Just about all of us could use extra income. Retirees may not have enough coming in from Social Security and their savings or investments, and those still working may not have as much money available to save and invest as they need.
Enter passive income. If you can set up some streams of passive income, it can have more money flowing into your coffers -- with little to no work required by you. Passive income is hard to beat.
Image source: Getty Images.
Here are five ways you might generate passive income.
1. Dividends
This is an obvious -- and extremely effective -- way to generate passive income. Buy a bunch of dividend-paying stocks and watch the dollars roll in, typically every quarter. A portfolio with a total value of, say, $300,000, and an overall dividend yield of, say, 4%, will generate $12,000 in annual income.
With the market in a slump these days, many stocks are down sharply, which pushes up dividend yields. Here are some recently available yields:
|
Stock |
Recent Dividend Yield |
|---|---|
|
Verizon Communications |
6.8% |
|
AT&T |
5.9% |
|
W. P. Carey |
5.3% |
|
Walgreens Boots Alliance |
4.8% |
|
3M |
4.7% |
|
Realty Income |
4.6% |
|
IBM |
4.5% |
|
AbbVie |
3.8% |
|
Pfizer |
3.3% |
|
Cisco Systems |
3.2% |
Source: Yahoo! Financial.
2. Annuities
Annuities can be another great source of dependable income, and fixed annuities are the least problematic variety. With an annuity, you typically hand over a hefty sum to an insurer, and in return, you're promised regular payouts that can last as long as you -- or you and your spouse -- are alive. The promise is only as robust as the insurer, so favor highly rated annuity providers.
As an example, a 65-year-old man might get around $650 per month with a $100,000 policy, at recent rates. That's about $7,800 per year. A 65-year-old mixed-gender couple might expect around $1,150 per month with a $200,000 fixed annuity purchase -- about $13,800 per year.
3. Interest
This passive-income-generating strategy hasn't been worth considering for many years, but times have changed. We spent many years in an environment of ultra-low interest rates, but they have been rising considerably in the last year or two. Now some bank savings accounts are offering interest rates around 3%, and many five-year rates for certificates of deposit (CDs) have been topping 4.5%.
Such rates are not nearly as good as the long-term average annual return of the stock market, but the stock market is not necessarily good for short-term investments, as it can be volatile. Interest rates may keep rising for a while, too, in which case interest-bearing investments (including bonds) will become even more attractive.
4. Rental income
Many things you possess have the ability to generate income for you. You're probably aware of Airbnb and similar services that let you rent out your home or part of your home for a short or long while. (And you might simply take in a boarder for a few years to generate income, too.) But there are other possibilities. A little searching online will turn up sites that facilitate the renting out of garages, yards, vehicles, swimming pools, tools, and more.
5. Debt repayment
Finally, this last strategy doesn't exactly produce income, and it does take a bit of work, but if executed well it will let you keep a lot of money in your pocket every month. Think about it this way: Imagine that you owe, say, $30,000 in credit card debt, and you're being charge a not-unheard-of rate of 25% annually. You're looking at paying around $7,500 per year -- for interest alone, every year. Pay off that debt, and the $7,500 stays with you, instead of going to your lender(s).
These are just some of many possible ways to generate passive income. A little easy sleuthing online will turn up many more. See which ways make the most sense for you.
