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Should I live off passive income only?

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  • Should I live off passive income only?

    I continue to work and generate a great salary.   I spend less than I earn.  Also my investment income now exceeds by current annual expenses.  That is wonderful obviously and meets a common definition of FI.  Ok, so now what?  I don't want to stop working.  I can reinvest all of my investment income as I have been doing, plus live on less than my salary and continue to invest that difference as well.  Recently I thought of a different -maybe weird- plan.  I could save or invest 100% of my paycheck and just live off my investments.  I haven't thought through the tax implications but I'm collecting dividend income already since most of the assets are in taxable accounts.  It might be an interesting "trial" of what retirement would be if I ignore my paychecks.  Thoughts?  What do you guys do or plan to do when your passive income exceeds your expenses?  This might be a good question for the Passive income MD site as well.

  • #2
    Money is fungible, so it makes no difference where your spending money is coming from as long as you're not taking out money from investments that wouldn't flow normally. Don't rob your 401(k) or sell funds unnecessarily while in a high tax bracket. You're obviously in a great position, and it's cool that you continue to enjoy your career with no intention of slowing down.

    I have turned off automatic reinvestments in my taxable account, so that I can redirect the money to the fund I want it to be invested in. The main reason I do this is to minimize the likelihood of a wash sale before or after tax loss harvesting.

    There's really no additional tax implication to collecting your dividends / passive income since you're already being taxed on it. Of course, the money will start to pile up, and you'll want to invest money from your paychecks. Just as it doesn't matter where you're spending money comes from (when choosing between passive and active income), it doesn't matter where your investing money comes from.

    Does that make sense?






    • #3
      It does not matter where the money is coming from as long as you invest it. Don't touch IRA or 401K investments Live off dividends and invest the paychecks or reinvest dividends and live off paycheck, whichever gives you decent lifestyle and maximum savings

      I have had DRIPS since 1990 (dividend reinvesting programs). In those days you could get 1 share of a US stock for that day's share price + $4 fee. It was run by a small company. Enroll in the DRIP program and buy more shares. Thus I saved the $49-$99 fee charged by brokers to buy a stock. The only caveat was that I had to sell a share of the company for its price plus $4 fee given to me, if and when another member asked for it.

      Using this method I have reinvested my dividends in many high quality US stocks, bought additional shares for cash and seen my shares accumulate. If share price is down I get more shares every quarter and if the share price is higher I get less. Since I have held it for so long, when I sell it I will pay long term capital gains tax. Quicken calculates the cost basis for the stock. I can always stop automatic dividend reinvestment and have it sent to me and use it to buy a different stock. But being a procrastinator that I am it will most likely lie with me unused; therefore I am contusing the DRIP.



      • #4
        Interesting and of course awesome. Do you have or are you able to participate in a defined benefit plan? If you can maybe you can really crank up some additional savings tax deferred.

        You could cut back and try to do other things you like of course, maintaining the balance you enjoy if its not already at that level.


        • #5
          My passive income exceeds my 3 day/ week income.  I live off the work income and reinvest the passive.  I will probably just live off dividend and interest when I quit because I think I can and it will be easy.  I agree with POF that money is fungible so total return cheese slicing works as well. Kamban I used to drip with individual stocks but I do mainly indexes now.


          • #6


            I was aggressively into DRIP stocks till about 2000. I have not bought any new stocks since then but have continued to let the DRIPS run. Many of these companies spin off parts of them as different companies ( eg. Pepsico spun off Yum ) some merge with others and I get shares of those, sometimes they go private and I am forced to accept cash for those shares and so on. I now have 30-40 individual stocks in different sectors. My initial forays in mutual funds in 1990 have not done well and thus I have not gotten into it, though I did get Vanguard index for my daughter with my annual $14K gift money.

            I am now into private real estate investments that give decent returns and use the bank's money to improve my returns


            • #7
              Yeah 1st reply hit the nail on the head with the term "fungible."

              It's all money.


              • #8
                Just wondering what type of passive income you guys have that are exceeding your work center shares? stock dividends? rental income?  royalties? would like to get in on some of that action so I could be in that boat  


                • #9
                  As your nest egg increases it throws off passive income.  My passives are just plain vanilla dividends and muni bond interest.  No rent or royalties.


                  • #10

                    Just wondering what type of passive income you guys have that are exceeding your work incomes…surgery center shares? stock dividends? rental income?  royalties? would like to get in on some of that action so I could be in that boat  ?
                    Click to expand...

                    As in everything else in life it depends

                    1. As you get older and yours savings have grown over the decades, the amount of income it generates in dividends/ interest increases.

                    2. You might also have cut down the amount of hours later on in life and your income also decreases proportionately. The insurances might have cut reimbursements and this also decreases your income. I work only 4 days a week and Medicare payments are less than half of what it was in 2007. My work income is 1/4 of my peak income of 2008.

                    Other than dividends that is reinvested I also invest with a group that builds and runs motels / hotels. This is usually a closed group that is difficult to break in. And the per person investments are in the range of $200-600K per property, depending on its brand. And one has to trust the others that you do not get ripped off. But if you do get the right club that admits you the returns are very good. You get regular distributions when the property is up and running. When the value of the property increases in 5-7 years time it gets refinanced and you get the most of the money back. At the time of sale you might not get back much but over the years you get the principal and ~8 % return. Basically you are using the 60-70% bank borrowing to improve your return.


                    • #11
                      One great option is to just buy index funds. My approach is a little different. My asset allocation is 40:40:20. The 20 is "other." In that I have had "multiple streams of income." Examples: commercial real estate, rental house, municipal bonds, a senior living development company, a private company that prints industrial labels, medico legal consulting, public speaking, hospital/ surgery center ownership, equity in an early start up tech company.


                      • #12
                        Wow, congrats! Sorry just saw this thread, a little late to the party 

                        My goal is to actually get where you're at. I could possibly be there with my current amount of passive income but unfortunately I haven't quite figured out how to reduce my expenses. Maybe part of me doesn't want to because I enjoy my current lifestyle (which isn't extravagant but isn't super frugal either.) So I'm trying to reach a point where my passive income exceeds my current expenses.

                        The key here is that you have choices! No one says when you hit FI you have to quit, especially if you enjoy what you do. What does your ideal life look like? For me, that's working 1-2 days a week and enjoying the rest of the time with my family and friends. So as my passive income has grown, I've started to reduce my day-job hours little by little. Sure, I could just continue to work as hard and put in the same time in my doctor day-job and I'd be making more and saving faster, however, my end point is to enjoy more of life now, not just when I'm 65.

                        So I'd say start by figuring out how to shift and allocate your time to the ideal balance between work, family, play, etc. You've done the hard and smart work of saving and investing. You've technically already reached FI, sounds like you'll continue to work, your investments should continue to grow more fruit, and therefore you should have more than you need moving forward, as long as you don't excessively bump up that lifestyle.

                        Sorry not a technical answer like some others and maybe some wouldn't agree, but I guess to sum it up, I'd suggest start buying your time with the passive income you make by reducing your time at work and keep doing what you're doing with your investments.