"Retirement comes from investing, not working. Diversify your income by time, as well as type, and watch your wealth grow faster with less effort."

Rise Capital Investments.

7 STREAMS OF INCOME

What can we learn from wealthy people?

In the early 2000's, the IRS decided to find out and published a paper, "Over the Top: How Tax Returns Show that the Very Rich Are Different from You and Me," Bourne and Rosenmerkel, that analyzed the estate tax form 706 filed and found that wealthy individuals have several traits in common that we can emulate.

🟢 IRS Report on Wealth Reported on Form 706

One of the most striking findings of this report is not that wealthier people tend to have more income in general, not surprising, but that they have more of each TYPE of income listed on the form.

Due to the nature of the estate tax form documenting income in the year of death, most estates exceeding the wealth threshold to file form 706 are past retirement age and therefore show little to no income from a job or wages.

However, the other forms of residual and passive income that make up most of their wealth is what catches our attention. Because most of us do intend to retire from our active income pursuits, meaning a job or owning a business, as we age we tend to become more interested in non-active income sources.

As identified by the IRS, these 7 income sources are as follows.

A. Labor-Related Income

1) Wage and Salary Income

2) Taxable Pensions and Annuities (most related to non wealthy estates)

B. Capital-Related Income

3) Taxable Interest

4) Tax-Exempt Interest (municipal bonds, most related to wealthy estates)

5) Dividends

6) Schedule D Income (capital gains and losses)

C. Labor/Capital Income

7) Schedule E Rents, royalties, estates, trusts; Schedule C Businesses

3 STREAMS OF INCOME BASED ON TIME

EARNED VERSUS UNEARNED INCOME

🟢 In the above list, only 2 are considered EARNED or ACTIVE income, 1. Wage and Salary as well as 2. Businesses.

🟢 All the other streams are UNEARNED income, either RESIDUAL (get paid for doing work initially or occasionally), and PASSIVE (money invested that provides a return through no ongoing work of the investor)

This gives us a lot ideas of ways to generate income that do NOT require working. The more active and residual income we can generate during our working years, living below our means and investing the excess, the more passive income we can generate for retirement when 100% of our income would be residual and passive.

3 TIME-BASED INCOME CATEGORIES

ACTIVE, RESIDUAL, and PASSIVE should be diversified just as with any other type of diversification such as different asset classes, geographies, business types.

🟢 Wealthy people do not have 7 streams of ACTIVE income! We diversify our time AND money.

🟢 Wealthy people often have 1-3 active streams, with the remaining streams typically passive taking into account the time input it takes to create that income.

How are you diversifying your TIME? ©Rise Capital Investments 2024

WORKING AND INVESTING

RETIREMENT COMES FROM INVESTING, NOT WORKING

To retire well on passive income, it's important to focus our work time on our highest valued skills in the marketplace, and create multiple streams of income using the highest value skills of OTHERS to generate income on our behalf.

Many high achievers continue to add active streams of income through multiple businesses or jobs and side hustles and completely forget about residual and passive income streams. We know how to hustle, and we tend to not trust others to hustle on our behalf when we invest our money with them.

Balancing the needs of time involved in creating income is something wealthy people have figured out, and we can learn from their example when planning our own retirement strategies.

Diversify your income based on TIME as well as type and watch your wealth grow faster with less effort!