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Ranking The Best Passive Income Investments

Published: 09/29/2020 | Updated: 01/01/2021 by Financial Samurai 372 Comments

If you’re looking to achieve financial freedom before a traditional retirement age, you must build passive income. This post will highlight the best passive income investments to help you get there. Passive income is the holy grail of personal finance.

Why I Focused On Building Passive Income

After about the 30th day in a row of working 12+ hour days and eating rubber chicken dinners at our company’s free cafeteria, I decided I had enough. Working in investment banking was wearing me out. I needed to generate more passive income to break free.

There was no way I could last for more than five years working in a pressure cooker environment like Wall Street. I started focusing on generating passive income in 1999.

However, it wasn’t until the 2008-2009 financial crisis where I became obsessed with building passive income. The previous financial crisis made working in finance no fun. I’m sure many people during the global pandemic are feeling the same way about their occupations as well.

It wasn’t until 2012 when I generate enough passive income ($80,000) to break free from work. And it wasn’t until 2017 when I was able to generate enough passive income to take care of a family ($200,000).

We’ve discussed how to get started building passive income for financial freedom before. Now I’d like to rank the various passive income streams based on risk, return, feasibility, liquidity, activity, and taxes.

I’m updating my passive income rankings for 2021 given so much has changed since my original passive income rankings came out in 2015. A key difference to my best passive income investments ranking is the inclusion of taxes as new ranking variable. After all, tax treatment can significantly affect returns.

The best passive income rankings are born from my own real life experiences attempting to generate multiple types of passive income sources over the past 20 years.



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401k Savings By Age: How Much Should You Save For Retirement

Published: 08/20/2020 | Updated: 01/01/2021 by Financial Samurai 1,013 Comments

The 401k is one of the most woefully light retirement instruments ever invented. The maximum amount you can contribute is $19,500 for 2021 (no change from 2020). Let’s go through how much 401k savings by age you should have to live a comfortable retirement.

Although the 401k pales in comparison to a nicely funded pension, even more disappointing than the 401k is the IRA. With the IRA retirement plan, you can only contribute $6,000 in pre-tax dollars. Further, you can only contribute if you make under $76,000 a year as an individual and $125,000 as a married couple. What about the rest of us?

Meanwhile, you have to make less than $140,000 a year as a single person or $208,000 as a married couple for the privilege of contributing the maximum $6,000 in after- tax dollars to a Roth IRA. I do not recommend doing this before maxing out your 401k.

Give me a pension that pays 70% of my last year’s salary for the rest of my life over a 401k or IRA any time! At least with the 401k, anybody can contribute.

Average Retirement Balances

Based on Fidelity’s 2Q2020 study, here are the average retirement balances for the IRA, 401(k), and 403(b).

  • The average IRA balance was $111,500, a 13% increase from last quarter and slightly higher than the average balance of $110,400 a year ago.
  • The average 401(k) balance increased to $104,400 in Q2, a 14% increase from Q1 but down 2% from a year ago.
  • Average 403(b) account balance increased to $91,100, an increase of 17% from last quarter and up 3% from a year ago.
Average Retirement Balances Q22020 - 401k savings by age

After the S&P 500 returned 16% in 2020, excluding dividends, the average 401k savings by age should be slightly higher today.



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How To Better Manage Your 401k For Retirement Success

Published: 08/08/2020 | Updated: 01/01/2021 by Financial Samurai 46 Comments

Are you looking to learn how to better manage your 401k for retirement success? You’re in the right place as I retired in 2012 at the age of 34. At 34, I managed to grow my 401k to over $500,000 during my relatively short 13-year career working in finance. Now, my 401k is seen as gravy for when I reach 60.

Early retirement is fantastic. There’s only one problem. Most early retirees no longer contribute to their 401k’s unless they start a business. If you start a business, preferably an online one due to the global pandemic, you can begin contributing to a Solo 401k.

However, most people can’t be bothered. If you can’t contribute to a 401k, then you also lose out on employer 401k matching and profit sharing. I just took a look at my final year’s employer 401k profit sharing plus match and it came out to $27,000. There’s much more to your job than just your salary!

My 401K now makes up a minority portion of my stock investments. The reason why Is because I’ve been focused on building up my taxable accounts. It is your taxable accounts that will generate enough passive income to live off if you retire early.

