Multiply Your Streams of Income

In days of yore, many Americans typically relied on a defined benefit plan (commonly referred to as simply a pension) as the anchor of their retirement income. A quick refresher, defined benefit plans promise a specified monthly benefit at retirement.

Defined Benefit Plans

The defined benefit plan may state this promised benefit as an exact dollar amount, such as $1,000 per month, once the employee has met the requirement(s) (e.g. length of employment) at the time of retirement. More commonly however, retirement benefits are calculated through a plan formula that considers such factors as salary and years of service.

Combined with Social Security benefits and personal savings, these three elements were often referred to as the “three legs” of the retirement stool. Let there be no doubt, that model is long gone, dead, and it is not coming back.

Private employers, and many public sector employers, have moved – or are moving to – defined contribution plans. These plans, such as a 401(k)s, do not guarantee a specific amount of benefits at retirement. In these plans the employee – often with matching contributions from the employer – contributes to the employee’s individual account under the plan. The value of the account at the time of retirement will be based on the performance of the underlying investments over the course of the period contributions were made.

Anvesh Uppunuthula

As noted by Towers Watson in an October 2013 study, the number of Fortune 100 companies offering new salaried employees only a defined contribution plan continued to rise, as it has for many years. Today, less than a third of these companies offer any defined benefit plan to newly hired salaried workers, and only 11 still offer a traditional defined benefit plan to new hires. Unfortunately, this phenomenon is not limited to Fortune 100, or even Fortune 500, companies. It is the future for the majority of employers.

Make no mistake, defined benefit plans are undergoing significant fundamental changes as previously discussed here, here, and here. Adding to the difficulty is the fact than many individuals no longer work for one employer over the course of their careers. In this new economy, within this present business environment, you can no longer expect to work for a single employer for 10+ years and you cannot expect that any of your employers will offer a defined benefit plan.

Social Security Benefits

Combined with the fact that the second leg of the retirement stool – your Social Security pension – is likely to be negatively impacted in the future, particularly for younger workers, and you are left with one leg of the stool…your personal savings. You, my friend, are on your own. The best way to succeed in this new environment? Develop multiple streams of income during your working years and ensure your plan will generate multiple streams of income in retirement.

Multiple Sources Feeding the Nest-Egg

Using my family as an example, let’s look at multiple streams of income during the working years first. While the primary sources of income for me and the wife is our 8-5 day jobs, we also own a rental property, I run this blog – which typically generates a few hundred dollars a month – and I have published a couple of books which generate a little bit of revenue each month in the form of royalty payments.

Passive and Portfolio Income

Turning to multiple streams of income in retirement, let’s look at the two sources of income, passive and portfolio. Regarding passive income, if you are a frequent reader of this blog, you know that I retired from active duty (U.S. Army) which provides one source of passive income. That will be combined with the pensions from our current jobs (we are fortunate in that we both have defined benefit plans with our current employers), Social Security pensions, rental income if we keep the rental property that long, and royalties from my current books … and others I might write. For portfolio income, we are looking at our Roth IRAs, our Thrift Savings Plans (equivalent to 401(k) plans), and a brokerage account.

All combined, my plan is to have 10-12 different income streams in retirement with the expectation that one or more will be negatively impacted over time by forces beyond my control. With regards to retirement planning, more is definitely better.

Final Thoughts

And you, SavvyReader? Are you developing multiple streams of income during your earnings years to feed your nest-egg? Are you developing multiple sources from which to draw in retirement?

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. Hey James,
    Great post! Having only a single source of income is most likely why people never see retirement and run into financial problems. Multiple streams is the way to go!

    • Indeed. The more, diverse income streams one develops during their working years, the more, diverse income streams they can draw from in retirement and protect themselves from negative impacts that will be beyond their control. Thanks for dropping by, Otto.

  2. Good post and I couldn’t agree more with the concept of attaining multiple streams of income. It seems like you guys will be better off than many Americans, as you have 2 defined pension plans. I am looking forward to having at least 5 steams of income. Retirement accounts, Dividend stocks, Social security, Blog income, and Business income.

    • Yep, we should be in pretty good shape. Actually, three of our sources (my active duty pension [which I currently draw] and two from our current jobs) will be from defined benefit plans. It appears as if you will also be in a good position for retirement as you have developed multiple, diverse streams. Nicely done. Thanks for taking the time to stop by and add to the conversation.

