Living off Passive Income (Dividends / Bonds)

[davidI]

Anyone looked into living off of passive income?

I've always been into traveling and wouldn't mind setting up a small business in a low cost country (Central America, SE Asia, East Africa, or even Spain) within the next 5-10 years (one of many 'lifestyle' ideas I am considering).

I've done a bit of reading and it seems like it's generally suggested you can't withdraw more than 4% per year and maintain your initial capital. I would think with inflation and such (which you may be somewhat protected from based on your asset allocation) a fairer estimate would be 2-3% so I've used 2.5% in my calculations.

Assuming this is all set-up in a tax-free country and one only requires ~$2500/month or $30k per year to live a pretty sweet lifestyle (+ any business income), and that would mean the initial investment capital would need to be ~$1.2 million.

Add in another $100-$200k to get a property and start a business and it's looking like $1.3-1.5MM to make a go of it.

Does this seem feasible / reasonable? Anyone know others doing something like this?

I know there is a lot more to look into as far as asset allocations that would produce a relatively steady 4% return and how you can structure it in a tax-free or low-tax country etc. but just trying to get some initial conceptual thoughts together...

[kaput]

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[davidI]

Originally posted by kaput
Lots of people do this, they call it retirement ;)

Difference with retirement schemes is that they usually draw down their initial capital as well.

I'm talking about doing this before I'm 40 and being able to grow the initial investment with inflation for 20+ years before beginning to draw on the principle.

[ExtraSlow]

If you're looking at doing this at a relatively young age (i.e.,not 55+), I agree that the number will be lower than 4%.

It's tricky when you are talking about moving to another country, as this will inevitably involve an element of currrency speculation as well. Your costs will be in one currency, and your investments will be in one or two others.
Also, there are some major tax implications on a move like this. Wil you ever be able to return to Canada without paying crippling tax penaltiles?

Bonds have gotten a bad rap over the last couple of years, but if you look at provincial or corporate bonds with investment grade ratings, they pay significantly better than federal, and are nearly zero risk. IMO, some kind of bond investment should be a cornerstone of your strategy.

Dividends should be a part of this as well, and there are some very stable stocks that pay dividends in both Canada and the USA.

[Mattloaf]

I had this same idea a few years ago but I didn't have anywhere NEAR the capital you're talking about. I started anyways and set myself up a little differently.

I own a few properties and a business in Canada that I draw a bit of income off of while I live and own another business in China. The income from the properties is used for operating expenses and general savings. Profit from my Canadian company is reinvested into itself or a set of stocks I own (I'm waiting to sell a few then I will move it over to something that pays dividends). I don't use everything I make over here either and I live very well. The excess is going to be saved for diversifying my property portfolio (and pay for a wedding next year...). I hope that as the real estate portfolio expands, the amount of active income I will have to rely on will start to go down.

I started with just about nothing but I definitely see why someone would want $1-1.5 mil to draw on. It would definitely be a nice safety net. I certainly have a LONG way to go to get anywhere near that.

I'd love to hear your ideas on foreign business ownership. Feel free to PM me. That offer for Chinese coffee still stands too of course. ;)

[a social dsease]

Sounds perfectly reasonable, I'm planning on doing the same (however I plan to stay in Canada). It's pretty simple, pay off mortgage so I have low monthly expenses, accumulate approx $1mill investments, live off interest forever.

Alot of people do it actually, check out this guy's story about how he retired in his early thirties http://www.mrmoneymustache.com/2011/09/15/a-brief-history-of-the-stash-how-we-saved-from-zero-to-retirement-in-ten-years/

[sputnik]

My mom lives off of dividends from her portfolio.

She has a majority of her portfolio invested in dividend paying stocks, bonds and mutual funds that give her a decent monthly income.

For a single person with no debt she lives comfortably and still manages to go on a few cruises each year.

You could in theory invest in something like the RBC Canadian Equity Income Fund (RBF591).

It pays 9 cents monthly per share (currently at $23.46) and make a decent income if you had $1MM invested.

$1,000,000 / $23.46 = 46625 units.