That said, I still believe the 401k is one of the most retirement vehicles we have today. Here’s how to better manage your 401k for retirement success.



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The Average Net Worth For The Above Average Person

Published: 06/17/2020 | Updated: 01/10/2021 by Financial Samurai 939 Comments

When it comes to your finances, everything is relative. To get ahead, you must outperform the average. This post will discuss the average net worth for the above average person.

You’ve got one life to live. You can have the average net worth in America, which is pretty low. Or, you can shoot to have an average net worth for the above average person. Let’s all shoot to be above average with our one and only lives.

Everything is relative when it comes to money.  If we all earn $1 million dollars a year and have $5 million in the bank at the age of 40, none of us are very wealthy. With this level of wealth, all our living costs (housing, food, transportation, vacations) will be priced at levels that squeeze us to the very end.

As such, we must first get an idea of what the real average net worth is in our respective countries, and then figure out the average net worth for the above average person!

Average Net Worth By Age In America

According to the latest Federal Reserve’s Triennial Consumer Finance Survey available, the average net worth for the following ages are:

Under 35: $76,200

35-44: $288,700

45-54: $727,500

55-64: $1,167,400

65-74: $1,066,000

75+: $1,067,000

Not bad. But these average net worth numbers are skewed by the super rich who have generated an enormous amount of wealth since the financial crisis.

Although the average net worth for all Americans is roughly $692,100, the median net worth is a more pedestrian $97,300 as of 2021. Meanwhile, the median age for Americans is around 36.

Let’s look at the average net worth for above average people. It’s much more rewarding to shoot for stretch goals and achieve the.



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The Rise Of Stealth Wealth: Ways To Stay Invisible From Society If You Have Money

Published: 06/02/2020 | Updated: 01/01/2021 by Financial Samurai 288 Comments

Becoming wealthy has never been easier in America. However, feeling comfortable as a wealthy person on the other hand, has never been tougher. The pandemic has created a K-shaped recovery where the investor class has widened the gap between the working class. This widening gap is why I’m a big proponent of practicing Stealth Wealth.

The investor class crushed it in 2020 with the S&P 500 up over 16% and the NASDAQ up over 45%. Meanwhile, millions of people lost their jobs or were long-term underemployed. To be open about your income and wealth gains would be completely foolish when so many people are hurting.

Further, just look at how the government goes after your money. The government taxes you based on income and much less so on wealth. Taxes are likely going up under Joe Biden as well. Therefore, stealth wealth is paramount.

Stealth Wealth To Avoid The Government

For example, once you make much more than $250,000 a year, you will face an abundance of taxes or tax phaseouts: Medicare tax, AMT, deduction phaseout, credit eliminations, education tax, Net Investment Income tax, etc.

However, you can pass on at last $11.58 million per person in wealth, tax-free to your heirs. This sounds like a lot of money, however, you already got taxes on the $11.58 already. So don’t think the high estate tax threshold is really a great benefit.

Stealth Wealth To Avoid The People

If the government doesn’t get you, regular citizens will. Who did you cheat or rob to get to where you are? Is the common attitude among those who feel left behind. This is a real problem for those who want to make it big in the land of dreams and hand guns.

Freedom is one of America’s greatest attributes. Yet, if you go too far on the income curve you’ll start feeling like a prisoner to society. Finally, hundreds of millions of Americans know what losing freedom is like due to months of shelter-in-place to combat the coronavirus pandemic of 2020.

Despite the rich giving more to charity in one year than many others will give in their lifetimes, people will protest their wealth and hate them forever. Despite paying more taxes each year than what the median household makes, the rich person will be demonized for not paying his or her fair share.

Class warfare is no fun, even if you do have the financial means to own a bazooka.

Practice Stealth Wealth

Most readers here are ambitious folks who want to improve their financial health. Thanks to disciplined savings and investing habits, in another 10 years, I’m sure everybody is going to be that much wealthier, if not millionaires.

But once you get to where you are going, you’ll wonder what’s next. Never lose site of the fact that it’s really the journey to financial independence that’s most rewarding.

When society turns their back on you for being successful, just recollect on all your struggles and take a deep breath. Be proud of your accomplishments because you know you’re not just doing it for yourself, but for your family as well.

