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How To Retire Early With $50,000 Passive Income (3 Easy Ways)

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“Want to retire early by 40 or 50 with $50,000 passive income per year?”

Retirement planning needs time to prepare and execute. And if you are in your 20s or 30s, it is the best time for you to prepare for your early retirement.

Getting $50,000 passive income per year for your retirement may sound like a lot, but it is actually pretty simple. If you know how.

Almost everyone who is of the average income can achieve creating $50,000 passive income per year.

Read Also: How to Create Passive Income With Your Expertise?

How To Retire Early With $50,000 Passive Income

In order to choose the best way to earn $50,000 passive income per year for your early retirement.

I have scored each method according to 4 criteria:

  1. Time: Amount of time that it requires to maintain that passive income.
  2. Risk: Risk of losing your capital while trying to get passive income.
  3. Difficulty: Overall difficulty of using that particular method in reaching your goal.
  4. Growth Potential: The growth potential of the method that can exceed the passive income you are targeting for.

Read Also: Key Traits of Success

1. Rent out Properties

  • TIME: 2/5
  • RISK: 2/5
  • Difficulty: 3/5
  • Growth Potential: 4/5

Renting out properties can be one of the best ways to earn a passive income.

Why?

Simply because, once you have rented out your property, there is a minimal amount of things for you to do. With your tenant paying you to rent month after month, the income you are getting is basically passive.

Occasionally, you will be required to do some fix-up of the property, but other than that, there is really nothing much for you to do.

Retiring rich and comfortable with a $50,000 passive income per year is quite a big number. Let’s first bring the numbers down to easily digestible numbers for calculation.

A passive income of $50,000 means that you will need a net income of $50,000 per year from rental income.

  • Per Year = $50,000
  • Per Month = $4167 ($ 50K / 12 Months)
  • Per Week = $1,042 ($4167/ 4 Weeks) 

This means that you need to rent out your properties for approx. $1.1K per week and approx. $4.2K per month.

The average rental depends on the location and the property type.

According to Newswire, the median rent is around $1.5K per month.

This means that you will need around 3 rental properties to get $50K passive income per year.

  • 1 Property gives you a monthly rental of $1.5K
  • 3 Properties give you a monthly rental of $4.5K
  • Yearly Rental Income of 3 Properties = $54K

Sounds easy?

Some people may notice that I have BOLD the word net income. And you may realize, the rental income you are receiving is your gross rental income and not net rental income.

You have keen eyes for details.

Don’t worry, because things will work out, if you put in some time ‘magic’ into the formula, you will get your $50K net income for your passive income.

We will illustrate it with an example.

Example (illustration Only)

John is currently 30 years old and wants to plan for his retirement.

He decided to rent out his properties to fund his retirement.

John is hard working and front load his life which earns him enough money to pay the 20% down payment. He also got a 30-year fix rate mortgage loan to pay for the rest of 80%.

John did the same process 3 times and made himself a landlord of 3 properties. His tenant pays their rent promptly and helps him to offset his monthly mortgage loan payment.

Each property gets him $1,500 monthly, which it is calculated to be $54K yearly rental income.

Although he did not get a $54K net passive income as he need to use the rental income to pay off his mortgage. His tenant is the people who actually pay for all his mortgage loan.

And as the years go by, the amount he owns the bank gets lesser and lesser. His interest payment gets smaller and his principal payment gets bigger.

At the end of 30 years, at his retirement age of 60 years old. John’s 3 properties are fully paid for and all the rental income he receives ends up in his pocket.

He has a net rental income of $54,000 at the age of 60 years old and is able to retire comfortably without a worry about money.

Is rental income inflation-proof?

The best advantage of getting rental income as your passive income retirement plan is its ability to be inflation-proof.

On average, our inflation rate is around 3% to 4%.

As inflation kicks in, property prices and rental prices will raise together with the inflation rate.

With an inflation rate of 3% to 4%, property prices will raise 2 to 3 times from your purchase price in 30 years.

As for your rental income, it will typically raise 2 to 3 times from the initial rental income you have 30 years ago.

This means, instead of just getting $54,000 passive income per year in the form of rent. You essentially get $100,000 to $150,000 passive income per year in the form of rent. Together with the bonus of having an increased property value.

Do you think $100,000 passive income per year sounds good for retirement?

I sure think so.

