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2020 Challenge: Passive Income VS Expense

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2020 Challenge: Passive Income VS ExpenseThis is the 2016 update for our 2020 Challenge: generate enough passive income to exceed our expenses. Mrs. RB40 plans to retire in 2020 and it would be really nice if we can accomplish this goal by then. We have passive income from different sources and for this challenge we’ll count all of them. Here are the different sources of our passive income.

  • Dividend Portfolio
  • Rental
  • Interest
  • P2P Lending
  • Joe’s Retirement Accounts
  • RB40’s Retirement Accounts

Some of these are tax-advantaged accounts and we don’t plan to access them yet. The challenge is just trying to ramp up our passive income to cover our expenses. We’ll deal with how to access the fund later. Actually, my plan is to work part time so we don’t have to withdraw from our retirement accounts until we’re in our mid 50s. For this challenge, I’m only looking at the yield and ignoring the gains and losses.

This post was originally published in early 2015 and I made an estimate of our 2015 passive income. The estimate was way off due to the rental property. We had a tenant turn over and fixed a few expensive problems. We raised the rent and the rental income should be better in 2016.

Passive Income 2015

2015 passive income

So our passive income in 2015 was much lower than expected at $28,415. The rental income was way below our estimate and it threw off my whole projection. The P2P lending income was also off, but it’s not a big deal because the amount didn’t affect the total that much. All the other income calculations were pretty close to target.

As for the rental, it didn’t generate positive cash flow, but it improved our net worth quite a bit due to property appreciation. The property market in Portland was on fire last year and real estate did much better than the stock market in that regard.

For 2016, I made a projection, but I’m not sure if we will meet it. Some stocks have reduced dividends and more might follow. The rental is also still iffy. We probably will have more expensive repairs and turn over this year. Hopefully things will be better, but we’ll just have to wait and see.

Expenses

We spent $53,037 in 2015. That’s about the same as 2014 ($54,000) so at least we kept a lid on our lifestyle. If we can keep our lifestyle inflation to the minimum, I think we’ll have a chance of accomplishing our goal. It’s so easy to let your lifestyle get out of control.

FI Ratio

Here is a simple way to track our progress toward financial independence.

FI ratio = passive income / expense

So for 2015, our FI ratio is 54%.

That’s way behind my projection which was 66%. We really need to turn the rental around this year and generate some positive cash flow. 2020 will be here before we know it and we won’t meet our goal if we keep messing around.

Here is the progress we need to make.

  • 2015: 54% ($28,415/$53,037)
  • 2016: 65%
  • 2017: 74%
  • 2018: 83%
  • 2019: 92%
  • 2020: 100%

Actually, if everything is on track in 2016 and we make our passive income projection, our FI ratio will increase to 70%. That will give us a big boost, but I think it will be tough for everything to pull together like that. If I can’t get good positive cash flow from the rental in a few years, I might consider just cashing out and invest in REIT instead. It will be much easier and I’m sure the cash flow will be improved. We’d miss out on the property appreciation, though. I’ll keep track of this for a few more years and see.

Another way to increase our FI ratio is to reduce our expenses. RB40Jr is going to start kindergarten in 2016 so we won’t have to pay for preschool anymore. That should help. We also plan to move into our rental home at some point. This will reduce our housing expense. I think those are the only two major expenses that we can reduce.

Anyway, it’s a great idea to keep track of the FI ratio. It will let you know how much progress you are making toward financial independence every year. It is also a good early warning system. If the FI ratio decreases, then you know you need to fix something.

Do you keep track of your passive income vs expense? The ratio should improve every year if you hope to reach Financial Independence.

Personal CapitalIf you need help keeping track of your finances, try using Personal Capital to manage your portfolio. Also check out their fantastic retirement calculator. You can read my review here – The Best Free Retirement Calculator.

 

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{ 69 comments… add one }

  • Mr Zombie January 14, 2015, 2:50 am

    That photo is so awesome 🙂

    My FI ratio is at about 3% (not including my pensions assets which I can’t touch until 57).

    I do need more passive income but still generating capital at the moment. Maybe I can make it before 40 and become RB40UK

    Mr Z

    • retirebyforty January 14, 2015, 10:26 am

      Thanks! That’s one of our favorite photo too. 3% is pretty low, but I bet it will shoot up quite a bit when you see that pension. Good luck!