You don’t have to be ashamed for not being the dumb ass in high school who thought it was cool to skip class every week to smoke weed. You shouldn’t feel bad that you worked summer internships during college while your buddies went off to play. And you should certainly not feel embarrassed by your frugal habits and smart investments once you found a job.

If you’re getting up at 5am every morning to make extra income before work, good on you! Feel proud of working more than 40 hours a week and not complaining why you can’t get ahead.

Unfortunately, society has a fantastic way of discrediting your achievements. “Nobody is self made,” and “You didn’t build that,” are my two favorite retorts. Just try taking yourself completely out of the equation and see where that logic goes when there’s nobody to think, dream, and execute. When you are outnumbered, resistance is futile. You must blend in and rage with the rest of them.

With the below suggestions you’ll be able to better walk amongst the shadows without fear of retribution any longer. Your family will be more guarded from bullies lurking to recondition your children every chance they get.

Once you finish reading this post, never speak of its matters beyond your immediate family and friends again. We’ve got to protect our own little community on the web.



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The First Million Might Be The Easiest: How To Become A Millionaire By Age 30

Published: 05/12/2020 | Updated: 01/09/2021 by Financial Samurai 290 Comments

Want to learn how to become a millionaire by 30? Let me tell share my story on how I reached a million dollar net worth in my 20s. It involved a lot of luck, a lot of effort, and a lot of risk. In retrospect, I should have taken even more risk, which is a key theme if you want to become a millionaire at a young age.

Growing up in a middle class household made me strong. My parents always drove beaters and frowned upon ordering anything other than water when we went out to eat.

I knew my parents were not rich because their incomes were in the public domain as foreign service officers. As a result, I made a conscious choice in high school not to attend one of the two private colleges that had accepted me in order to save money. Instead, I went to William & Mary, which cost $2,800 – $3,200 a year in tuition from 1995-1999.

We were by no means poor. We just pulled up to parties in a paint-less 1976 Nissan Datsun alongside Audis, Mercedes, and BMWs for the four years we lived in Kuala Lumpur, Malaysia between 1986-1990. It was very mortifying as a kid.

I knew nothing of expensive shoes because I had none. My wealthier friend gave me his old Air Jordans 4s that were two sizes too large. I couldn’t even afford a camera or a Nintendo game system. We led comfortable lives, but didn’t have more than we needed.

I was always curious about my wealthier friends. Many of their parents were business owners so one day I told my father, I too wanted to be a businessman.

By the time I was 13 I was hooked on every single episode of “The Lifestyles Of The Rich & Famous,” narrated by Robin Leech. A million dollar house and a $40,000 sports car. What a life! I thought to myself in the 8th grade. Might as well give it a go. That’s when I started really hitting the books.



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How Much Money Do The Top Income Earners Make?

Published: 04/12/2020 | Updated: 01/01/2021 by Financial Samurai 1,327 Comments

Ever wonder how much money do the top income earners make? When you know how much the top income earners make, then you can better shoot to be a top income earner yourself. After all, everything is relative when it comes to money.

Americans are rich by world standards. With an average GDP per capita income of ~$65,200, America consistently ranks in the Top 20 richest countries in the world. Many of the world’s top income earners live right here in our great country.

Other rich countries that have a higher GDP per capita than America include Liechtenstein ($139K), Qatar, Monaco, Macau, Luxembourg, Bermuda, Singapore, Isle of Man, Brunei, Ireland, Norway, Falkland Islands, UAB, S. Maarten, Kuwait, and Gibraltar. Countries with similar GDP per capita to America include Hong Kong, Switzerland, and Saudi Arabia.

If at birth, you had the mental capacity to choose where you’d like to live for most of your life, living in a top 20 richest country will more than likely help you become a top income earner as well.

Even if you end up being the most mediocre producer, you are still miles ahead of much of the world. Too bad many of us can’t pick where we want to grow up and earn a living. As such, it’s nice to understand how we compare against the rest of the world to give us some perspective.

Let’s take a look at what the top income earners make in America.



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Explaining Why The Median 401(k) Retirement Balance By Age Is Dangerously Low

Published: 04/10/2020 | Updated: 01/01/2021 by Financial Samurai 182 Comments

The median 401(k) retirement balance is low. You likely won’t be able to live off your 401(k) alone in retirement, but you should be able to combine your 401(k) with alternative savings, other passive investments, and Social Security to live a financially free life when the time comes to withdraw at the age of 59.5. Most Americans don’t have pensions.

