You can be young without money, but you can’t be old without money. — attributed to Tennessee Williams
As we age and approach retirement, it is essential that we have sufficient income streams to sustain us throughout our lives. Here’s a look at several unexpected sources of retirement income, as well as a brief overview of some expected sources.
Expected sources of retirement income
There are several common sources of retirement income:
- Social Security: The average monthly retirement benefit at the time of this writing is $1,677, or about $20,000 per year.
- Dividends: Even a modest overall return of, say, 3% can generate $12,000 a year from a portfolio worth $400,000.
- Shares: Many retirees raze and sell stocks in their portfolio every year, for income.
- Interest: When interest rates are relatively or very high, retirees can take advantage of them without touching their capital.
- A work: You may not want a part-time job in retirement, but it can generate valuable income.
Unexpected sources of retirement income
Here are some other out-of-the-box possibilities to consider:
1. Rent space in your home
Through services such as Airbnb and Expedia Group VRBO, you may be able to rent space in your home – or your entire home – for short or long periods of time. Much will depend on the location and condition of your home, of course.
You may not want to move, but moving to a less expensive area can make you spend a lot less and keep more money in your pocket. The same goes for simply moving to a smaller house in the same area. Costs such as taxes, insurance, utilities, maintenance, etc. are likely to be lower.
3. Rent other things
If you can’t or don’t want to rent space in your home, you could still generate income by renting out other things. There are sites online, for example, where you can rent your garage, swimming pool, tools, etc.
4. Pay off debts
You may not think that paying off debt is an income-generating strategy, but it is. Every dollar of debt you pay down means more money you won’t have to shell out in interest payments in years to come. If you’re paying $5,000 a year in interest on credit card debt, once you pay that off, you’ll have $5,000 each year to spend on yourself.
Pay a large sum of money to an insurer, and in return you can get monthly checks – potentially for the rest of your life, and even for the life of your spouse. Pay extra and checks may be adjusted for inflation. Fixed annuities are generally the simplest and least problematic annuities to consider.
6. A reverse mortgage
With a reverse mortgage, a lender agrees to pay you a lump sum or regular payments for as long as you stay in your home – and your home is the collateral for that. Not everyone will qualify for a reverse mortgage, and it’s not the best decision for everyone, but it may serve some people very well. (Note, for example, that this often means your heirs will have to sell your home to settle the debt.)
7. Rental property
Owning a rental property can be more than you want to afford, but for people with certain dispositions and circumstances, it can be a great source of retirement income. This will however require some attention and there may be drawbacks, such as properties remaining empty for a period of time or inconvenient tenants. And your profit will only come after mortgage payments, taxes, insurance and maintenance.
8. Health Savings Accounts (HSA)
If you have a high-deductible health insurance plan, you may be able to set up a Health Savings Account (HSA), which allows you to pay eligible expenses with pre-tax dollars. An HSA is different from a Flexible Spending Account (FSA) because the money in it is not there on a use-or-lose basis. Anything left in your account at retirement age can be withdrawn and spent on anything, although some taxes may apply.
9. Your life insurance policy
Anyone with a permanent or “whole” life insurance policy may have another income-generating strategy: withdrawing a large portion of its value. This will reduce your death benefit, but that income could be much more important to you now than preserving it for your heirs to inherit later. Some policies may even pay you dividends, which you may be able to receive in the form of cash instead of simply reinvesting it in the policy.
These are just a few of the possible ways to generate extra retirement income to help you stay afloat. It’s worth spending time strategizing and planning how to maximize your future financial security.
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