      • Mr Zombie January 15, 2015, 3:16 am

        Thanks RB40. No use having a huge pile of assets if there is no income off them, right 🙂

  • Steve January 14, 2015, 4:28 am

    I just started focusing on side income (eBay) and passive income (dividends) this year. Im vigorously tracking everything on excel. I like your FI metric and will start focusing on increasing that percentage.

    I’m 25 right now, so I still have about 15 years until I “retire”. I’m excited for the journey to see where I’m at 15 years from now.

    • retirebyforty January 14, 2015, 10:27 am

      Steve, you have a ton of time left. You’re starting early so I’m sure you’ll get there sooner or later. Good luck!

  • Mr. Frugalwoods January 14, 2015, 4:37 am

    I completely agree that this is a good alternative to the 4% rule for early “retirement”. I’m sure the internet retirement police will come after us for daring to earn money after retirement in dribs and drabs… but I think that’s a totally reasonable model.

    Our current homestead plan actually has us not touching our investments or savings. Passive (or semi-passive) income will theoretically provide our ongoing living expenses.

    • retirebyforty January 14, 2015, 10:28 am

      Your homestead plan sounds great. It will be an awesome challenge and you’ll have years of blogging material.

    • Max January 14, 2015, 2:43 pm

      Interesting stuff. Sounds like you got your work cut out for you with the homestead, yurt, et all, but sounds awesome all in all.

      Looking forward to hearing if you’re actually able to rent out your home and make all that passive income you’re expecting from consulting/blogs/etc.

      AirBnB can be a lot of work to fix things up from one person to the next just make sure you’re aware of that. But yeah, you can definitely make a lot of money with it too.

  • Justin @ Root of Good January 14, 2015, 5:50 am

    By this metric, we are roughly 100% FI right now. Dividends clocked in at just under $30,000. Add in a couple thousand dollars for credit card bonus offers, craigslisting or ebaying random crap, and a few other tiny side hustles and we get to our $32,000 budget amount.

    It’s a good BS check on the 4% rule, since if you can cover your annual retirement expenses with straight up income (from portfolio, lending, CDs, whatever), then you are golden!

    Another way of looking at it is the typical dividend yield is around 2.5% (or 3% if you tilt to dividend equities). Bond yields aren’t a lot higher. So if you aim for your passive income from a portfolio to cover your annual expenses, you are basically aiming for a 2.5-3% withdrawal rate. Which is extra super duper safe. Even if your portfolio and the related income drops, you’ll still probably be spending less than 4%.

    • retirebyforty January 14, 2015, 10:30 am

      Yeah, you guys are doing really well. Your cost of living is extremely low so you have a huge advantage.

  • Jon January 14, 2015, 6:09 am

    This got me to thinking about our passive income. Like you, when I look at ours, I’m only really focusing on the non-retirement side of things. In my mind, I look at this because when we retire early, this is what we will live on until we reach the age when we can start taking income from our retirement accounts. I’ll have to include the retirement account income just to see what our FI ratio is.

    • retirebyforty January 14, 2015, 10:31 am

      Yes, check it out. It’s interesting to see how much progress you’re making. Even if you aren’t really accessing that money yet. We can always use the rule 72(t) or build a Roth IRA ladder.

  • Eric January 14, 2015, 6:09 am

    Wow, $36k from passive income this year seems pretty phenomenal. If you grow that amount just 10% a year (DRIP, Dividend Growth, New Capital), which is low in my opinion, in six years you’ll be at $64k, which is well above your expenses.

    Don’t you think six years is pretty conservative?

    Eric

    • retirebyforty January 14, 2015, 10:33 am

      I think 10% per year growth would be pretty tough. Most of the retirement accounts are invested in stock and bond index funds so the dividend doesn’t really grow much. We’ll see how much we can grow in a year. Maybe I’ll be pleasantly surprised.

  • Jason @ Phroogal January 14, 2015, 6:44 am

    I’m focusing on side income through my book sales on Amazon and YouTube channel. My channel has been earning me a few bucks each month but I never paid attention until I realize I’m making cash when I haven’t uploaded any new vids in almost a year. I really think I can push to make upwards of $2,500 just by posting more videos and fixing up the SEO on them.

    • retirebyforty January 14, 2015, 10:34 am

      Good luck with the YouTube experiment! It’s amazing how people make money these days.

  • Caro January 14, 2015, 6:45 am

    Last year I did start tracking our dividends to see how much of our annual expense would be covered. We don’t have much in our taxable accounts and I found it downright depressing. Last year the taxable investment accounts generated $845 in dividends. That is when I decided to see what it looked like if I included our retirement accounts. Including our retirements account it was $45,000. That seems okay, but unfortunately we spend $68,000 per year so we still have a ways to go…only 66% there. The key for us will be bolstering income so we can invest more in our taxable account. I do not think that we can cut costs any further.

