Former Monty Python star Eric Idle recently made headlines with a comment about his finances that he posted on X (formerly Twitter). Idle was responding to a fan who posted the following:
“That depends. Are you willing to spend some of your Spamalot money to buy Twitter from Elmo?”
To which Idle responded:
“I don’t know why people always assume we’re loaded. Python is a disaster. Spamalot made money 20 years ago. I have to work for my living. Not easy at this age.”
Idle is 80. It’s easy to assume that celebrities and athletes who were once highly paid should be set for life. Idle dispels this myth. The same assumptions apply to other highly-paid professions. Just because you’re a doctor or lawyer, people assume you’re set for life. But it’s becoming more and more common for highly paid professionals to have to keep on working well into retirement age just to keep up their lifestyles and their expenses.
“Any fool can make a fortune; it takes a man of brains to hold onto it.” -Cornelius Vanderbilt.
How is it possible that professionals making six figures have to keep working into their twilight years? Don’t they have 401(k)s and retirement accounts? Yes, but those retirement plans aren’t cutting it.
What about the professionals who are able to avoid the fate of many of their colleagues who have to work longer than they want? What are they doing differently?
Professionals who retire early recognize early in their careers that 401(k)s and other retirement plans aren’t going to cut it. That’s because 401(k)s and other stock-centered investments rely on appreciation for their gains and for increasing the value of their portfolios.
What happens when you plan to retire in a year when the stock market crashes and half the value of your 401(k) is wiped out? Like Eric Idle and many impending retirees in 2008, you will have to keep on working to meet your needs.
High-salary professionals who retire early don’t put the fate of their retirements in the hands of the stock market. They don’t rely purely on appreciation to increase the value of their retirement fund. They discovered the key that many are missing in their own portfolios: passive income.
The key to an early retirement or even a worry-free retirement is passive income. Passive income investments are the only type of investments that will keep working to put food on your table long after your body is no longer able to work. Passive investments never get tired, and they don’t stop working just because the sun goes down.
“If you don’t find a way to make money while you sleep, you will work until you die.” -Warren Buffett.
Professionals like doctors are already overworked. It’s impossible to make more money by working more hours because they can’t add more hours to a day, and they already work the maximum number of hours they can. Savvy professionals solve this problem through passive income investments.
There are numerous passive investments, but there are two in particular that ultra-wealthy investors and institutional investors like university endowments are drawn to. These assets are commercial real estate (CRE) and income-producing private businesses (i.e., private equity).
Why do savvy investors gravitate towards CRE and private equity?
These assets have the ability to not only provide for present needs but for future ones as well. That’s because of the key element of passive income. Passive income can not only provide for present needs but, when reinvested, can be used to grow wealth and increase the quantity and quality of passive income streams for future benefit. In addition, hard assets like CRE and income-producing businesses also appreciate over time, adding another element of returns for augmenting a portfolio.
An additional advantage of passive income investments like CRE and private equity is that these income streams are insulated from market volatility. They’re insulated from market erosion because they’re not traded on the public markets. For example, in the early days of COVID, even as the stock market shed around a third of its value, the same did not occur with real estate and business values. That’s because CRE and private equity values aren’t tied to stocks like 401(k) values are. So, in a downturn, if you suffer job loss or job reduction, passive income investments that are insulated from market volatility offer you security and peace of mind in a time of turmoil.
To avoid the fate of the 45% of Baby Boomers who have zero savings, with many planning to work well into their retirement years, look to passive income investments to ensure insulated income streams for your entire retirement.