Read Also: What are the risk and benefits of investing in Real Estate Index Trusts (REITs)?

2. Dividend Stocks or ETF

  • TIME: 1/5
  • RISK: 3/5
  • Difficulty: 3/5
  • Growth Potential: 3/5

Stocks can be risky, but it is the best place to build your passive income for early retirement.

Like everything else, investing in stocks is only risky if you don’t understand what you are investing.

If you don’t understand stocks, it is the same as gambling in a casino.

If you understand stock, it can be as safe as putting your saving in a bank.

With that said, you can have a $50,000 passive income simply by investing $1,000,000 in dividend stocks that give a 5% yield.

  • 5% of $1,000,000 = $50,000

Wait a minute! I have to invest 1 Million dollars?

Where do I get kind of money?

$1,000,000 sounds like a lot of money.

Well, I was shocked as well.

But getting $1,000,000 is absolutely possible.

Because we have this one secret weapon called the

“Compounding Magic”.

With the magic of compounding, we can create miracles!

Goal = 1 Million Dollars

On average, most dividend stock or ETFs gives a minimum 5% rate of return on dividends. (This is not inclusive of the price growth of the stocks.)

5% compounding growth can become quite a huge number after 30 years.

The key to this compounding magic is that, don’t take a single penny out of the investment and allow it to grow within.

Time + Stable ETF or Dividend Stock + Reinvesting all Dividend = Compounding Magic

Let’s give you another example with John who has invested in a dividend stock that gives 5%.

Example (illustration Only)

John is currently 30 years old and wants to plan for his retirement. He knows it is almost impossible for him to save $1,000,000 in 30 years time (With just saving, he will need to save $2,778 per month for 30 years), so he decided to use the magic of compounding to his advantage.

He decided to invest in some of the stable blue chip dividend stocks and ETFs which give him around 5% dividend.

John knows that he will need to have at least $1,000,000 in stocks that give a 5% yield by age of 60.

He calculated with a compound interest calculator and found that he will only need to invest $1,222 per month for 30 years.

30 years go by and at the age of 60, John has $1,000,000 invested in the stock market which generates $50,000 in passive income.

30 years of compounding return have helped John to have $1,000,000 in stock, which gives $50,000 dividend each year.

Why Compounding Work?

Compounding works because it grows on top of the previous growth. And these growths can help to double or even triple your initial capital if enough time is allowed for it to grow.

Albert Einstein once said compounding is the world’s eighth wonders.

With the rule of 72, with a growth rate of 5%, it will only take about 14.4 years to double your money.

And remember, in John’s case, he is constantly injecting a certain amount each month into his stock portfolio, and his money is growing at a 5% rate of return. (5% rate of return is not including the growth rate of the stock itself, thus the total rate of return can be even higher). This accelerates your growth of the money, and with compounding, you will have time as your friend.

To make approx. $1,000,000 dollar that is growing at a 5% rate of return you will need the following:

  • Invest $1,222 Per Month for 30 Years
    • Principle: $439,920
    • Interest: $560,529
  • Invest $1,701 Per Month for 25 Years
    • Principle: $510,300
    • Interest: $490,094
  • Invest $2,455 Per Month for 20 Years
    • Principle: $589,200
    • Interest: $411,109
  • Invest $3,761 Per Month for 15 Years
    • Principle: $676,980
    • Interest: $323,084

As you can see, the more time you allow your money to compound, the less principal you will require to reach that 1 Million dollar mark in investment.

This also means that, if you start early it will be easier for you to get that $50,000 passive income stream at your retirement.

The good stable stock itself does grow over time.

Historically for the past 20 years. It shows that ETF or some dividend stock actually have an rate of return of about 8 to 12 percent.

Depending on if you have brought your stocks during the market high, or during the market low, your rate of returns varies.

If inflation is added into the equation, your average return for the past 20 years will be around 5 to 9 percent.

So it will be pretty safe to say that you will have more than $50,000 passive income to spend at your retirement. If you follow this plan and stick to it for the next 30 years.

Fun Fact:

If you have a stable investment that gives you a 10% rate of return. You will only need to invest approx. $500 each month for 30 years to get to your $1,000,000 dollar.

10% Rate of return for 30 years

  • $481 per month for 30 years
    • Principle: $173,160
    • Interest: $826,979

Want to learn about how to get such a high rate of return?