    • retirebyforty January 14, 2015, 10:35 am

      66% is still pretty good. That’s where we are. Let’s keep working on it.

      • Caro January 14, 2015, 6:30 pm

        I looked back at your article and I realized we are at about the same place for the FI calculation (2/3 of the way there). You have done an fabulous job investing in dividend stocks in your taxable account (and not just tax advantaged retirement accounts). I agree, keep working on it. 2020 would be awesome but unless I go back to work in some way and make enough surplus to invest it is unlikely for us (left my corporate job to stay home with the kiddos while they are little). I will continue tracking FI. What a feeling it will be to reach 100%. Right now we are half way to our retirement figure (applying the rule of 72, 6 years is not likely). Plus, in 2020 we are too young to tap into retirement accounts but we could access our ROTH.

  • nicoleandmaggie January 14, 2015, 7:02 am

    We don’t. At most dividends are a minor annoyance at tax-time, since they’re almost all DRIPped.

    The main reason we don’t keep track is that we don’t plan on retiring any time soon (I lie every time I check that box), therefore, for tax purposes, it makes more sense to keep money in growth stocks than in stocks that pay dividends (which would then be reinvested). We can worry about taxes on the appreciation in the future, and it is likely that any strategy of ours will include draw-down rather than just living off income.

    • retirebyforty January 14, 2015, 10:38 am

      Yeah, if you don’t plan to retire anytime soon, then it’s probably not a big concern. Tax is one reason why I don’t DRIP. I just wait until we accumulate enough to buy new shares. The tax is a big complication when you sell.

      • nicoleandmaggie January 16, 2015, 9:56 am

        So I was curious and saw what the person in the comments said about downloading dividends in mint. It looks like that of accounts in mint (which include most but not all of our taxable and tax-advantaged accounts), we get about 8K in dividends/year (and 6K/year last year). That doesn’t count our utilities stock that kicks about 2K/year. So maybe 10K/year, 12K optimistically counting the stuff we don’t track.

        Last I checked, we spend about 72K/year. So… not going to be living off dividend income streams any time soon, even if we were old enough to withdraw $.

  • David January 14, 2015, 8:00 am

    I have been looking at my dividend income out of curiosity recently and used Mint (I think it could be done with Personal Capital as well) I was able to determine the amounts back as far as I have been tracking my accounts in there. If all of your dividend & capital gain transactions are categorized in Mint the same way, you can just export all transactions to excel and then do some work in excel to get the total per year.

    Typically for my accounts, it was easy to find the dividend & capital gains transactions based on the description, so I could fix my older transactions that I had not categorized correctly. Without increasing my dividend portfolio as a percentage of my overall portfolio (just increasing my total portfolio), my passive income is more than 5x that what it was since my first full year using Mint in 2008. My FI ratio is now 20%. I figure that if I were to move my growth stocks into dividend stocks or more bond funds, my FI ratio as calculated just on the passive income would be much higher. I plan on moving more into dividend stocks when I am closer to my “retirement” which is still a ways away since I am now 33 and still enjoy my job.

    • retirebyforty January 14, 2015, 10:39 am

      You’re right about Mint and Personal Capital. I’ve been moving our accounts around so much that it’s a mess in there. From now on, our accounts should be pretty stable and it will be easier to track with those software.
      Great job with your passive income. Keep at it and you’ll reach FI soon. Good luck!

  • Robert January 14, 2015, 8:36 am

    I’m a little confused. You have what appears to be appreciation in your retirement accounts listed as actual income for 2015. Is that merely an increase in the value of the accounts, or are you planning on taking that and spending it this year. If not, “passive income” should be reduced by almost 22k, right?

    • retirebyforty January 14, 2015, 10:40 am

      Sorry for the confusion. I clarify it in the main article. I’m only counting the yield, not appreciation. We are reinvesting all the yield at the moment.

  • GS January 14, 2015, 10:12 am

    When you say “Joe’s retirement accounts: $14,658”, is that dividends from your 401k, IRA, etc?

    • retirebyforty January 14, 2015, 10:41 am

      Yes, dividend and yield from ETFs.

  • Gen Y Finance Guy January 14, 2015, 11:45 am

    I like the concept of the FI ratio. Most of my passive income is in retirement accounts, but as you pointed out, at some point this will be income that will be able to be used to live on instead of re-investing it. Will add this to the list of future metrics to look at.

