5 Ways to Generate More Income in Retirement
Use these sources to continue getting paid after you clear out the office.
We often think of retirement finance as a two-phase process. You spend several decades saving money; then, once you've retired, you spend another few decades spending that same money. But it doesn’t have to be that way. You don’t have to depend entirely on the contents of your 401(k) and IRA to fund your post-career life.
There are several ways to continue getting paid after you strap on that gold watch and clear out your office. Diversifying the sources of your retirement funding will take the pressure off your nest egg, insulate you from market volatility and, in some cases, provide non-financial benefits.
The chart below shows the five types of investing strategies as well as hypothetical asset allocations.
Here are some common sources of retirement income. Depending on your goals and circumstances, some of these sources may yield significant monthly returns, while others may just provide beer or lunch money.
During your prime earning/saving years, your investment portfolio should be focused on growth stocks — shares that are expected to steadily increase in value over the years. But as you near retirement, consider shifting your emphasis to interest-generating assets, including stocks that pay regular dividends, and bonds, which pay interest. You might also consider investing in REITs, which are publicly traded baskets of real estate holdings; preferred stock; and Master Limited Partnerships, which pay you a share of the royalties on the use of energy storage and transportation facilities.
While you are in savings mode, income generated by these assets should be re-invested to turbo-charge the growth of your nest egg. When you retire, those dollars can go straight to your bank account.
Yes, Social Security will be there when you retire, especially if you are in your 40’s. It’s possible that, as part of some future overhaul of the system, you might receive a smaller monthly benefit than today’s retirees, but you will get paid.
The size of your monthly check will depend, in large part, on when you elect to start taking benefits. You can begin receiving Social Security benefits as early as age 62. But if you do so, your check will forever be 30 percent less than if you had waited until your full retirement age, which hits sometime between age 66 and 67, depending on what year you were born. Warning: If you take a job in retirement before you reach full retirement age, your benefits could be suspended or reduced.
Your potential monthly benefit will grow about 8 percent every year that you don’t take Social Security — until age 70 when it levels off. That doesn’t mean you should wait until you are 70. Any number of factors will influence this decision, including your health and financial situation. Bottom line: Take your benefit when you truly need it to meet your specific needs.
This can generate a steady stream of income if you are willing to take on the sometimes grinding role of being a landlord.
How do you get in the rental game? If you are relocating when you retire, consider renting your current home instead of selling it. If you’ve fully funded your retirement accounts, and still have money to invest, look at buying a rental property or two.
Real estate can be tricky, especially for rookies. Study up on the market before committing to the rental game. Think long and hard about how much of your post-career life you want to spend managing your rentals. One option is to hire a management company. This will reduce your headaches — and your income.
Consider post-career work, especially in the years immediately following retirement. A part-time job can generate noteworthy money, even if you only work 10-15 hours per week. What’s more, working can provide structure, social contact and a sense of purpose, all of which are important to a satisfying retirement. Don't take some awful boring job just to make a few bucks. Look for a gig that feeds your passions. If you love golf, get a job at the local course. If you’re good with kids and the piano, offer lessons or become a substitute music teacher.
Just remember: If you accept Social Security before your full retirement age (sometime after your 66th birthday) a part-time job could result in a reduction or suspension of your benefits.
Once the cornerstone of retirement funding, pensions are pretty much a thing of the past in the private sector. But they are going strong in the public realm, where the life-long payments help offset the relatively low salaries paid to teachers, firefighters, and police officers.
If you’ve held several jobs in your career it might be worth checking back to see if you are due any pension benefits. It might be just a few dollars a month, but every dollar matters, right?