Investing for passive income

M

Midtown

Registered User
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31
Maybe this is better off in the investments forum, or shooting the breeze.
Inspired by the other thread on this subject but to a far smaller scale I wanted to pose a question.

If someone is fed up of corporate world and has decided on a complete lifestyle change and had a lump sum of 300k to invest, is there a relatively low risk way to invest long term for passive income?
Interested in your thoughts.
 
What's a "complete lifestyle change" in this context?
Giving up paid work altogether?
Career change?
Retraining/back to education?
Something else?

What's your annual expenditure?
 
Also, whats the timespan ? A 45 year old can expect to live another 40 years. How long is this passive income expected to last ?
 
ClubMan said:
What's a "complete lifestyle change" in this context?
Giving up paid work altogether?
Career change?
Retraining/back to education?
Something else?

What's your annual expenditure?
Click to expand...
I think like a lot of people our annual expenditure has expanded to income over the years but a lot of it is discretionary. Our current expenditure is artificially high - I hold a global role and am renting a foreign property and incurring the expenses that go with that. My role has been quite stressful and by complete lifestyle change I mean the classic escape the rat race desire. I've been in this industry for the last 20 years.
I don't want to not work, I would love to learn a new skill or do some voluntary work - maybe get involved in a startup. We are fortunate that my wife enjoys her career and we can get by on her income.
I was thinking of filling out the money makeover template but to be honest my specific circumstances are pretty complicated so I thought better just to ask the general question!
 
It's very difficult to give specific feedback on such a general and vaguely constrained case. Sounds to me that a money makeover submission would make more sense.
 
Well, 43 to say 68 is 25 years, so 300k will give you 12k per annum - although 12k in 25 years time will not buy anything like 12k today

Passive income with little risk (say savings account) should give you 1% pa over the 25 years so say about 1.5k after tax - you could probably start drawing 7-10k per annum and see how long you get by with that
 
OK here goes, I’m not sure I have a specific question more just interested in thoughts.



Age: 43
Spouse’s/Partner's age: 41

Annual gross income from employment or profession: 200k, 100k bonus
Annual gross income of spouse: 145K



Type of employment: Permanent, foreign posting

In general are you:

(b) saving?

Rough estimate of value of home: 500K
Amount outstanding on your mortgage: 120k, home is currently rented out while on foreign posting. 1800 pm rent

What interest rate are you paying? 3.3%

Other borrowings – None

Do you pay off your full credit card balance each month?
Yes

Savings and investments: c.350k Cash on deposit (kept for potential purchase deposit of foreign property)

Do you have a pension scheme? Yes me small DB from former employer, DC c.275k, wife small DC c.100k, small US 401k c. 80kUS

Do you own any investment or other property? Yes, former ppr – value 400k, mortgage o/s 240k@3.8%, 15 years left rented to same tenants for 7 years 1800 pm.

Ages of children: twins 12 years old

Life insurance: Mortgage protection on ppr and investment prop. Death in service x 4 salary both of us. Term life insurance 1m both lives.



Other expenses:

6000 pm rent US. Other living expenses similar to Irl.


What specific question do you have or what issues are of concern to you?

Not sure I have a specific question. I work for a multinational company and took up a global role moved to the US. We decided to try this rather than turn down the offer and made the decision as a family. This was our second international move (first was a fixed term 3 year assignment). Deep down I think I was starting to burn out before moving over. I am not fulfilled in my career, I feel like I want to escape the rat race and have felt so for a few years. I’m good at what I do but can’t say I enjoy it. My wife can transfer back to Ireland and continue to work, she enjoys her role and we could live comfortably on her salary. I would most likely resign. Our home is self built, dream home no plans to move or change. We have a fairly small mortgage on it and I now it probably makes sense to pay that off. Our former ppr we thought might keep in case our kids need a place for college but maybe better just to sell.

I was considering investing 300k for some sort of passive income.



Caveat – I am not a financial whizz, just kind of lucky in my career, the 300k is not easy come easy go so I would not want to risk losing it.

PS fully tax compliant in Irl and US.
 
Think of the 300k like a pension, the objective of the pension provider is to grow your money so that you can withdraw enough to live on for the rest of your life. How much you need in that pot depends on how long you will live, and how expensive your lifestyle is.

The FIRE (financial independence retire early) generally (I think) talks about a 4% drawdown per year and assumes you could earn a >4% return each year to replace the money you've drawn down. Which equates to 12k a year, I believe their benchmark for financial independence was a pot of 1m.

A rough Asset Allocation for a Pension is
20s: 80-90% Stocks, 10-20% Bonds
40s: 60-70% stocks, 30-40%bonds...
and so on.

This may be slightly more aggressive towards equities given the low yields available in Bonds (in government securities you would want to own).

Probably the best assets to invest in are ETFs in which you can get exposure to both Equities and Bond Markets. If you are in the US at the minute check out a robo advisor like Betterment.com, fantastic product.

Unfortunately based on the details provided I don't think you have enough of lump sum to give up the corporate world tomorrow. However, the positive you are in an extremely strong position to make it a reality by good planning.

My next step in your situation would be to work out what starting lump sum you need and consider that with your existing pensions as you'd need to fund for gaps between employment and pension age. Also read up on the FIRE movement.

Hope that helps a bit
 
Thank you, this is helpful
 
Let's unpick this.

Family home: €500k
Savings: €350k cash
Pensions:€400k
Investment property: €400k
Mortgage on home(120k)
Mortgage on BTL(240k)
Net assets : €1.3m

Wife's annual earnings: €145k
Ages : Early 40s

This is really a career question. But the above information shows that you can do what you want career wise.
  • Change employer
  • Change career
  • Go back to study
  • Do voluntary work at a much lower salary or none at all
  • Mind your kids full-time for a while

So, make your career choice first.

The money decisions follow that.

First of all - don't buy a property in the U.S. as you are not committed to staying there.
So, pay off the mortgage on your home - you get a risk-free, after tax return of 3.3%.
If, for some reason, you don't want to do that, then switch to a cheaper lender or ask your existing lender for a lower rate.
With a rate of 3.8% on the investment property, that is the equivalent of 2% after tax. So pay that off next.

So, now your "passive income" is the interest you save on your mortgage payments.

Brendan
 
Stuff all your pensions with as much as you can. And check what age you can start drawing them down. (Assuming you have Irish income?)
 
Thanks Brendan, good analysis and clear.
 
Pay off the investment mortgage
Then after tax you have maybe 1000 per month

Keep 60k or put some against ppr mortgage
 
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