How would you plan to create a 'passive income'?

bostonerimus

csgohan4 said:

bostonerimus said:

I had a 10 year plan to create a retirement income portfolio. Here's what I did.

1) I took a job with a DB pension.
2) I aggressively paid down the mortgage on my house and a rental property.
3) I used all the tax advantaged investments I could and put the money into a bond and equity tracker portfolio.
4) I made sure I had no high interest debt and went over my budget to understand my spending and make savings.

As you can see half of my strategies are not about producing income, they are about lowering my need for income.

The result was that I retired at 54 and the DB pension and rental now provide $40k/year which is more than enough for me to live on. This income is largely decoupled from the stock market so I can stay aggressive with my investments. I now have a mid seven figure index tracker portfolio that I don't actively manage that has seen significant growth over the last few years. It produces a passive income of between 2% and 3% mostly from large cap dividends. I reinvest some of it and the rest is given to charity and my nieces. In a few years, US social security and UK state pension will generate another $40k.

I think the key is to have diverse income sources that can take you through bad times.  As an example during Covid my tenant wasn't able to work so I cut her rent in half for a few months so she was able to afford it on unemployment. I could afford to do that because of the DB pension and my other investments.

Never all eggs in one basket is a good example you have, Spread your investments and hammer that debt where needed. 

Some people on her chose to have I/O mortgage as their investments made more than the interest lost to the lender is another extreme. 

Personal preference but good to diversify income


How do you split your pension? In terms of Wp, Income, growth ?

Obviously I have no control over the DB pension, it just gets deposited into my bank account each month. For my DC pension and regular accounts I haven't changed much from when I was working. I use a couple of total stock market equity trackers to give me global exposure and have a multi-asset income fund that I mostly use for my bond allocation - I'm 80% equities. If I ever take income from them the 2%-3% natural yield is plenty, but it's mostly a growth portfolio and total return is how I always planned to use it, but as my other plans worked out I don't need to do that.

Thrugelmir

In 10 years time , annuities may well (again) provide a solid foundation to underpin a guaranteed income. Rates have recently started to edge upwards. 

bostonerimus

Thrugelmir said:

In 10 years time , annuities may well (again) provide a solid foundation to underpin a guaranteed income. Rates have recently started to edge upwards. 

Yes, guaranteeing a certain minimum income with an annuity is a good idea, it's just that annuities are such bad value right now. I would set up a short term bond or saving account ladder right now rather than an annuity and hope for rates to increase in 5 or 10 years time and then do a partial annuitization.

kuratowski

Yes I can't imagine buying an annuity in my 50s or 60s, however at age 75 it is something that bears consideration.  One site told me my life expectancy would be around 90, but of course the risk exists of living far longer, so a guaranteed income for life still seems worthwhile at age 75.

In advanced old age, do you still want to be worrying about/managing a drawdown fund.

It could be different of course, if you are hoping to bequeath your drawdown pot intact to your heirs.  But as we don't have any children (and OH has a generous public sector defined benefit pension) that's a concern not in my case.

Sea_Shell

kuratowski said:

Yes I can't imagine buying an annuity in my 50s or 60s, however at age 75 it is something that bears consideration.  One site told me my life expectancy would be around 90, but of course the risk exists of living far longer, so a guaranteed income for life still seems worthwhile at age 75.

In advanced old age, do you still want to be worrying about/managing a drawdown fund.

It could be different of course, if you are hoping to bequeath your drawdown pot intact to your heirs.  But as we don't have any children (and OH has a generous public sector defined benefit pension) that's a concern not in my case.

This is something we'll bear in mind too.    Will we really want to be managing our pots in the way we do in our 50s and 60s, once we get into our mid to late 70s?

We also don't have children, so we're not overly concerned about leaving a whopping great inheritance.

csgohan4

The other concern is, how will we manage our portfolio, which by the time one retires is going to significant. 

Worse is, if one develops dementia, your partner has no clue about investing, your portfolio then just drifts up/down and left to the Gambling gods. 

Would you consider liquidating your portfolio when you get to your 80's and park it in cash ISA to ensure it is cleaner and easy access? given life expectancy, locking your money to ride the up and downs can take 10years or so, it would be moot at 80+ years old

I personally will be putting more money into WP/ income than growth as the years go by above 70 years with a view to withdrawing completely from the market by late 70s/ early 80

Seeing the threads on here about getting probate and getting access to ISA accounts and their investments, it will become a major headache and will be time consuming and likely costly possibly. Least if it's all in Cash ISA, it will be a simple transaction, assuming maxed out PB as well. 

Malthusian

csgohan4 said:

Would you consider liquidating your portfolio when you get to your 80's and park it in cash ISA to ensure it is cleaner and easy access? given life expectancy, locking your money to ride the up and downs can take 10years or so, it would be moot at 80+ years old

Although a lot of 80 year olds who've managed to accumulate an investment portfolio don't take the view that the universe will cease to exist when they die. So often the timeframe extends beyond their life expectancy.

Seeing the threads on here about getting probate and getting access to ISA accounts and their investments, it will become a major headache and will be time consuming and likely costly possibly. Least if it's all in Cash ISA, it will be a simple transaction, assuming maxed out PB as well. 

Cashing in investment accounts isn't really any more complicated than cashing in a cash ISA of equivalent size. There may be a few more decisions to make (e.g. cash in or transfer the shares to the beneficiaries) but nothing that should be beyond a competent executor. Selling the house is the biggest headache for most estates, and nobody sells their house and rents just so they can make their executor's job easier.

