I didn't get serious about planning for retirement until I was 30 years old, so now I'm playing catch-up. I put money into my SEP IRA retirement account every month, and I'm always looking for other ways to increase my net worth so I can retire early as a millionaire.
If I can reach that goal, I want to make sure I have enough passive income when I retire to pay my bills and keep up with my lifestyle. I asked financial advisors how their clients make money without working full-time so I could find out how retired millionaires make money without working full-time. Here are the most common three ways.
1. Homes for rent and properties for investment
Having an investment property comes with a lot of benefits. That's why Darren Colananni, a financial planner, says it's one of the most common ways for millionaires to make passive income.
Colananni says that people who rent out their homes year-round or for most of the year can not only get a steady stream of income but also get tax breaks.
Colananni says, "You can get a tax break on the rental income by depreciating the property." This means that you can deduct the cost of buying or fixing up a rental property. You can also deduct any costs (like your mortgage, utilities, normal repairs, etc.) from your own taxes to help balance out the income from your rental property. "This means that some of the income is coming to you tax-free while you continue to build equity in the property," he says.
2. Collecting Social Security in a smart way
Financial planner Scott Sturgeon says that millionaires also count on Social Security, which is a passive income stream that most American workers get when they retire. He says that Social Security is a common source of income, but that most people should have a plan for when to start taking the money.
"Planning for Social Security can get surprisingly hard," says Sturgeon. "I run different analyses for my clients to figure out when the best time might be to start making those payments based on their particular financial situation."
Even though you can start getting Social Security retirement benefits at age 62, the amount you get will be higher if you wait until age 70. If I retire early, this won't help me, but I can count on it in the future.
3. Putting money into a business
Brian See, a financial advisor, has seen that his millionaire clients still invest in businesses after they retire and stop working full time.
See says that people invest in businesses in many different ways, such as by putting money into start-ups or giving a business a cash infusion.
"If you invest in these businesses, you own a piece of the company and may be able to get royalties, a share of the profits, or the chance to sell the businesses for a profit in the future," says See.
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