You can be young without money, but you can't be old without it. — attributed to Tennessee Williams
As we age and approach retirement, it's critical that we have sufficient income streams set up to support us for the rest of our lives. Here's a look at a bunch of unexpected retirement income sources, as well as a quick review 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 annually.
Dividends: Even a modest overall yield of, say, 3% can generate $12,000 annually from a portfolio worth $400,000.
Stocks: Many retirees shave off and sell stocks from their portfolio each year, for income.
Interest: When interest rates are relatively or very high, retirees can enjoy income from that, without touching their principal.
A job: You may not want a part-time job in retirement, but it can generate valuable income.
Unexpected sources of retirement income
Here are some more out-of-the-box possibilities to consider:
1. Renting out space in your home
Via services such as Airbnb and Expedia Group's VRBO, you may be able to rent out space in your home — or your entire home — for short or long periods. Much will depend on your home's location and condition, of course.
You may not want to move, but relocating to a less costly region can have you spending a lot less and keeping more money in your pocket. So can just moving to a smaller home in the same region. Costs such as taxes, insurance, utilities, maintenance, and so on are likely to be lower.
3. Renting out other things
If you can't or won't rent out space in your home, you might still generate income by renting out other things. There are online sites, for example, where you can rent your garage, swimming pool, tools, and more.
4. Paying off debts
You may not think of paying down debt as an income-generating strategy, but it is. Every dollar in debt that you pay off means more money that you won't have to shell out in interest payments in future years. If you're paying $5,000 annually in interest on credit card debt, once you pay that off, you'll have $5,000 each year that you can spend on yourself.
Pay an insurer a big chunk of change, and in return you can get monthly checks — potentially for the rest of your life, and even for your spouse's life, too. Pay extra and the 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 as long as you remain 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 move for everyone, but it can serve some people very well. (Note, for example, that it often means your heirs will have to sell your home to settle the debt.)
7. Rental property
Owning rental property may be more than you want to take on, but for people with certain dispositions and certain circumstances, it can be a great source of retirement income. It will require some attention, though, and there can be downsides, such as properties remaining empty for a while or troublesome tenants. And your profit will only come after mortgage payments, taxes, insurance, and maintenance.
8. Health Savings Accounts (HSAs)
If you have a high-deductible health insurance plan, you may be able to set up a Health Savings Account (HSA), which will let you pay for qualified 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-it-or-lose-it basis. Whatever remains in your account come retirement age can be withdrawn and spent on anything, though some taxes can apply.
9. Your life insurance policy
Anyone with a permanent, or “whole,” life insurance policy may have another income-generating strategy: Withdrawing much of its value. Doing so will reduce your death benefit, but that income might 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 them in the policy.
These are just some of the possible ways you might generate additional income in retirement to help keep you afloat. It's worth spending some time strategizing and planning how to maximize your future financial security.
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