46625 * 0.09 = $3836.31/month

After taxes you should be just under $3000/month and your principal would probably also be increasing in value.

You may also get a yearly capital gain. In past years it has been anywhere between $0.76 and $1.51 per unit. That would be a nice payout in December should you be holding over 46000 units.

[chibwack]

Are you saying you want this company to return the 2.5% and pay it out as dividends to yourself as sole shareholder? I think that'd be biggest hurdle more than anything else...

[benyl]

Originally posted by sputnik
My mom lives off of dividends from her portfolio.

She has a majority of her portfolio invested in dividend paying stocks, bonds and mutual funds that give her a decent monthly income.

For a single person with no debt she lives comfortably and still manages to go on a few cruises each year.

You could in theory invest in something like the RBC Canadian Equity Income Fund (RBF591).

It pays 9 cents monthly per share (currently at $23.46) and make a decent income if you had $1MM invested.

$1,000,000 / $23.46 = 46625 units.

46625 * 0.09 = $3836.31/month

After taxes you should be just under $3000/month and your principal would probably also be increasing in value.

You may also get a yearly capital gain. In past years it has been anywhere between $0.76 and $1.51 per unit. That would be a nice payout in December should you be holding over 46000 units.

Need more info like this.

[G]

And if you take advantage of the tfsa you can earn that tax free too. My cibc monthly income pays me about 5% monthly as well. Not crazy returns but safe and beating inflation. My company stock went from $9 to $64 in the last 12 years. :clap:

[ercchry]

biggest issue we had when we were looking into this is finding a country that you could live off of $2500/month and still trust the government and banks...

[kaput]

.

[sputnik]

Originally posted by kaput
If you don't mind some currency risk, park your money in an Australian term deposit and guarantee yourself 4.3 to 4.6%.

http://www.commbank.com.au/personal/accounts/term-deposits/rates-fees.aspx

I wouldn't bother.

Interest income from a GIC is taxed at full income tax rates.

[Nitron88]

Don't hold your breath saving that nest egg. Sometimes reality hits and you realize you might not even live a full life into the senior years and look back on the death bed wishing you truly lived life earlier than grueling up 1MM; unless 1 M is a quick and close goal you're almost at.


Originally posted by davidI
Anyone looked into living off of passive income?

I've always been into traveling and wouldn't mind setting up a small business in a low cost country (Central America, SE Asia, East Africa, or even Spain) within the next 5-10 years (one of many 'lifestyle' ideas I am considering).

I've done a bit of reading and it seems like it's generally suggested you can't withdraw more than 4% per year and maintain your initial capital. I would think with inflation and such (which you may be somewhat protected from based on your asset allocation) a fairer estimate would be 2-3% so I've used 2.5% in my calculations.

Assuming this is all set-up in a tax-free country and one only requires ~$2500/month or $30k per year to live a pretty sweet lifestyle (+ any business income), and that would mean the initial investment capital would need to be ~$1.2 million.

Add in another $100-$200k to get a property and start a business and it's looking like $1.3-1.5MM to make a go of it.

Does this seem feasible / reasonable? Anyone know others doing something like this?

I know there is a lot more to look into as far as asset allocations that would produce a relatively steady 4% return and how you can structure it in a tax-free or low-tax country etc. but just trying to get some initial conceptual thoughts together...

[davidI]

Originally posted by ExtraSlow
If you're looking at doing this at a relatively young age (i.e.,not 55+), I agree that the number will be lower than 4%.

It's tricky when you are talking about moving to another country, as this will inevitably involve an element of currrency speculation as well. Your costs will be in one currency, and your investments will be in one or two others.
Also, there are some major tax implications on a move like this. Wil you ever be able to return to Canada without paying crippling tax penaltiles?

Bonds have gotten a bad rap over the last couple of years, but if you look at provincial or corporate bonds with investment grade ratings, they pay significantly better than federal, and are nearly zero risk. IMO, some kind of bond investment should be a cornerstone of your strategy.

Dividends should be a part of this as well, and there are some very stable stocks that pay dividends in both Canada and the USA.