The reality is that the median account balance in the U.S. is only around $72,000 for 55-64 year olds in 2019 according to Vanguard, one of the largest 401k managers. The average 401k balance for 55-64 year olds is roughly $178,000.

But the average is screwed up to due the super wealthy. Even with $178,000 in your 401k at retirement age, you aren’t going to be living it up for the next 20 – 30 years without alternative sources of income.

Average and Median 401k Balance By Age Group - Vanguard
Source: Vanguard balances

According to data from Fidelity, here’s the average 401k breakdown by age in 2021:

  • Ages 20 – 29: $9,900
  • Ages 30 – 39: $38,400
  • Ages 40 – 49: $91,000
  • Ages 50 – 59: $152,700
  • Ages 60 – 69: $167,700
  • Ages 70 – 79: $160,200

Given the median age of Americans is 35.3 according to the US Census Bureau, the median 401(k) balance per person should be closer to $150,000 – $500,000 according to my 401(k) retirement savings guide instead of these pitifully low levels.

In this article, I’d like to share some stories on what happened to all the missing savings because we all know we should be maxing out our 401k every year for as long as we work. 



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CD Investment Alternatives: Why I’m No Longer Investing In CDs

Published: 03/24/2020 | Updated: 01/17/2021 by Financial Samurai 48 Comments

Hawaiian Sunset

Certificates of deposits, aka CDs, are now paying extremely low rates due to the pandemic and the Federal Reserve. To counteract the economic slowdown, the Fed slashed the Fed Funds rate to 0% – 0.25% earlier in 2020. They have since promised to keep rates at or near 0% for years. As a result, it’s a good idea to look for CD investment alternatives to potentially earn higher returns.

CDs have long been a stable part of my overall investment portfolio. Whether it was a bull market or a bear market, I would always invest roughly 20% of every dollar saved in the longest CD possible since college. The goal was to not only have some risk-free assets, but to eventually get neutral real estate by buying a place to live.

Although I lost around 35% of my net worth during the worst of the crisis in 2009, I knew that even if everything went to hell I’d have at least 20% of my net worth intact. The feeling was very comforting, especially when yields were over 4%.

Do The Following Due To Record-Low Rates

1) Refinance their debt. Refinancing a mortgage or locking in a new mortgage at current low rates is a no brainer given rates are back down to ALL-TIME lows thanks to the flight to bonds. Credible is my favorite lending marketplace to get pre-qualified lenders competing for your business for free in under three months.

2) Look at CD investment alternatives. Instead of earning almost nothing in a CD, look at various passive income investments instead.

3) Search for higher online savings accounts. It’s interesting, but money market accounts are often paying higher than CDs. If you want a place to keep your risk-free money, then look at an online bank like CIT Bank. It consistently has one of the highest yielding savings account online.



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How To Retire Early And Never Have To Work Again

Published: 03/12/2020 | Updated: 01/11/2021 by Financial Samurai 322 Comments

There’s nothing better than being free to do whatever you want. However, unless you’re born with a multi-million dollar trust fund, you’ll unfortunately have to work for your freedom. This article will discuss how you can retire early and never have to work again.

You can follow my savings guide to increase your chances of a wonderful retirement by 50-65. But, what if you want to retire earlier? Say at the age of 40, 45, or 50?

You’re in luck. I have a very simple, yet effective plan for you on how to retire early. This is something I’ve been following since I graduated from college in 1999.

In 2012, I was able to finally leave my day job in finance and I haven’t returned since. The catalysts were: 1) negotiate a severance that paid for six years worth of normal living expenses, 2) having enough passive income to cover my living expenses, and 3) having something to retire to.

As I look back upon my time as an early retiree, there really isn’t much I would change. Having all the freedom in the world is priceless. You will not regret all the work it takes to achieve financial freedom. But you may regret looking back on your life and wishing you didn’t try harder or take more risks.

What’s important is recognizing your inner frugality, your Herculean discipline, the government’s generosity, and your enormous hustle. There’s nothing better than taking action with your finances and seeing results!



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