  3. I totally agree, and I’m always working on finding my next income stream. People have lots of great hobbies, but mine is finding ways to make more money.

    I currently have my own finance blog, a freelance writing and social media business, and I’m starting a new financial technology startup on top of all of that, plus my day job.

    Gotta keep up the hustle to win the race!

    • I am right there with you, my friend. It would behoove people to act on the assumption that one or more negative things will happen to one or more of their planned income streams. Without a doubt, more is better … and increasingly necessary. Thanks for stopping by and adding to the conversation.

  4. We are working hard to build multiple streams of income for retirement. The hubby stays on top of it all more than I do but I know we want to continue building different streams. Perhaps another rental is in our future. We’ve had one in the past and sold it when the market was so good. Hmmmm … you have me thinking, James!

    • Glad to hear it, Jayleen. I truly worry about the people who believe Social Security and a few dollars in their 401(k) will be enough. As always, thanks for stopping by and adding your voice to the conversation.

  5. The most recent way I have developed a new income stream is through Peer-to-peer lending, or P2P. You can set your own risk tolerance, the account will automatically invest your proceeds for you, and it is not correlated to the stock market or real estate markets the way most other investment options are…

    • Would love to get involved in P2P. Unfortunately, my state, Arizona, is one of those that does not currently authorize it. How has it worked out for you thus far, Josh?

  6. James , good topic , lots of food for thought . especially liked Gages comments about social security I think we all need to be a bit leery of depending on soc. sec. as a income stream in retirement .

    • Agreed, Brad. I would suggest that anyone who is planning for Social Security to be the primary source of income in retirement, will likely end up disappointed and have a less than satisfying retirement.

  7. In regards to Social Security benefits being available when you retire, here’s a fact that’s quite concerning:

    People are living longer, much longer. In 1950, there were 16.5 workers supporting one individual receiving Social Security benefits. In 2010, that ratio has tumbled to 2.9 to 1. Clearly, this is not the projected path that FDR had in mind when he established the Social Security Trust Fund in 1935.

    Two things in my opinion need to happen to reverse this trend. First, since Americans are living much longer, the age at which workers are eligible to start receiving benefits needs to increase beyond age 62 (reduced benfits) and the maximium income that is eligible for social security tax needs to increase well beyond the current limit of $117,000. Both political parties know this……..

    Nothing should change for those workers currently age 55 and older. But for those under age 55, a graduated scale to be able to receive benefits beyond age 62 needs to be put into place and the maximium salary that is elgible for the Social Security tax (not the current tax rate of 6.2%) needs to be significantly increased. Notice that I said “maximum salary” and not “tax rate”.

    There have been proposals to allow individuals to have the “option” of investing a “small” percentage of the 6.2% into the open market. This, in my opinion is a risky option but the risk could be mitigated by allowing these dollars to be invested in a narrow band of conservative investments that have the potential to beat the current basket of investments currently in the Social Security portfolio.

    Just a thought…….

    • Great input as there is certainly a lot to consider (i.e. long-term viability of the program, age to start withdrawal benefits, etc.) with respect to Social Security benefits. While I am hopeful that the benefits will be there – largely as they exist today – when I plan to start drawing them in 17 years or so, my guess is that is unlikely and moreover, I am ensuring those benefits do not constitute the cornerstone of my hopes for retirement income.

      Interestingly, I just finished a book, Falling Short: The Coming Retirement Crisis and What to Do About Ita recent SavvyRecommendation – which makes the case that, “Social Security has been, and should continue to be, the cornerstone of the [retirement] system.” While I agree with many of the points the authors make in the book, that is not one of them. While Social Security has been the cornerstone of the retirement system for many, it is unlikely to continue to serve in that role for younger workers, and more importantly, they should not plan for it to fill such a role.

  8. A Google+ reader notes…

    “Most people are not educated enough to handle a financial windfall. When that large wad of cash lands into their bank account they are just as ignorant concerning money matters as they’ve every been. This is why they are broke in a short amount of time despite the extraordinarily large amount of cash that came their way.

    The network marketing company I’m a part of is an financial education program with a compensation plan attached to it. That’s a major blessing.

    Ever noticed that pilots don’t fly fighter jets without training? Well we need to take the same approach to finances- we need to train before we fly!”

