5 Unexpected Sources of Retirement Income |  Smart Switch: Personal Finance

5 Unexpected Sources of Retirement Income | Smart Switch: Personal Finance

(Selena Marajin)

Here’s a majority you don’t want to be in: Most people haven’t saved enough for retirement. According to the 2022 Retirement Confidence Survey, only 33% of workers have saved $250,000 or more for retirement, which means 67% have not. (In fact, 19% have saved less than $1,000.)

If you’re far behind in your savings and hoping to survive into retirement on Social Security income, know that the average monthly Social Security retirement benefit was recently just $1,673, or only about $20,000 annually. Clearly, you’ll need other sources of retirement income. Here are seven, some that require you to have some spending money and some that don’t.

Image source: Getty Images.

1. Interest

This source of income has been almost useless for many years as we have been through a long period with ultra-low interest rates. Although not anymore, they have been climbing. If you have $20,000 in the bank and you’re earning, say, 2%, that’s only $400 per year. But when interest rates are higher and you earn, say, 7%, that principal can earn you $1,400.

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2. A part-time job

This is an obvious way to generate more income in retirement: work. You may not be eager to do it, but a little brainstorming and exploration can lead to some enticing part-time jobs or side jobs. As a bonus, they can keep you from getting bored or feeling aimless and even depressed in retirement. If you work, say, 12 hours a week and make $15 an hour, you can earn about $780 a month (over $9,000 a year), before taxes.

3. A fixed annuity

If you have a significant chunk of change as you approach or enter retirement, you can turn some or all of it into very reliable income by purchasing an annuity. In general, fixed annuities are simpler and possibly preferable to variable or indexed annuities, but educate yourself about annuities before you buy one anyway. You can get annuities that start paying you every month for life, starting right away or starting in the future.

Here’s an idea of ​​the kind of income you can buy through an annuity these days:

People

Cost

Monthly income

Annual Income Equivalent

65 year old man

$100,000

$600

$7,200

65 year old woman

$100,000

$579

$6,948

70 year old man

$100,000

$676

$8,112

70 year old woman

$100,000

$646

$7,752

65 year old couple

$200,000

$1,040

$12,480

70 year old couple

$200,000

$1,139

$13,668

75 year old couple

$200,000

$1,295

$15,540

Source: instantannuities.com.

4. Dividends

Another powerful income-generating strategy is investing in stocks that pay dividends. As with annuities, if you put a large amount of money into them, you can receive a significant income stream. Even better, as you exchange a sum of money for annuity payments, with dividend-paying stock, you keep your money and don’t lose it, while receiving dividend payments (and, ideally, enjoying stock price appreciation as well). But while annuity payments are guaranteed (as long as the annuity provider remains solvent), stocks and their dividends aren’t long-term promises. Still, if you focus on healthy, growing dividend payers and have a $300,000 portfolio with an overall average return of 4%, you can expect $12,000 per year.

5. Your house

There are several ways to squeeze the value out of your home. Reverse mortgages, for example, can serve some (but not all) people well, generating regular income until they no longer need their home, at which point the borrowed money comes due.

Alternatively, you can downsize to a smaller, less expensive home, or move to a less expensive region. Doing so can save you a lot on expenses like property taxes, home insurance, mortgage payments, maintenance, utilities, etc.

Another home-centric way to generate income is to rent a space in it, or rent the whole house, short-term or long-term. You can do this through a service like airbnb. Hosting a guest for a while can also be a great win-win situation, if your guest can help you with various needs as you age, such as shopping, housework, or just keeping you company.

Those are just a few of the many possible ways to generate more (or more reliable) income in retirement. A little digging online may reveal other possibilities, such as health savings accounts (HSAs) or selling your life insurance policy. Just make sure you’re not relying solely (or primarily) on Social Security.

The $18,984 Social Security Bonus Most Retirees Completely Overlook

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Selena Maranjian has no role in any of the aforementioned actions. The Motley Fool has ratings and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.

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