My 5 Year Plan to Grow Our Passive Income - Retire by 40 (2024)

Earlier this week, I had an interview with Eric at thePersonal Profitability Podcast. One great question that came up was how I plan to grow our passive income so Mrs. RB40 can retire by 2020. We are living a modest and comfortable lifestyle right now, but we are still dependent on Mrs. RB40’s job. If she quits working today, we would have to make some drastic changes to accommodate the loss of her income. Our other income streams aren’t quite enough to support the same lifestyle we live now. We’d probably have to move to a lower cost of living location. Portland is nice, but it is getting quite expensive to live here.

This is why we are working hard to increase our passive income until it exceeds our expenses. Let’s take a look at what our passive income is like now and see how I can grow it over the next 5 years.

Dividend Income

Taxable portfolio – Our dividend portfolio is in our taxable brokerage account and it’s doing well. The dividend has been steadily growing and I expect the growth to continue over the next 5 years. The strategy here is pretty simple. We need to reinvest the dividend and also add some new money to grow that dividend income. I think this one should be relatively easy to accomplish.

Joe’s Pre-Tax portfolio – I have been contribution over $25,000 per year to my i401k and Roth IRA since I left my engineering career in 2012. I channeled most of my online income toward my retirement account and the dividend income should slowly increase over the next 5 years. The 2020 estimate might be a little high here.

Mrs. RB40’s Pre-Tax portfolio – Mrs. RB40 also has been contributing the max to her 401k and Roth IRA for years. Her 401k isn’t focused on dividends so the income from her portfolio seems low. Once she retires, we can move some of her investment to dividend stocks and that should beef up the dividend from this portfolio (if needed).

Rental Income

Duplex – The rental income from the duplex was dismal in 2015 because I did some costly renovations when a tenant moved out. On a regular month, we net about $400 from the duplex. In 2016, we should get about $700 per month. I will keep improving the property and increasing the rent over the next 5 years. In the short term, we probably won’t generate much income, but we should be good in the long haul. If the Portland rental market continues to be the hottest in the U.S., we won’t have any trouble making $15,000 per year by 2020.

Condo – I haven’t written about this condo much because I co-own this unit with my brother. It’s cash flow neutral so it doesn’t affect us much. We picked up this place in 2010, near the bottom of the real estate crash. I’m planning to sell and redeploy the investment at some point. My goal is to net around $50,000 from this sale.

Miscellaneous Income

P2P Lending – I have about $10,000 invested at Prosper. It seems to be doing okay, but I’m not planning to invest more at this point.

Interest and I-Bond– These two are pretty boring. I don’t plan to increase our investment here much.

Expenses

Our annual expenses in 2015 were about $52,000. If we assume inflation will be around 2% annually over the next 5 years, then we’d need about $57,500 per year to maintain our current lifestyle. Our 2020 passive income goal is a bit higher than our expense and should give us a little breathing room. Of course, we probably will have added expenses after Mrs. RB40 retires. We’d have to pay for our own health insurance for one. I’ll analyze the situation more closely as we near 2020. I think we will be in a good position, though, because I’d still have some income from blogging or another venture by then.

Keep at it

Overall, I have a good feeling about this. To grow our passive income, we just need to add more money and keep at it. We will continue to save and invest over $50,000 per year over the next 5 years. We also need to keep a lid our lifestyle. We’re pretty comfortable now and I think we can maintain this level of spending. Actually, I think our spending should decrease a bit over the next few years because RB40Jr will start public school. We won’t have to pay for preschool anymore. It’s hard to see 5 years out. I’ll check in annually and see how it goes.

So that’s our plan for the next 5 years. Hopefully we will beat this challenge before 2020. Do you have a 5 year plan to increase your passive income?

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