When you decide to retire, this is when you stop actively working for money. This is the time when your savings, assets and investments should begin working for you – by generating a steady stream of passive income. Of course, it is everyone’s dream to be “paid regularly” without actually working a regular job. But it take planning. Here are some of the passive income strategies that you should consider.
- Investing in Singapore blue chip stocks that pay regular dividends is a good start. Typically, REITS, banks and utilities stocks in Singapore fall into this category. Dividends will range from 2% – 5% and is paid out in cash to your account. Depending on the stocks that you buy, you can have a relatively reliable dividends paid quarterly, bi-annually or yearly. The added bonus of dividend stock is that you also stand to gain if the stock price goes up.
- If you do not want to suffer the fluctuations in stock prices, you can invest in government backed and/or investment grade bonds. With the exception of perpetual bonds, most bonds will have a maturity date. If you invest in government or investment grade bonds, the risk of default is low and you can expect to be repaid your investment capital when it matures. In the mean time, the bond will normally pay interest on a regular basis.
- Fixed deposits is also another option to generate income on a regular basis. Many Singaporeans put most of their savings in fixed deposits with the three major banks – and for the most part, it is “risk free”. Unlike bonds, fixed deposit interest to-date are significantly lower. But it still works if you do not have the appetite for taking on any default risk or if you do not wish to hold bonds until maturity. Fixed deposits is easy to setup and has virtually no added transaction costs,
- Whether you rent out a room in your apartment or your entire apartment, rental income is also a common way to generate passive income, if you have spare real property. Most Singaporeans like this approach because of the opportunity to profit from increasing property prices. Please note that unless you are paying an agent to manage your property, some amount of “work” is required to manage rentals — so it is not entirely “passive”.
- CPF LIFE is a good option for Singaporean Citizens/PR. As a state managed reverse annuity, it will pay you a regular monthly income for life. You should consider taking full advantage of CPF LIFE because it has the added benefit of being guaranteed by the Singapore government and will continue to pay even if you live pass 100! I would recommend that retirees consider putting as much as they can afford into CPF LIFE to generate passive income as a baseline “safety net”.