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How to Turn $500K Into Passive Retirement Income | Retirement
You’re likely familiar with the phrase “Let your money work for you.” That’s the idea behind the concept of passive income, which means earning money with little or no effort.
In retirement, it’s certainly possible to generate passive income with your investment portfolio. For example, if you want to invest $500,000 to create passive income, you can go about it in several ways, but give it some thought before jumping in.
“Investing $500,000 to generate passive retirement income requires careful planning and consideration of various factors, such as risk tolerance, desired income and investment timeline,” said Walter Russell, president of Russell and Company in New Albany, Ohio, in an email.
Passive or semi-passive income options include:
- Fixed-income securities.
- Dividend-paying stocks.
- Real estate.
- Business or entrepreneurship.
- High-yield savings accounts.
- Hobbies or interests.
Fixed-Income Securities
Bonds offer regular interest payments to investors. This stable income stream requires minimal effort from the investor, making it an attractive option for those seeking steady and predictable returns.
The lower risk associated with bonds, compared to more risky investments like stocks, often adds to investors’ sense of security.
In addition, bonds contribute to a balanced investment portfolio, potentially offsetting some of the volatility inherent in stocks.
Dividend-Paying Stocks
Companies that pay dividends tend to be well-established and show less volatility than others. Frequently, investors seeking reliable dividend income gravitate toward companies with long track records of increasing their shareholder payouts throughout various market and economic cycles.
Stocks with a history of boosting their dividend for at least 25 years are known as “dividend aristocrats.” Those with a 50-year history of increasing shareholder payouts are “dividend kings.”
Those reliable dividend payers are a solid choice for anyone looking to build a dividend-focused portfolio, said Jeff Rose, a certified financial planner and founder of Good Financial Cents, in an email.
Examples of dividend kings, he added, include 3M Co. (ticker: MMM) and Procter & Gamble Co. (PG), whereas dividend aristocrats include companies such as McDonald’s Corp. (MCD) and Walmart Inc. (WMT).
“Investing in these stocks means backing businesses that have demonstrated strong financial performance and resilience over time, which is a positive indicator for future performance, although it’s not a guarantee,” Rose said.
Best Mutual Funds and ETFs for Retirement Today
| Mutual fund or ETF | Expense ratio |
| Vanguard Target Retirement 2025 Fund (ticker: VTTVX) | 0.08% |
| Vanguard LifeStrategy Conservative Growth Fund (VSCGX) | 0.12% |
| iShares Core Moderate Allocation ETF (AOM) | 0.15% |
| iShares TIPS Bond ETF (TIP) | 0.19% |
| iShares 0-3 Month Treasury Bond ETF (SGOV) | 0.07% |
| Vanguard Wellesley Income Fund Investor Shares (VWINX) | 0.23% |
| Vanguard Wellington Fund (VWELX) | 0.25% |
Real Estate
Renting out a house or apartment is a common way of generating income, although calling it “passive” may be a misnomer. Repairs and maintenance, sometimes at inconvenient hours, can take a toll on a landlord. Retirees, in particular, may not want to take on property maintenance chores.
Investors could explore options such as real estate funding, said Kristopher Whipple, partner at Kristopher Curtis Financial in Nashville, Tennessee, in an email. That’s a truly passive option that involves getting a return on investment without having any responsibility for finding tenants or maintaining a property.
“Clients and friends have invested in real estate funds and have created a consistent income for years,” he said.
Business or Entrepreneurship
Businesses can generate semi-passive income by using systems that operate with minimal ongoing effort. That often means online businesses, such as those with automated sales funnels or subscription models. Investing in income-generating assets, such as laundromats or vending machines, can also offer semi-passive cash flow.
“If someone’s got $500,000 to put into a business, first off, we’ve got to make sure they’re OK if that money takes a walk,” said Rose, who offers training for online business owners.
Investors should be comfortable losing the amount of money they put into a business without it ruining their finances, Rose said. In retirement, that’s a critical consideration, as there’s less opportunity to earn back a significant amount of money that’s been lost.
“If they’re sitting pretty with a solid net worth, diving into a business venture could be a cool move,” Rose said. “It’s about knowing they can handle the ups and downs that come with putting a big chunk of change into a business.”
High-Yield Savings Accounts
High-yield savings accounts frequently offer daily compounding. This means depositors collect interest on their money every day. Over time, that’s a better return than deposits would generate in a regular savings account, which compounds interest monthly.
The combination of accessibility and higher returns means a high-yield savings account is a strategic choice for many people looking to preserve and grow their money while also having easy access to their funds.
Hobbies or Interests
“If a client needed or wanted to generate some income without getting a traditional job, I would ask them what their favorite hobbies are,” Whipple said.
“With websites like Etsy or Fiverr, you can create services or products that others may be interested in buying,” he said. “Finding a unique way to generate some income has become quite simple.”
For example, someone who owns an unusual piece of equipment or has a unique skill may be able to generate income without too much effort.
“I just purchased some stationery from Etsy from a gentleman in Connecticut who owns a 1960s letterpress machine from Germany,” Whipple said. “I gladly paid him $27 for the stationery that has my name on it.”
Whipple adds that someone who loves calligraphy or photography can offer wedding invitations or sell pictures of nature or portraits.
“Another option could be to find a local farmers market if you are interested in selling your own coffee beans, homemade bread or even artwork,” he said. “I am a huge believer that in semi-retirement, find something you love to do and find a way to generate some extra cash or income.”