    Thanks for sharing!

  • Ravi January 14, 2015, 1:24 pm

    That’s a great mix of passive income sources you’ve got.

    It’s great to want to count on dividends or rentals or IRAs alone, but the reality is that we cannot predict the future and it’s good to some income diversification too.

    I don’t like the idea of rental real estate a ton, but it does offer some very nice diversification from equities and other investments. Hopefully in another 5 years, you’ll be closer to the total amount that you need as well as a desired mix between dividends/rentals/p2p income sources.

    • retirebyforty January 15, 2015, 10:36 am

      Thanks! I’d like to increase our rental income a bit, but I’m just not very good at it. I’ll keep working on it, but I might just move the fund to REIT at some point.

  • Jason January 14, 2015, 1:41 pm

    So, I like the FI ratio concept and keep careful track of a very similar stat. According to that, I’m nearly to 100% now. I hope that by the end of 2015 I’ll be past it. But I think the formula could use a couple of tweaks:

    1) It should count only post-tax income – most of the time, passive income is still taxed

    2) It should also include a non-zero reinvesting rate, especially if your passive income doesn’t track inflation. At the very least, you want to make sure your income would not erode over time. What would be fair? I’m thinking 5-10%.

    After applying these two criteria, I’ve still got many years to go.

    Good article – passive income discussions are always interesting.

  • Max January 14, 2015, 2:25 pm

    That’s pretty solid. I’m mostly at a point where I can cover my basic living expenses with the rents I get + dividends.

    However, I’m not supporting wife/children/family members – not necessarily planning to – but I’d at least like to be able to do so.

    I’m also hoping for some lifestyle inflation – I’ve been living pretty bare bones for the past several years which is just fine by me, but I’d like to be able to travel some more and just be able to spend some more money without worrying about it as much. Create a performance account for organizing community events, scholarships, charity/etc. It’ll probably take me a few years as well – I’ll join you in the 2020 challenge that’s about what I’m hoping for as well.

  • Nick January 14, 2015, 7:06 pm

    My FI ratio for 2014 was only about 6%. Wow, I have a long way to go. I have some serious investing goals for this year but even if I hit all of my investing goals for this year I will only boost my FI ratio by 2%.

  • Christian January 14, 2015, 7:41 pm

    I like the idea behind the ratio….I think it would be too depressing to calculate my ratio right now though! Good luck with 2020!

  • Adam and Jane January 14, 2015, 9:54 pm

    Joe,
    We love your passive income articles and you are doing great at this age with a family.
    We have been tracking expenses and passive income since 2009. Since we don’t have kids, we are able to save a bit more and we reached FI in 2013 at age 48. Our current FI ratio is 1.22 with 13K extra over expenses. Our goal is to reach FI ratio of 1.33 which is 20K extra over expenses. An extra 20k would make a nice buffer to cover inflation and unexpected expenses. The passive income does not include 401K, pensions and SS. Since I worry too much, each of the 3 sources incomes (passive, 401k and pension) will be able to cover expenses in case one or two sources are gone.

    Our company announced layoffs starting the end of this year and layoffs will continue for several more years. Although, we are able to financially walk away now, we will continue to work until we get a severance package which will be over a year salary for the each of us. That is too much money to leave on the table. It will be a miracle if we reach 55 which is 5 years away. At 55, the company will give us 7-9k each for medical insurance and our pension doubles. 55 is the magic number. Since the company wants to save money, I don’t think they will allow us to reach 55.

  • Stef January 15, 2015, 10:47 am

    Why are you looking at divided income only? Why not divide income and also growth of accounts ( i.e. portfolio went up 10%)?

    • retirebyforty January 16, 2015, 10:33 am

      I just want to see the income for now.

  • Vawt January 15, 2015, 11:41 am

    I like the FI ratio and plan to go and try to calculate my meager one tonight.
    I did pay attention to the dividends I received in my IRAs this year and it was more than I expected. I will say my FI ratio might be affected by having a large amount of growth stocks that don’t pay dividends. Is there a good way to factor that in?

    • retirebyforty January 16, 2015, 10:34 am

      There aren’t really a good way to factor the growth stocks in. You’re focus on growth right now. The FI ratio will get better on its own when you focus on income. Oh well…

  • CheapMom January 15, 2015, 12:03 pm

    We don’t track that yet because we’re killing our mortgage first. Only a few more years…

    It’s awesome that you’re bringing in $35K a year! 2/3 is pretty awesome, I think 6 years is a good goal for you. Another calculation you can do is with your retirement budgeted expenses instead of your current expenses.