HSBC Expat account allows you to save funds in up to 14 currenices. Most of the developing world has steep inflation or currencies pegged to the US$, so keeping money in Canadian or US$ is probably a safe bet for most countries. Bigger risk in my mind is prices going up as the popularity of a place increases. Thailand / Bali / Costa Rica used to be stupid cheap, and are now somewhat pricey.


Originally posted by sputnik
My mom lives off of dividends from her portfolio.

She has a majority of her portfolio invested in dividend paying stocks, bonds and mutual funds that give her a decent monthly income.

For a single person with no debt she lives comfortably and still manages to go on a few cruises each year.

You could in theory invest in something like the RBC Canadian Equity Income Fund (RBF591).

It pays 9 cents monthly per share (currently at $23.46) and make a decent income if you had $1MM invested.

$1,000,000 / $23.46 = 46625 units.

46625 * 0.09 = $3836.31/month

After taxes you should be just under $3000/month and your principal would probably also be increasing in value.

You may also get a yearly capital gain. In past years it has been anywhere between $0.76 and $1.51 per unit. That would be a nice payout in December should you be holding over 46000 units.

That fund has had great performance over 6 years! Thanks for posting about it...great to hear your Mom has been doing so well off it! I'd probably seek to create my own diversified portfolio rather than invest in a fund but who knows. I've been forced to invest in mutual funds through my company's pension plan and I must say the performance has been volatile. I've done better in my personal portfolio.


Originally posted by chibwack
Are you saying you want this company to return the 2.5% and pay it out as dividends to yourself as sole shareholder? I think that'd be biggest hurdle more than anything else...

Wat?


Originally posted by ercchry
biggest issue we had when we were looking into this is finding a country that you could live off of $2500/month and still trust the government and banks...

HSBC Expat. http://www.expat.hsbc.com/1/2/


Originally posted by Nitron88
Don't hold your breath saving that nest egg. Sometimes reality hits and you realize you might not even live a full life into the senior years and look back on the death bed wishing you truly lived life earlier than grueling up 1MM; unless 1 M is a quick and close goal you're almost at.


I'm only 28 and have lived a pretty full life already. I'm not planning to sacrifice 'living' to accumulate $1.5MM...and I don't think it's unreasonable to have that sort of money saved by 40, but it will depend on a variety of factors and how my investments / career does.

Besides, your point is what makes trying to semi-retire at 40 even more appealing....who knows if you'll live long enough to enjoy your retirement / pension nest egg...why not try to live that life sooner!?

[e36bmw///]

nm

[Marsh]

Originally posted by ercchry
biggest issue we had when we were looking into this is finding a country that you could live off of $2500/month and still trust the government and banks...

British Virgin Islands. Done and Done. Its where im planning to go eventually

[kaput]

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[ercchry]

Originally posted by davidI



HSBC Expat. http://www.expat.hsbc.com/1/2/


i was thinking more so, one day you come home and a government official tells you "oh, ps: your house is owned by us now'

having to purchase the place outright is kind of scary when the next person to come into power can do whatever they want

[Nitron88]

Are we talking South America?


Originally posted by ercchry


i was thinking more so, one day you come home and a government official tells you "oh, ps: your house is owned by us now'

having to purchase the place outright is kind of scary when the next person to come into power can do whatever they want

[ercchry]

Originally posted by Nitron88
Are we talking South America?



more so central... but yeah thats where i was looking

[davidI]

Originally posted by ercchry


i was thinking more so, one day you come home and a government official tells you "oh, ps: your house is owned by us now'

having to purchase the place outright is kind of scary when the next person to come into power can do whatever they want

Depends on the country for sure. Rule of thumb is the more secure the investment, the higher the price.

Belize, C.R., Panama all have very strong property title laws, but that is also why properties cost more. The fear of expropriation keeps prices low elsewhere.

My view is that I could get a pretty sick place for $50-100k in a place with the small chance of expropriation, so if it ever does happen it's not a loss that will put me under. I probably wouldn't build a multi-million dollar place in one of those countries though!! You can also buy title insurance which protects from your any title disputes.

A good site for information is escapeartist.com