It shouldn't be any more costly than the costs you'll pay anyway by selling the investments to dump them in a cash ISA.

csgohan4

Malthusian said:

csgohan4 said:

Would you consider liquidating your portfolio when you get to your 80's and park it in cash ISA to ensure it is cleaner and easy access? given life expectancy, locking your money to ride the up and downs can take 10years or so, it would be moot at 80+ years old

Although a lot of 80 year olds who've managed to accumulate an investment portfolio don't take the view that the universe will cease to exist when they die. So often the timeframe extends beyond their life expectancy.

Seeing the threads on here about getting probate and getting access to ISA accounts and their investments, it will become a major headache and will be time consuming and likely costly possibly. Least if it's all in Cash ISA, it will be a simple transaction, assuming maxed out PB as well. 

Cashing in investment accounts isn't really any more complicated than cashing in a cash ISA of equivalent size. There may be a few more decisions to make (e.g. cash in or transfer the shares to the beneficiaries) but nothing that should be beyond a competent executor. Selling the house is the biggest headache for most estates, and nobody sells their house and rents just so they can make their executor's job easier.

It shouldn't be any more costly than the costs you'll pay anyway by selling the investments to dump them in a cash ISA.

Just curious, will the transferred investments be in addition to the recipients ISA contribution amount? I.e if I already have 20k in S+S ISA and deceased parent left 100k in investments. Would I not incur tax? IHT? 

Malthusian

csgohan4 said:

Malthusian said:

csgohan4 said:

Would you consider liquidating your portfolio when you get to your 80's and park it in cash ISA to ensure it is cleaner and easy access? given life expectancy, locking your money to ride the up and downs can take 10years or so, it would be moot at 80+ years old

Although a lot of 80 year olds who've managed to accumulate an investment portfolio don't take the view that the universe will cease to exist when they die. So often the timeframe extends beyond their life expectancy.

Seeing the threads on here about getting probate and getting access to ISA accounts and their investments, it will become a major headache and will be time consuming and likely costly possibly. Least if it's all in Cash ISA, it will be a simple transaction, assuming maxed out PB as well. 

Cashing in investment accounts isn't really any more complicated than cashing in a cash ISA of equivalent size. There may be a few more decisions to make (e.g. cash in or transfer the shares to the beneficiaries) but nothing that should be beyond a competent executor. Selling the house is the biggest headache for most estates, and nobody sells their house and rents just so they can make their executor's job easier.

It shouldn't be any more costly than the costs you'll pay anyway by selling the investments to dump them in a cash ISA.

Just curious, will the transferred investments be in addition to the recipients ISA contribution amount? I.e if I already have 20k in S+S ISA and deceased parent left 100k in investments. Would I not incur tax? IHT? 

ISA status is lost on death. I.e. if someone dies with a stocks and shares ISA their beneficiaries inherit unwrapped funds or cash. There is an "inherited ISA allowance" for spouses but not for parent->child inheritance.

If all your parent left was £100k their estate would almost certainly not pay IHT as between £325,000 and £1 million is free of IHT (depending on whether they inherited any nil rate band from spouse(s) and whether they qualified for the residential nil rate band).

csgohan4

Malthusian said:

csgohan4 said:

Malthusian said:

csgohan4 said:

Would you consider liquidating your portfolio when you get to your 80's and park it in cash ISA to ensure it is cleaner and easy access? given life expectancy, locking your money to ride the up and downs can take 10years or so, it would be moot at 80+ years old

Although a lot of 80 year olds who've managed to accumulate an investment portfolio don't take the view that the universe will cease to exist when they die. So often the timeframe extends beyond their life expectancy.

Seeing the threads on here about getting probate and getting access to ISA accounts and their investments, it will become a major headache and will be time consuming and likely costly possibly. Least if it's all in Cash ISA, it will be a simple transaction, assuming maxed out PB as well. 

Cashing in investment accounts isn't really any more complicated than cashing in a cash ISA of equivalent size. There may be a few more decisions to make (e.g. cash in or transfer the shares to the beneficiaries) but nothing that should be beyond a competent executor. Selling the house is the biggest headache for most estates, and nobody sells their house and rents just so they can make their executor's job easier.

It shouldn't be any more costly than the costs you'll pay anyway by selling the investments to dump them in a cash ISA.

Just curious, will the transferred investments be in addition to the recipients ISA contribution amount? I.e if I already have 20k in S+S ISA and deceased parent left 100k in investments. Would I not incur tax? IHT? 

ISA status is lost on death. I.e. if someone dies with a stocks and shares ISA their beneficiaries inherit unwrapped funds or cash. There is an "inherited ISA allowance" for spouses but not for parent->child inheritance.

If all your parent left was £100k their estate would almost certainly not pay IHT as between £325,000 and £1 million is free of IHT (depending on whether they inherited any nil rate band from spouse(s) and whether they qualified for the residential nil rate band).

This is where it gets complicated. Therefore I would be subject to CGT from the day  I would own those shares.  I suppose not  a bad thing if their giving you a substantial amount, albeit in shares unwrapped, as it's still money. 

IHT would be a different thing as well tax wise.  I assume the value would be garnered from the day the deceased passed away? 

Certainly something to think about now, than forgetting about it when I am much older