    • retirebyforty January 16, 2015, 10:35 am

      Our retirement expense should be pretty similar to current expense. The big change will be health insurance. We would also pay a lot less tax so I think it won’t be too bad overall. We’ll see.

  • David Michael January 15, 2015, 2:58 pm

    Bravo Joe! You are a great model for creating passive income in one’s life, regardless of age. While times may be more challenging these days for younger workers in the private sector with the limited number of pensions available as compared to the past, your blog and others like it, are a great service to the how, when and where of how to achieve financial freedom on your own terms. That’s one of the great things about the internet as we can track your financial results. In my day, it was what Merrill Lynch said or did. No way to track real human beings, their problems, outcomes, or experiences. Thanks for sharing!

    • retirebyforty January 16, 2015, 10:39 am

      David, Thank you for the kind words. The internet is a great leveler. You can see so many people on different path to financial independence. Some people focus on making a lot of money and some people live frugally. We try to keep a balance. 🙂

  • Mom January 16, 2015, 8:13 am

    One thing to keep in mind is your asset allocation – if you were 100% in bonds (or other “fixed-income”) assets, would you be FI? Given your current allocation, you’re not, but that could easily change. It’s not an easy question to answer, but consider it an option. If you never touch your principal, does it matter what it’s balance is as long as you get the dividends/interest from it?

    • retirebyforty January 16, 2015, 10:46 am

      Probably not. Bond income is so low at the moment.

  • Paras January 19, 2015, 4:02 pm

    Why would you include the yield from retirement accounts? By normal rules, you cannot touch that income until 59.5 age. Yes, there are some back doors such as Roth IRA ladder, rule 72(t) but personally, I would exclude the retirement accounts and try to achieve FI ratio of 1 without those. (FYI, I am at an FI ratio of 0.85 without retirement accounts)

  • Felix Money January 27, 2015, 12:24 am

    I’m not doing terribly well at generating passive income right now…Had 3 rental properties, after many troubles with one, it’s on the market for sale, and the other two were doing ok for about a year, now a renter got sick and hasn’t paid us in months, and another one is getting ready to move out. I do love real estate, but the margins are small with rentals. Although from 3 we should have been making about $16,000/year in profit if it weren’t for people not paying rent, evictions etc. I think I will stop investing in passive income for a while and invest in active income (businesses), and maybe resume the passive investment later…

  • GDP February 9, 2015, 9:14 am

    I am curious, if you wouldn’t mind answering. Do you make much passive income off this blog? I ask because I have my own retiring early blog and I am working on building it up to eventually generate a little P.I. but I doubt very much ever.

    Also I wish I had 35k/yr P.I as I could/would retire right now. But I am single with no kids.

    • retirebyforty February 9, 2015, 10:34 am

      Actually this blog takes a lot of work and I don’t count it as passive income. It’s active income… You can subscribe to my newsletter to see the detail on how much money I make. The income fluctuates from month to month. Good luck with your blog!

  • Mr. Tako @ Mr. Tako Escapes January 18, 2016, 2:57 am

    Hi Joe – I’m with you on your thoughts of switching out to a REIT. I’ve looked very hard at rentals in our area (the PNW) and the numbers (at our level) just don’t look very good. Real estate here in the PNW looks more like gambling on capital appreciation aka “the greater fool theory”. The cash flow doesn’t seem to be there. In most of the ‘cases’ that I’ve looked at, major maintenance would eat up the cash flow for years.

    Meanwhile, I have some apartment REITS that have steadily grown income at about 5% a year. Dividends are now 16% of my original cost basis (yearly). Nothing to complain about there! And, I don’t need to break my back for it.

    • retirebyforty January 18, 2016, 11:02 am

      REIT would be so much easier. Rentals are a constant source of headache. I think I will try to exit gradually over 6 years period.
      PNW is expensive to the local people, but cheap compare to California…

      • Mr. Tako @ Mr. Tako Escapes January 18, 2016, 11:07 am

        You got that right about CA! I often wonder how landlords can create proper cash flow in super expensive areas like San Francisco.

  • Conrad January 18, 2016, 9:51 am

    Wow, planning your entire retirement based exclusively on passive/dividend income is pretty conservative (1.5-2.5% withdrawal). I bet you could sell your house, move into your rental, and reduce your expenses now, such that your wife could retire today. Especially with your blog income. You seem like a pretty cautious person, so a 2% withdrawal may be what you need to sleep well at night, but I’m sure it’s nice to know that you could make some changes now and make it work. At your rate, Jr. is going to inherit some major wealth after you pass.

