If your retirement budget is feeling tight, consider these extra income sources.
Planning for retirement can involve a lot of number crunching and strategy to ensure you’ll have enough money to live the life you want. While most people think of their investment accounts and Social Security as their main sources of retirement income, you may have quite a few other options available to you to help make sure you get to live your golden years in style.
Here are five sources of retirement income you probably haven’t considered yet.
1. Home equity
If you own your home outright, it may be a viable source for additional income in retirement.
You could simply sell your home, downsizing to a smaller house. Doing so would give you access to a portion of the equity previously stuck in your home. You could spend the proceeds immediately or invest it for the future.
Another option is to stay in your home and refinance. You may use a cash-out refinance to tap the equity in your home. The drawback of a cash-out refi is that you’ll now have a monthly mortgage payment to make. If that isn’t in your retirement budget, you may want to consider another option.
A reverse mortgage is a home loan that uses the equity in your house, but it doesn’t need to be repaid with monthly installments. Instead, the mortgage company will recoup its loan when the property is sold. There are several ways to structure a reverse mortgage, and you could receive monthly income from your home. The biggest drawbacks of a reverse mortgage are that the interest rate is variable and they can have hefty up-front costs.
2. Annuities
If you can lock in a great interest rate on a fixed annuity, it might be worth exploring the option for retirement.
An annuity is a contract with an insurance company that will pay out a certain amount of money to you on a regular basis for the life of the contract. You can buy a lifetime annuity that will pay you every month until you pass away.
That said, there are a lot of pitfalls with annuities. Some have hefty upfront costs and charge high ongoing fees. Be sure to understand the rate of return you’ll get on your money in the annuity and make sure the benefits outweigh the costs.
3. Health savings accounts
You may have some money lying around in a health savings account that could be used as a source of retirement income.
A health savings account, or HSA, is a special tax-advantaged account designed to help people with high-deductible health insurance plans pay for medical care. Employers will often help fund the account as part of their company-sponsored insurance benefit.
There’s a tax benefit to using your HSA funds to pay for qualified medical expenses. However, the great thing about an HSA is that when you turn 65, you can use the funds for anything. The only catch is that you’ll have to pay income tax on the distributions.
If you have an HSA and you don’t have a lot of medical expenses, you can look into investing the money in the account with the goal of saving it for retirement. If a medical emergency comes up along the way, you can always tap those funds early.
4. Rental income
When people think of rental income, they think of owning a duplex or apartment building and renting it out. But you can generate rental income a lot of different ways these days.
You’ll probably be driving a lot less in retirement. Maybe you only need one car most of the time. You can rent out a car on Turo.
Maybe you’ll be going on vacation more often and for longer. You can rent out your home on Airbnb while you’re on vacation.
Maybe you have some great period furniture that you’ve held onto throughout the years. You can rent it to staging companies (for home sales) or rent it as set dressing.
You can rent just about anything you own these days and generate some income.
5. Part-time employment or a passion project
You may surprise yourself and find you have a job in your retirement.
A lot of retirees take on part-time employment in a low-stress environment. Not only does it provide a nice source of income, it can fill the days with meaning and activity.
Others pursue a passion project in retirement. And after a few years, they start generating meaningful income from that project.
Working in retirement can provide health and financial benefits, but be sure you understand how working in retirement will impact the rest of your finances and your overall retirement plans as well.
Supplement your retirement
If you think you might have to cut something from your retirement budget, be sure to review the above list for opportunities to supplement your income. Social Security and investments may only take you so far, so be sure to take advantage of any other resources you have at your disposal to achieve the best retirement for you.
