My friend and I have both developed a healthy amount of passive income over the years. We are talking true passive income where we don’t have to do anything to make money. It gets us excited thinking about passive income because we have the optionality of quitting our jobs, moving to some tropical paradise, and not die alone if we don’t want to!
My definition of passive income comes directly from CD interest income. With an average yield of 4% (7-yr CD’s), my passive income isn’t sexy by any means. But, it’s a great feeling knowing the principle will still be there and then some years from now. Collecting dividends is not my idea of generating passive income, because you have to actively manage the portfolio as you could blow yourself up in a downturn.
We got to talking about the article, “Don’t Quit, Get Laid Off Instead“, and we began to wonder what if we successfully did engineer our own layoffs? Would we be able to collect the ~$1,800 a month in unemployment income while generating five figures a year in passive income?
After speaking to people in human resources, a couple unemployed folks, and doing some searching online, I’ve come to the conclusion that it doesn’t matter if we make $100,000 a year in passive (unearned) income, we still get to collect unemployment insurance.
EXAMPLE WHERE COLLECTING IS PERFECTLY FINE
Let’s say you work for 20 years and diligently save a majority of your after tax income every year. You somehow amass $2.5 million and decide to go really conservative and buy ten, $250,000, 7-year CD’s with a 4% interest rate. The reason why you buy 10, $250,000 CD’s is because of the $250,000 FDIC guarantee limit ($500,000 for couples per account). Fair enough.
You love your job, but due to a restructuring, you are let go. The $100,000 a year you earn in passive income has no bearing on your ability to collect unemployment benefits since the $100,000 a year is a result of your past work. You are no longer working to make that money, as that money is now working for you. Your company could technically refute the unemployment benefit claim upon realizing you earn six figures in interest income, however, you don’t have to reveal your personal finances to your employer. And if they do deny you, you have recourse.
The more interesting question is, “Should you collect $1,800/month in unemployment benefits if you have enough passive/unearned income to live on?” My answer is, absolutely yes. Just look at your W2 and see all the federal and state income taxes you pay. Mine makes me absolutely sick. Your employer is happily paying you less than you could truly earn so they can pay for unemployment insurance.
There really isn’t a moral question to taking unemployment insurance while earning enough money passively to survive. You and your company have paid for it after all those years you’ve worked, and if you’ve found yourself out of a job for reasons no more than performance related, then you deserve to collect some money back for once!
Recommendation: I encourage everyone to shop around for health insurance, especially with the Affordable Care Act debacle that is not proving to be cheaper for many people. The internet has really helped lower the cost of insuring yourself and your family. eHealthInsurance has some of the lowest rates and best coverage due to its largest network online. They are based right here in the Bay Area, and I have met a number of their representatives.
Photo: Jitsu Relaxing At The Four Seasons, HK. SD.