    • retirebyforty January 18, 2016, 11:03 am

      My wife isn’t quite ready to retire yet. I think 2020 is the perfect time. It’s better to be cautious when we’re this young. If things continue to look good in our 50s, then we’ll probably loosen up a bit. Thanks!

  • Preston @TheDrunkMillionaire January 18, 2016, 10:58 am

    Great post and great motivation! I’m new to your blog and was wondering: do you reinvest your passive income until you hit 40 or do you live off the earnings?

    • retirebyforty January 18, 2016, 11:04 am

      We still have income so we are reinvesting everything. When Mrs. RB40 retires, we’ll start using the passive income to pay the bills.

  • Sam @ Financial Samurai January 18, 2016, 6:46 pm

    2020 does sound like a perfect time for your wife to retire and live off the dividends.

    Hopefully rates go up, and the stock market and everything else doesn’t get hammered so much to negate all the benefits!

    • retirebyforty January 18, 2016, 10:00 pm

      Well, I hope the market gets hammer now and not in 2020. If things don’t look good, she might have to delay a little…

      • Cathy January 20, 2016, 12:04 pm

        Or maybe you could both get less stressful jobs. Her delaying doesn’t seem like the only viable option.

  • Mia January 18, 2016, 8:46 pm

    Joe,

    You may have a post on this that I missed, but who do you utilize for hosting. Trying to decide if I should breakout from free blogging. I’ve been following your site for months and love it.

    Mrsfrugalnow

    • retirebyforty January 18, 2016, 10:01 pm

      I’m using inmotion, but I don’t think it make a big difference when you’re starting out. I’m sure you will change hosting a few times until you find a company you can tolerate.
      Good luck!

      • Mia January 19, 2016, 11:51 am

        Thanks Joe. I appreciate your help.

  • Mike H. January 19, 2016, 7:09 am

    Excellent progress! You’re miles ahead of me.

    I have a question: does your FI ratio include a forward strategy? As much as prices are sticky in the short term, inflation always catches up. For instance, if you’re 40 now, you might live another 50 years or so; imagine somebody who retired in 1966 saying that they were financially independent because their dividends exceeded $7,400/year [$54k today = $7,372 in 1966].

    • retirebyforty January 19, 2016, 10:49 am

      The forward strategy is to avoid withdrawing from the retirement funds until our late 50s or early 60s. That should enable the fund to grow and beat inflation. I will go over the number again in 2020 to see where we are. I’ll probably use a good retirement calculator to help with that calculation.

  • Rob January 19, 2016, 12:10 pm

    My only concern is that by focusing so much on passive income you might end up “chasing yield” without taking into account risk (especially inflation). Higher yield usually goes hand in hand with higher risk and/or a more active role (such as being a landlord). NOt to mention you end up paying higher taxes in the accumulation phase. As an example, P2P might look great from a passive income perspective due to the high yield. But, would you really feel comfortable using all of that income? First, taxes would take a bite. But you’d also have to re-invest some of the income so that it will grow with inflation. When all is said and done, you’re probably back to a 3-4% “withdraw rate”. So why not just invest in a broad and diversified way irrespective of income yield. When the time comes to tap into it, an inflation protected withdraw rate of 3-4% will be safer, more tax efficient and less of a headache than cobbling together various seemingly higher yield investments. I understand the comfort that “passive income” might provide psychologically, but its more an illusion than anything.

  • Dividend Growth Investor January 19, 2016, 12:57 pm

    Those are some pretty hefty goals. Have you thought about actually reducing spending? That could help you reach your goals faster, and you will have a nice margin of safety in retirement income also.

    Hope your “side” income online grows too, so you can max out retirement accounts.

    If the stock market drops further this year, you will be able to purchase more passive dividend income at a greater discount.

  • Rudy January 24, 2016, 3:07 am

    This FI ratio is interesting indeed, it sound like financial tools for investing in the market stock . This will be financial tool for retire. Just great.

    Next year you are trying to improve income from real estate, did you ever think to reduce your expenses?

    It should help to improve the FI ratio

    • retirebyforty January 24, 2016, 11:27 am

      Our kid will start kindergarten so that should remove our preschool cost. Other than that, I don’t see anything we could cut. We are already pretty frugal. Our biggest expense is housing, but it will take us a few years to reduce that.

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