The Future of Investing – Creating Passive Income

In groundbreaking research conducted by global investment giant “Blackrock”, it is revealed that families all over the world are focusing on investing to create sustainable passive income and not only the search for returns. 

So, you have a steady income flow from working 9 to 5 and that’s great. 

But families globally are rethinking their strategy, as deep down they want much more, more independence from a paycheck, more freedom, more flexibility, and they are acting on this. 

The world is changing. In 1875 Bismarck invented the “retirement age” and created the “pension system” based on the fact that the young working population could finance the retirement of those who arrived at the defined retirement age (65) and they could enjoy the few years that they had left, with financial security guaranteed by the working masses or the government. 

Those were the days of the industrial revolution, people mostly worked their whole lives with one employer, life expectancy was about 47, only a few percent of the population were dependent on the working mass, and those who had “made it” could expect a life expectancy from 65 of three to five years. 

Governments Understand that they Can No Longer Finance the Future of their Citizens

The reality today is certainly different, over 95% of the population, will reach Bismarck’s retirement age of 65, and they can expect to live on average 25 to 30 additional years. 

The working mass is shrinking due to families worldwide creating fewer and fewer children, and the new working force, which is substantially smaller, cannot finance the retired public who could be soon more than them. 

Governments all over the world understand that they can no longer afford to finance the future of their citizens so instead of raising the retirement age from 65 to let’s say 80 or 85, they have just transferred the responsibility to their citizens. The move from defined benefits (a defined-benefit plan guarantees a specific benefit or payout upon retirement for the duration of the worker’s life) to defined contribution (a defined-contribution plan is a retirement plan that’s typically tax-deferred, in which employees contribute a defined amount or a percentage of their paychecks to an account that is intended to fund their retirements. The employees’ company will, at times, match a portion of employee contributions as an added benefit. These plans usually place restrictions that control when and how each employee can withdraw from these accounts without penalties) is de facto transferring the responsibility from Governments or employers to the public.

It took some time for the public to digest the new reality, most thought that the government or their employers had not abandoned them, but just changed the system in their best interests. Yet the public slowly realized that when they arrive at the age when they need to finance their futures from what they have accumulated, there is just not enough, and it is too late to adapt. 

The younger generation is beginning to understand that they need not only to accumulate assets but to create passive income, that will replace them when they cannot work anymore and guarantee them the life they are used to living with dignity and security. 

What is Passive Income? 

Passive income is earnings derived from a rental property, limited partnership, or other enterprises in which a person is not actively involved. As with active income, passive income is usually taxable, but it is often treated differently by the Tax Authorities.

A good example of passive income is income generated by the purchase of the real estate. By buying for example residential property that is rented out you are creating “passive income”, but this is only one example. 

Passive income can help families “fill in the gaps” and create security for the day that the nine to five job is over. 

The earlier you start thinking and acting on this the better, it is fine to have passive income even when you are still working. 

So, whether you are investing in real estate, debt, dividend-paying equities, or creating a passive business strategy you should start taking your first steps today. As the saying goes “even a trek of a thousand miles starts with the first step”. 

About the Author
Dan Dobry was the founder of the Union of Financial Planners in Israel (UFPI), served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and from January 2019 is a member of the Committee for Standards and Qualifications for the European Union (SQC).
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