Retirees are often assumed to be living on a “fixed income.” Retirement income is often not that fixed, though. Social Security checks rise in size over the years, thanks to cost-of-living increases. And other income sources, such as dividends and annuities, also frequently feature changing income.
It’s worth setting up multiple income streams for yourself in retirement, as one may grow over time while another shrinks. For example, you might generate needed cash via a part-time job in your early retirement years, giving that up at some point.
Here are five retirement income sources, some of which you may not have thought about, which can serve you well in the future.
1. Dividend-paying stocks
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 well worth considering for the dependable income they can provide. They do have a few downsides, though, chief among them being that you give up what you pay to buy them.
Dividend-paying stocks can be as good or better than annuities, offering dependable (and often increasing) income indefinitely, as long as the companies are healthy and growing. If, for example, you have a $400,000 portfolio with an overall dividend yield of just 3%, you can expect $12,000 annually, or about $1,000 per month, on average – and you can expect that payout to rise over time, often keeping up with or exceeding 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 healthcare expenses with pre-tax dollars, and that can save you a lot of money. HSAs have more great features, though: For starters, the money in them is not there on a use-it-or-lose-it basis. It can accumulate over time, and once you turn 65, it can be spent on anything, though withdrawals for anything other than qualifying healthcare expenses will count as ordinary income. So it doubles as a retirement savings account.
The deadline for contributing to HSAs is the same as the tax deadline, so 2021 contributions must be made by April 15, 2022. The contribution limit for 2021 is $3,600 for individuals and $7,200 for families – and those 55 and older can contribute an additional $1,000. If you enter retirement with, say, $20,000 in your HSA, that money can serve as retirement income.
3. Renting out space in your home
These days there are more money-making possibilities than ever. You might, for example, rent out space in your home – or rent out all of your home – via a service such as Airbnb or Expedia‘s service VRBO. Much depends on the desirability of your home and its location, of course. If you have a big house in or near a big city and you can rent it out for several weeks a year (perhaps while you’re traveling or visiting family), you can bring in many thousands of dollars.
On a longer-term basis, if you have extra space in your home, you might take in a boarder. It’s not everyone’s first choice for generating extra income, but it could be a good solution for some. Even if your boarder pays just $600 per month for a room and maybe access to some common areas, that can provide an extra $7,200 per year.
4. Your house – via a reverse mortgage
Another way that your home can provide unexpected retirement income is via a reverse mortgage, where you borrow money (which you can receive in the form of a monthly income stream) – using your home as collateral. As an added bonus, the payments you receive are often tax-free.
A reverse mortgage loan generally doesn’t have to be repaid until you’re no longer living in your home – such as when you die or move into a retirement home or care facility. At that time, it’s often paid off by selling the home. For some, that’s a big drawback, as it makes it hard or impossible to leave the home to heirs. For others, the drawbacks are well worth it. Read up 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 may not have envisioned yourself working in retirement, but many people welcome a low-stress, part-time job, as it can get them out of the house and socializing on a regular basis. Many retirees find themselves at a loss in retirement, feeling a bit isolated, lonely, and restless. A job can help with that – even if it’s something you work on mostly at home, such as if you do knitting or woodworking that you sell at local markets.
With a part-time job that pays $12 per hour for 10 hours a week, you can collect $520 per month, or $6,240 per year, pre-tax. There are lots of interesting and satisfying ways to make more money on the side. Spend some time looking into possibilities and you may find a few ideas that excite you.
However you go about it, it’s smart to start thinking about setting up some additional income streams for yourself in retirement – beyond just Social Security, which isn’t enough to support most of us comfortably.
2. Delay starting to collect your benefits
Know that your Social Security benefits are based, in part, on your full retirement age, which is 66 or 67 for most of us. If you retire at your full retirement age, you can collect the full benefits to which you’re entitled, based on your earnings history. If you retire earlier (the earliest you can start collecting is 62), your checks will be smaller. If you delay starting to collect (until as late as age 70), your checks will be larger.
The table below shows roughly what percentage of your full benefits you’ll get, depending on when you start collecting:
