses for
at a possible future date,” says See.