5 unexpected sources of retirement income
It is often assumed that retirees live on a “fixed income”. Retirement income is often not that fixed, however. Social Security checks increase in size over the years, thanks to the increase in the cost of living. And other sources of income, such as dividends and annuities, also frequently exhibit changing income.
It’s worth creating multiple sources of retirement income for yourself, as one may grow over time while another shrinks. For example, you could generate the money you need through a part-time job during your early retirement years, and then give it up at some point.
Here are five sources of retirement income that you may not have thought of that could help you in the future.
1. Shares paying dividends
Fixed annuities, where you typically pay an insurance company a lump sum in exchange for regular payments for a set number of years or for the rest of your life, are worth considering for the reliable income you get. they can provide. They do have a few drawbacks, however, the main one being that you forgo what you pay to buy them.
Dividend-paying stocks can be as good or better than annuities, providing reliable (and often growing) income indefinitely, as long as companies are healthy and growing. If, for example, you have a portfolio of $ 400,000 with an overall dividend yield of just 3%, you can expect $ 12,000 per year, or about $ 1,000 per month, on average – and you can expect the payment to increase over time, often keeping pace with or beyond inflation.
2. Your Health Savings Account
If you have a high-deductible health insurance plan, you may be able to contribute to a Health Savings Account (HSA) – and those who can should seriously consider doing so. Yes, HSAs are meant to help you pay for qualifying health care expenses with pre-tax dollars, and that can save you a lot of money. However, HSAs have more cool features: For starters, the money in them isn’t there on a use-or-loss basis. It can build up over time, and once you’re 65, it can be spent on anything, although withdrawals for anything other than qualifying health care expenses will count as regular income. It therefore acts as a retirement savings account.
The HSA contribution deadline is the same as the tax deadline, so 2021 contributions must be made by April 15, 2022. The 2021 contribution limit is $ 3,600 for individuals and $ 7,200 for families – and people 55 and over can contribute an additional $ 1,000. If you retire with, say, $ 20,000 in your HSA, that money can be used as retirement income.
3. Your house – rental space
These days there are more ways to make money than ever before. You could, for example, rent space in your home – or rent your entire home – through a service such as Airbnb Where Expedia‘s VRBO service. It all depends on the suitability of your home and its location, of course. If you have a large house in or near a large city and you can rent it out for several weeks a year (maybe while you are traveling or visiting family), you can make several thousand dollars.
Longer term, if you have extra space in your home, you could take a boarder. It is not everyone’s first choice for generating additional income, but it could be a good solution for some. Even if your resident only pays $ 600 per month for a room and maybe access to some common areas, it can earn them an extra $ 7,200 per year.
4. Your home – via a reverse mortgage
Another way your home can provide unexpected retirement income is through a reverse mortgage, where you borrow money (which you can receive in the form of monthly income) – using your home as collateral. As an added bonus, the payments you receive are often tax exempt.
A reverse mortgage usually does not have to be paid off until you are no longer living in your home, such as when you die or move into a retirement home or care facility. At this time, he was often paid by selling the house. For some, this is a big inconvenience, because it is difficult or even impossible to leave the domicile to the heirs. For others, the disadvantages are worth it. Educate yourself on reverse mortgages, if you’re intrigued, and weigh the pros and cons.
5. A part-time job
Finally, you can get a part-time job as a source of retirement income. You might not have imagined yourself working in retirement, but many people appreciate a low-stress part-time job because it can get them out of the house and socialize on a regular basis. Many retirees find themselves lost in retirement, feeling a bit isolated, lonely and restless. A job can help, even if you mainly work at home, for example if you do knitting or woodworking that you sell in local markets.
With a part-time job that pays $ 12 an hour for 10 hours a week, you can earn $ 520 a month, or $ 6,240 a year, before taxes. There are many great and satisfying ways to earn more money at the same time. Spend some time exploring the possibilities and you might find a few ideas that excite you.
Whichever way you go about it, it is a good idea to start thinking about creating additional sources of income for yourself in retirement – beyond Social Security, which is not sufficient to provide for the benefits. needs most of us comfortably.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.