Give yourself the gift of a lifelong pension through passive income. It is possible!
Though it was common enough just a few decades ago, the idea of an employer-funded pension plan in this day and age is almost laughable. Very few employers offer a pension plan outside of the government or labor unions, and few MDs meet either of those criteria.
That means that most of us in the medical field will have to find an alternative to an employer-funded pension. Thankfully, there are several options out there that end in a steady monthly income that can carry you through your golden years.
What Is a Pension?
The term pension refers to a retirement fund that provides a monthly income. Traditional pensions are funded by an employer or the government, though it’s more common today that pensions are self-funded by the retiree.
Options for a Passive Income Pension
There’s no one right way to set yourself up with a monthly income for life. Here are a few options, some that follow a path similar to a traditional pension and some that offer more independent solutions to reliable retirement income.
Establishing Your Own Pension
Without access to a traditional pension, many retirees who have saved for retirement opt to purchase an immediate annuity. With this option, you hand over a chunk of money (retirement savings) and you’re guaranteed monthly payment for the rest of your life, even if you outlive your money. The idea of insurance is nice with this option, but the fees and red tape that come along with them serve as a deterrent for many.
You can also set yourself up for a steady retirement income by investing in more common retirement funds like a 401K or IRA, then set up a systematic withdrawal so that you can receive a steady monthly income.
However, saving enough to live a cushy retirement can be difficult, even on a doctor’s wages. We’ve seen the prices of everything continue to rise in the past couple of decades, but we haven’t seen the wages rise enough to level it off. Oftentimes even doctors are strapped for cash, and that can make putting money back for retirement seem like a pipe dream.
That’s where your passive income comes in, but you’ve got to get to work earning it sooner rather than later. That ‘extra’ money you’re earning from your passive income streams, whether they’re from real estate or some other avenue, can be sent to your retirement savings to eventually become your pension, whether it’s a pension in the traditional sense or monthly income from your investments.
Keeping Your Passive Income Streams Running into Retirement
People retire because they’re ready to not work so much, whether it’s because work in their profession is too taxing for their age or because they’re ready to enjoy life without being tied down by a job. Passive income has the benefit of bringing money in but without most of the issues that come with a regular job. Using passive income to supplement retirement savings can help retirees get the best of both worlds.
There are some types of passive income that are ideal for retirees. For instance, rental properties are a great option because you can make them more ‘passive’ by hiring a property manager and they come with monthly income.
But Passive Isn’t Really Passive, Is It?
It’s true. Passive income, based on my own take on the term, isn’t 100%, totally passive. It still requires some work. However, when if you’ve planned and strategized with a leisurely, retired future in mind, it’s certainly possible to continue to bring in steady money every single month without outlaying too much time or effort.
There are a few pros to real estate as a passive income strategy in retirement. First off, it generally continues to increase in value over time, building up your equity so that you’re continuing to build wealth simply by keeping a hold of the investment. Second, it’s rarely difficult to unload your real estate investments if you need a sudden influx of liquid assets. Third, rent payments offer that steady flow of monthly payments that many retirees are looking for.
Pensions and Inflation
Obviously, a guaranteed monthly income sounds amazing, especially if it will cover living expenses. However, it’s important to note that even with a solid pension in place, many pension plans don’t account for inflation, which could be a serious concern, especially with the inflation rates we’re seeing now.
That inflation is just one more reason why keeping passive income streams going throughout retirement is ideal. Real estate investors can even benefit from inflation.
Give yourself the gift of a lifelong pension by adding passive income like real estate to your retirement portfolio. You’ll not only be able to increase your net worth, but you’ll also be able to continue earning even after you’ve retired.