Check out our other articles on Investing as well!

Read Also: Articles on Investing 

3. Investing in a business

  • TIME: 4/5
  • RISK: 5/5
  • Difficulty: 5/5
  • Growth Potential: 5/5

This is definitely not an option for everybody. Investing in a business can be very risky and high probably you will lose all your capital. According to research, less than 1 out of 10 businesses survive 10 years.

Refer to the chart below for illustration:

Above is the survival rate for most traditional companies.

Brick-and-mortar stores require you to put a lot of capital and time into your business.

But with the advance in technology, an online business can be created with much less capital and time.

An online business model such as drop-shipping or creating your very own eCommerce stall can also be a viable option.

(If you are interested in doing Drop shipping or creating your own eCommerce Store. Drop me a message below in the comments, probably I will write an article on them one day.)

Some of the platforms where people create their online stores are :

People nowadays can sell their products online with a few simple clicks.

Online Business is a Semi-Passive income stream you can consider as well. But the risk is much higher and you don’t have a definite rate of return.

There are some online business owners earning 5 digits per month, while others have a negative value on their balance sheet.

This method is probably the quickest way for you to have the $50,000 per year semi-passive income. But not a method that I will recommend for those who do not like risk.

Read Also: Rules of self-made sales millionaires before age of 30 

Start Front-Load Your Life For Retirement

Front Loading your life is the secret of passive income success.

Hustle now, enjoy in the future.

Imagine a snowball that is rolling down the hill. The base of the hill is where the snowball is going. As the snowball rolls, bigger it gets. The longer it rolls, the bigger it gets. You don’t have to do a single thing but it just gets bigger and bigger. Eventually, the snowball reaches the base.

The challenge of this snowball game is to create that initial snowball, that can start the roll. And let the roll gain momentum, till it starts rolling itself.

Starting the task of creating a passive income stream is the hardest part. As time goes on (snowball rolls), things get easier and easier. The longer the time you allow this snowball to roll, the bigger the snowball gets. At the time of your retirement (snowball reaches the base), the snowball is so huge that it almost won’t melt (your retirement funds).

And that is when you can comfortably retire.

The formula for a comfortable retirement is simple:

Front load your Life + Discipline + Little Magic of Compounding = Retiring Rich and Comfortable

Some people have to work hard for 10 years to get the momentum started, while others may take 20 or 30 years. The longer you use your time to front-load your life, the more compounding returns you will get. And with more compounding returns, you will have a bigger sum for your retirement.

If you are disciplined and have 20 years or more time on your hand. You are almost certain to be able to achieve $50,000 passive income per year with the few ideas below.

Let’s Explore!

Read Also: How to Create a Personalized Home Budget?

What Does It Mean To You?

These are some of the easiest ways for you to get that $50K passive income per year. There are no rules that tell you that you can only use one method or the other. You can use all of the methods if you like and diversify.

When you want to retire, you want to make sure everything is in place. You want to just sit in the beach and enjoy the sunlight with a cocktail in your hand. Money should be the last thing you should ever worry.

Thus it is best to start your planning now.

Building passive income for your retirement is never an easy task.

You will either need to use time or money to start building these income streams now.

I agree it will be a lot of hard work, but I am sure you will thank yourself in the future that you did this hard work now.

It is totally possible to get a $50K passive income. Many others in the world are actually reaching their goal, or have reached their goal. $50K passive income may sound like a huge number, but with discipline and planning, it is totally possible.

Since we are on the topic of retirement. Here is an article where we talk about preparing for your retirement. Probably you may want to check it out as well.

Read Also: How much do you need to Retire?

There are definitely many other ways of making passive income for retirement, but those mentioned in this article are some of my favorites!

Read Also: Passive Income vs Active Income

Remember! If you want it badly enough to be financially freed and have control of your own life, you will do what it takes to achieve it!

It will definitely be worth it!

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Founder & Financial Writer at Income Buddies | Website | Posts by Author

Antony C. is a dividend investor with over 15+ years of investing experience. He’s also the book author of “Start Small, Dream Big“, certified PMP® holder and founder of IncomeBuddies.com (IB). At IB, he share his personal journey and expertise on growing passive income through dividend investing and building online business. Antony has been featured in global news outlet including Yahoo Finance, Nasdaq and Non Fiction Author Association (NFAA).

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