Modeling Passive Income in the Real Estate Financial Planner™

The Real Estate Financial Planner™ software gives users unprecedented insight into how real estate investments impact your journey toward achieving financial independence. The software does an amazing job of modeling passive cash flow from rental properties and automatically adjusting cash flows as you consider paying off properties, refinancing properties, cash out refinancing properties and selling properties.

But, until recently, it did not have a great way to model other forms of passive income like social security income, pensions and annuities.

The software has the user define their Target Monthly Income in Retirement.

Target Monthly Income in Retirement is the amount of income you'd need to generate from your investments to consider yourself financially independent.

In fact, the software allowed to define two different versions of Target Monthly Income in Retirement: a MINIMUM Target Monthly Income in Retirement and an IDEAL Target Monthly Income in Retirement.

Minimum Target Monthly Income in Retirement is the absolute minimum amount you'd need to generate from your investments to consider yourself financial independent.

Ideal Target Monthly Income in Retirement is the amount you'd need to generate from your investments to live your ideal lifestyle and consider yourself financial independent.

We used MTMIR and ITMIR (and even 2 times your ITMIR) to determine which Phase of Financial Independence you're in.

Phases of Financial Independence™

Historically, the software would use a combination of any cash flow you had from rental properties (after all expenses) and the amount of money you could generate using a Safe Withdrawal Rate on any stocks, bonds, etc.

NOT 100% CORRECT: If your cash flow from rentals + the (safe withdrawal rate times your account balances) exceeded your Minimum Target Monthly Income in Retirement you were financial independent.

But that's not exactly true.

Really, you should be financially independent if the sum of all of these exceeds your Minimum Target Monthly Income in Retirement:

  • Cash flow from rental property +
  • Safe withdrawal rate times Account Balances +
  • Passive income including:
    • Social security income
    • Income from pensions
    • Annuity income
If your cash flow from rentals + the (safe withdrawal rate times your account balances) + social security, pensions, annuities, etc exceeded your Minimum Target Monthly Income in Retirement you are financial independent.

Income from your job stops when you stop working. Passive income from sources like social security, pensions and annuities can continue even after you've stopped working.

So, the software now has a new  Passive Income rule that allows you to define passive income from these types of sources.

Job income does not count toward whether you've reached your goal of financial independence, but passive income does.

Sample Passive Income Rule

Here's an example of setting up a  Passive Income rule.

Passive Income Rule Example

Notice, since it is modeling social security income, we have it starting on a specific date in the future and continuing indefinitely.

Since social security income is also indexed for inflation, we do enter in the value of it today and have it increasing with inflation over time as well.

Passive Income Charts

The following are a few sample  Charts showing gross passive income (before taxes) and passive income after taxes for  Andrea in Episode 1.

Ep 1 – Andrea – Gross Passive Income
Ep 1 - Andrea - Passive Income After Tax
Ep 1 – Andrea – Passive Income After Tax

And, here the  Chart showing what percentage of Minimum Target Monthly Income in Retirement that  Andrea has highlighting when the passive income from social security kicks in at age 65 for her.

Ep 1 - Andrea - Goal MTMIR - Show Passive Income Bump
Ep 1 – Andrea – Goal MTMIR – Show Passive Income Bump

The social security income becomes much more important for  Andrea in Episode 3, when she invests in stocks instead of real estate.

Ep 3 - Andrea - Goal MTMIR
Ep 3 – Andrea – Goal MTMIR

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