How Much Passive Income Do You Need To Live a Luxury Lifestyle?
Do you have a taste for the finer things in life and hope to — *checks notes* — do absolutely nothing but sit back and enjoy them? Yeah, don’t we all!
In fact, Cody Schuiteboer, president and CEO at Best Interest Financial, said the most common question he gets asked across all income brackets is, “How much passive income do I need to live a luxury lifestyle?” Because, honestly, who wants to grind away in an office for a paycheck when they could rake in the dough while sipping a mojito on a private beach in St. Barts? But we digress … back to the question at hand.
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The Numbers
According to Ali Zane, CEO and credit consultant at Imax Credit Repair Firm, living a luxury lifestyle requires an annual passive income starting around $200,000. The key word, however, is, “starting.”
An annual, passive income of $200,000 might look like having a paid-off home in a nice area, owning a secondary home, owning a couple cars, flying business class, sending your kids to private school and regularly dining out. This is “average Joe” luxury.
On the other hand, an annual passive income of $2 million might look like having a full household staff while owning multiple homes in prime locations, owning private jets, yachts, luxury cars and even some fancy art collections. This is elite luxury.
Schuiteboer advised figuring out what a luxury lifestyle means to you in order to determine your number.
What Net Worth Produces Enough Passive Income To Live Your Luxury Lifestyle?
Net worth provides the capital to acquire income-producing assets. More capital means more passive income. Jay Zigmont, PhD, CFP and founder of Childfree Trust, provided a formula for figuring out what net worth generates enough passive income to kick back in luxury for the rest of your days: 25 times your expenses at a 4% withdrawal rate.
So, if your luxury lifestyle requires $200,00 in annual expenses in order to sustain it, you need approximately $5 million in investments to achieve it.
Best Ways To Generate Passive Income
Okay, so which investments generate high-yield, passive income? Well, there are a few. It’s often best to diversify amongst them.
1. High-Yield Savings Accounts and Treasuries
With a 4.5%-5% annual return, Schuiteboer said these options are not exciting, but they are stable and low-risk. Incorporate them in your portfolio.
2. Dividend Stocks
Dividend stocks are shares in a company that regularly distribute a portion of their earnings (dividends) to shareholders. Schuiteboer said dividend stocks typically pay between 3%-6% plus capital appreciation.
3. Owning Real Estate
Renting out a property you own generates consistent cash flow, a hedge against inflation and significant tax advantages. Schuiteboer said rental properties typically provide an annual 6%-10% cash on cash return.
4. Real Estate Investment Trusts
Want rental income without having to act as a landlord? Known as REITs, real estate investment trusts are companies that own and manage real estate. You don’t have to outright own any one property, but investment returns are lower and not eligible for tax optimization.
5. Owning Business Equity
“The lion share of wealth generation happens through owning equity of businesses, be it privately of publicly owned companies, royalties or licensing fees or carried interest in investment funds,” said Zane.
While dividends are the rewards you get when a company shares its profits, equity means actually owning part of the company — and, while high risk, the returns can be significant. This looks like founding a business, joining a startup or being a venture capitalist.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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