VI Blog

Learn how to earn passive income in Singapore

30 Jun 2021

Passive Income Ideas 2021 | VI
(c) Sadie Xiao

Getting a job is not enough to let us live the lifestyle we wanted. Yes, it can cover our daily expenses and insurances, but it does not provide us with the “security” and “stability” we want to have, especially when we’re looking to retire early.

This is why people look up ways on “how to earn $10,000 a month” or “side jobs from home” or “how to earn extra money.” No need to be ashamed, we’ve all shared (and Googled) similar thoughts.

The key is to grow our passive income on top of maintaining our active income. And creating passive income in Singapore is possible IF you know where to look for it.

Passive income vs active income

If you’re confused by the difference between passive and active income, think about passive as ‘stationary’ and active as ‘dynamic.’

For example, your job is an active income source because it requires your daily effort. If you quit your job, your income also stops.

Passive income, on the other hand, doesn’t require regular effort from you. Hence, even when you don’t do anything, your income still flows.

If you’re still confused, picture yourself continuously swimming versus yourself using a lifebuoy. Active income is the former and passive income is the latter. Without a passive income, you’ll continue to swim so you won’t drown.

The good news is that there are a lot of lifebuoys in Singapore so you can stay afloat. Here are the most popular passive income ideas we can recommend:

1. Invest in stocks

This is a no-brainer. The pandemic has popularised this investment option. If you don’t believe us, just notice the numerous brokerage advertisements on subways, buses, and social media. More and more people are turning to stocks to earn extra money. And they have good reason to do so!

Some of the world’s richest people grew their wealth through investing in stocks. While the process might be tedious at first as it requires thorough analyses to ensure good profits, it can provide you with a steady passive income when done well.

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You can also consider investing in dividend stocks, such as IBM, Coca-Cola, Pfizer, Singapore Press Holdings, ST Engineering, Challenger Technologies, and Delfi. These are stocks that pay you, as a shareholder, regular dividends. Because you’re technically buying a share of a company when you buy a stock, think of dividends as your slice of the pie when the company makes profits.

2. Use your CPF

One great initiative for Singaporeans to ensure we can have stable passive income during retirement is CPF (Central Provident Fund). Other countries have this as well but termed it differently. Depending on our total contribution, the plan we chose, and the age we opt to start receiving payout, we will get a specified monthly amount from retirement throughout our lifetime.

While a $700 to $2,800 monthly payout might be a small amount for your retirement, this money is at least a guaranteed source of income. This is why many people choose to stick with contributing to their CPF rather than getting private annuity plans, which have higher risks.

For people who have higher risk appetites, you can choose to invest your CPF through the CPF Investment Scheme. For example, you can invest up to 35% of your Ordinary Account in stocks and 10% in gold. The only catch is any returns you get from investing in these options will go back to your CPF account and can only be withdrawn during retirement.

3. Consider private annuities

Your CPF is an annuity, but if you want additional passive income once you retire, you can consider getting a private annuity or retirement plan. This is insurance that you can get from private insurers such as Manulife and NTUC Income.

Each retirement plan has its features and you can customise yours depending on your personal needs, i.e. retirement age, current income, and ideal monthly payout in retirement.

While they are not mandated just like your CPF, private annuities can supplement the income you’ll receive from your CPF once you’re no longer working.

4. Invest in Singapore Savings Bonds

Bonds can be another passive income idea for Singaporeans, especially the Singapore Savings Bonds (SSB) which is fully backed by the government. Hence, when you invest in bonds, you have a guarantee that you’ll eventually get your investment back.

Think of bonds as loans. You’re the investor and the Singapore government is the borrower. Since these are loans, the borrower needs to pay you regular coupon payments (think of these coupons as the interest earned) until the bond matures (or expires) as well as the principal amount upon its maturity.

The best thing about investing in SSB is you can start with as little as S$500.

5. Buy and rent out a property

This option isn’t top-secret. In fact, this is probably the most popular passive income source among Singaporeans who want to make money while sleeping.

Despite requiring huge capital, property ownership will give you a steady monthly income. It doesn’t even have to be a whole unit. You can rent out unused space in your HDB or condominium unit. You can also enlist to Airbnb if and when they are still relevant post-pandemic.

The difficulty, however, lies in seeking tenants, maintaining the property, and doing renovations. But if you don’t mind the extra effort and a few miscellaneous expenses, then you can consider property ownership as one source of passive income.

6. Invest in Real Estate Investment Trust

If you’re interested to invest in a property minus all the hassle of finding tenants and doing maintenance, you can turn to Real Estate Investment Trusts (REITs), which are traded via the stock market.

It works almost the same way as owning real estate, except it does not require you to personally manage your assets. All you need to do is choose where to invest in, for example, CapitaLand Integrated, Ascendas, Mapletree, or Frasers Centrepoint. REITs are professionally managed so you won’t need to oversee any operation-related tasks.

As a unitholder, you will then receive dividends from the REITs you invested in. This is another popular option among Singaporeans looking for passive income ideas as REITs are required to distribute 90% of their earnings to the unitholders. The key is choosing which REITs are the best.

We don't have a shortage of passive income sources in Singapore. All we need to do is look around and take appropriate action.