Over the past three weeks Your Money has been focusing on retirement planning: helping you to figure out how much money you’ll need to retire comfortably, explaining methods of saving for your nest egg, and hopefully imparting the urgency of starting a retirement plan sooner than later.

Saving a large enough lump sum to meet your retirement income requirement is easier accomplished when you begin saving at an early age. Unfortunately, the reality is that most of us postpone thinking about retirement planning until we’ve bought our own house or sent the children to college. Then, as age 60 looms closer, we start to seriously consider exactly how we’re going to afford to stop working.

Let’s look at a typical scenario of someone who is faced with the harsh reality of retirement costs. Forty-year-old Teresa wants to invest towards a retirement nest egg that will be available when she is 65.

She wants to be able to withdraw the equivalent of J$50,000 monthly in today’s dollars, and hopes that her fund will allow her to get this sum until she is 85. She has J$100,000 in hand and can save J$10,000 per month now, but she can increase her investment amount by ten per cent every year.

Teresa visits a financial institution and the adviser shows her a plan that can earn an average return of ten per cent per annum, over the next 25 years. She is also advised that her retirement income need is going to be increased annually by ten per cent to account for inflation.

At the end of her saving period, Teresa is thrilled to find out that she will have a projected nest egg of approximately J$33.8m. The bad news is that her monthly requirement of J$50,000 has been inflated to over J$540,000, so her next egg will only last her about six years.

Teresa cannot afford to put aside more money, so the advisor tells her that her lump sum will only allow her to withdraw the equivalent of J$12,000 monthly in today’s dollars (about J$130,000 in 2033). Teresa wonders how she is going to earn the other J$38,000 per month she needs when she retires.

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As we had explained, the key to creating a stress-free retirement plan is to design a practical strategy while you’re employed, that will replace your income when you choose to stop physically working. So if you can’t save enough money to achieve your desired retirement nest egg amount, what else can you do? The answer is to create other sources of revenue that are not dependent on your working efforts, which will last throughout your retirement years.

One of the most popular ways for retirees to generate funds is to rent out a portion of their homes. Very successful entrepreneurs can also retire and earn a handsome income from their dividends from business profit. But what if you don’t have a house, or wouldn’t want to be bothered with tenants when you’re old? What if you never own a large organization? Can you still build a business income that will keep going even when you quit working?

Let’s look at some options of creating a retirement business income stream:

Residual Income

This form of income occurs continually over time, usually from work that you did only once. To be successful at creating a sustainable stream of income, you have to put a lot of initial effort in building and marketing your product or idea. Below are some examples of establishing residual income:

1.   Insurance sales persons whose clients keep paying their premiums can look forward to income from residual commissions;

2.   Creative persons with published books or music and that are properly copyrighted can earn royalties until they die (or beyond the grave if you’re as successful as Bob Marley);

3.   Entrepreneurs providing coin-operated services such as slot machines or candy dispensers can collect returns with minimal work;

4.   Creators of training manuals, software programmes, or e-books can sell these over and over again on the Internet.

Leveraged Income

This is revenue that flows to you from the work efforts of other people. The idea is to make use of their labour to create an income stream for yourself. Here are some ways you can create leveraged income:

1.   Network marketers with large organizations can receive consistent commissions from the purchases of their down-lines;

2.   Service providers such as tutors, architects or landscapers with established operations can sub-contract out jobs to others and earn a percentage of the profits;

3.   Business owners with vibrant operations can franchise their business ideas to others and earn monthly income (think of your own KFC-type operation on a smaller scale);

4.   Website or blog owners can join affiliate marketing programmes that will pay a percentage on the purchases made by people that were re-directed to their websites.

If you are creative and determined, you can conceive of other ways of obtaining multiple streams of income which will be self-sustaining and will provide you with returns throughout your retirement years.