  9. Nicely done! My wife no longer works, but saved a load of money in her 401k over 15 yrs at the same company. My current employer puts 8% of my salary automatically into my 401k, although, I also contribute the max to the plan (half in trad/half Roth 401k). We also have two rentals houses.

    My question: should we consider taking the 10% penalty for w/d 401k funds early and take the tax hit NOW or wait until 59.5 yrs old and hope for the lower tax rate (which I’m not so sure about)? The total hit would be around 40%. We are 37 and 41. I just feel uneasy having most of our funds in untouchable vehicles that COULD even be negatively impacted by some new gov regs down the road.

    Many thanks!


    • Nicely done, Rob. It sounds as if you have a solid foundation in place with multiple streams. With regards to taking the money out of the 401(k) before 59.5, it is not something I would consider. It really is a toss-up with regards to the taxes. There is no way to know what will happen to the tax code over the next 20 years, about the time you and the wife will be ~ 59.5. Since there is no way to know, why incur a 10% penalty?

      Unlike defined benefit plans, which can be, and are being changed after the fact – see the Detroit bankruptcy as an example – I believe defined contribution plans are less susceptible to rule changes after the fact. At the end of the day, I believe no one, or no entity is going to touch the money you have in your 401(k). As you note, there may be a change to the tax code over the years, but I believe your money will be there. Another reason not to consider taking the money out…where would you put it? Parking it in a bank means the value would decrease over time considering this low interest rate environment. If you put it back in the market via a brokerage account, you will have to deal with all of the fees associated with buying/selling equities, ETFs, and/or mutual funds.

      • James,

        Great points! This seems like the correct strategy, indeed. When it came time to pull the trigger and take that extra 10% penalty PLUS the tax burden, I would NOT be able to do it. It’s good to flesh out these ideas sometimes, however, and I certainly appreciate your thoughtful response and input.

        What are your opinions on the Roth 401k? I’m considering going with a full Roth allocation through my current employer. I realize that we will not be lowering our taxable income, as is the case with the traditional allocation, but we will also have this money tax free in retirement, which seems to be a winner. If only I could find, or develop, a calculator that would allow me to input this scenario and weigh the differences in an objective manner.

        Enjoy your blog, even though I’m a new reader! One of the best I’ve found.


        • With regard to the Roth 401(k), my approach – for me and the wife – is to stick strictly with 401(k)s at work and Roth IRAs through our financial services company…with the objective of maximizing contributions to both. As you allude to, there are a lot of different options depending on your AGI, preference for when to pay taxes, etc. Try this calculator at Bankrate, it might give you some clarity for your particular situation and preferences.

          Thanks for the great feedback and I’m glad you have found my blog. You should take a minute to subscribe to be alerted when new content posts. It just so happens I am giving away a $25 Amazon Gift Card to a new subscriber. I will choose a winner from those that subscribe before the end of March. If you haven’t had the chance to explore the blog a great deal, you will find that it is broken down into five basic areas: new Quizzes are generally published each Monday, Interviews on Tuesday, Discussions on Wednesday, Recommendations on Friday, and the Living Frugally series on Saturdays.

          Thanks for stopping by and adding to the conversation.

  10. From a reader on Google+…

    “Thanks for such a great read.”

  11. A reader on Google+ notes…

    “I see many opportunities here for developing an income stream. With the increase in tourism I am thinking a hostel on the Caribbean coast could be a good plan.”

  12. A must read for anyone who ever plans to retire comfortably…which hopefully is everyone. Multiple streams of income will be a must. My husband and I aren’t sure that Social Security will even be there when we retire. I know for a long time he wasn’t even counting that, not sure if he is now. It is scary though. Things can change so quickly. By having multiple streams of income, your chances are better at having that life you wanted in retirement. Great post, SavvyJames.

    • Thanks for the feedback, Karen. If someone is younger than 40, it is almost a certainty that there Social Security benefits will be changed/impacted…most likely in a negative way. It is better to know and prepare as soon as possible.

  13. I don’t live in America, but I’m definitely am trying to get multiple sources of income because I know that it’s one of the best thing I can do to achieve my goal, and that is to be financially independent.

    • Absolutely, Mark. If an individual is limited in their sources of income, they are much more vulnerable to any changes to that source and are putting their ability to achieve financial independence at risk. Thanks for stopping by and adding to the conversation.

  14. From a reader at Facebook…

    “Thanks James! Good read.”

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