Sources of Retirement Income

This is what happens to many people.

◆ They retire

◆ They rely mostly on Social Security income

◆ Their income goes down

◆ Their expenses stay the same

◆ They struggle

◆ They get a part-time job

◆ They have to go live with one of their children (and there’s nothing wrong with that, it can be a good thing and should be done more often)

Will this happen to you? Do you want this to happen to you?

What’s your plan?

You will likely need more than your Social Security income. If not, great. If so, what do you have?

If you are financially independent and you know for a fact that you will have substantial income or assets to live off during retirement, then, you may be all set. But, even if you think you are all set, it would still be wise to explore some other possible options for securing retirement income.

Here are your possible sources of Retirement Income.

Social Security: Will that be enough? When should you start taking it? These are questions you need to ask yourself. You can go to SSA.gov and find out what your estimated Social Security income will be at different starting ages. You should try to determine whether it’s best to start collecting at 62 or wait until as late as 70. The longer you wait, the greater your Social Security income will be. But, the sooner you take it, the more you may collect in the long run. It really depends on how long you think you will live.

Employment Income: There’s no shame in working part- time or being self-employed during retirement to supplement your income. For some, it is a necessity. For others, it’s just a great way to have some extra spending money.

Pension: Unless you work for the government or are a member of a union, you likely won’t have a pension. And even then, don’t count on that pension and other retirement benefits lasting the rest of your life. In the past 10 years, numerous companies have dropped retiree benefits that included “healthcare for life” and pensions. Don’t trust your beloved company or union that you worked for all your life to be faithful to you after you retire.

Investment Withdrawals: These will come from your investment accounts (IRA, 401K, Index Funds, Mutual Funds, Stocks, Bonds, Savings Accounts, CD’s, Money Markets).

Many financial gurus advise you to follow The 4% Rule and only withdraw 4% of you investment savings per year. If you have a tax-deferred IRA or 401K, you will also need to consider the income tax implications…meaning you will have to pay income tax on that 4% amount you withdraw.

SOMETHING TO THINK ABOUT

Will your income taxes be higher or lower by the time you retire?

Dividends: Are monthly or quarterly payments that you receive from dividend paying stocks. This can be a great source of income providing you’ve invested in quality companies that have consistently maintained paying dividends for their share holders. The great thing about owning dividend paying stocks is, you never lose any of the original shares you purchased. If you reinvest all or some of those dividends, then you end up with more shares and more dividends each year.

Bond Coupons: This is interest you earn and are paid from bonds that you hold. As long as the company or government agency you loaned money to doesn’t default, you can receive income back from them in the form of interest. Of course, you will likely be taxed on that income as well.

Interest: Interest earned from fixed deposits like Savings accounts, CDs and Money Market accounts. Other than emergency savings, at current interest rates, you should have very little of your overall investments held in these accounts. “Cash is trash” as Ray Dalio says. If the inflation rate is higher than your earned interest rate, then you are losing money year in and year out.

If you have substantial amounts of money in a Savings account, CD or Money Market at or near retirement age, you may want to consider moving some of that money into an Income Producing Rental Property,a Long-Term Care Plan, an Annuity or Life Insurance product. *Talk to your CPA any potential tax benefits or ramifications.

Annuity: Guaranteed income that you receive from a Deferred or Immediate Annuity. Annuities are purchased from insurance companies. Your Social Security income is an annuity that is a guaranteed lifetime income stream backed by the full faith and credit of the U.S. Government. If you like guaranteed income with the ability to earn interest, then you should at least review your annuity options. See my Annuity page for more info. One very quick rule of thumb, financial planners typically don’t recommend you have more than 20-25% of your overall investments in an annuity.

Life Insurance: Yes, you read that right. In some cases, having a Whole Life or Universal Life insurance policy can pay you an income stream through strategic tax-free withdraws. While this is an often overlooked option and you must be careful, it is worth considering. The benefit of owning a Whole Life or Universal Life policy is, you can also have them set up to cover Long-Term Care expenses and you have a guaranteed death benefit for your heirs.

Real Estate

Reverse Mortgage: If you own your home free and  clear or have substantial equity, you can use a Reverse Mortgage to pay you  a  guaranteed  income.  This would not be the first option to choose, but it is       an option.

Rental Yields: Monthly income from investment properties for long-term renters. This can be a great source of retirement income. Plus, you get additional tax advantages and long-term appreciation. If you are concerned about the hassle of dealing with tenants, hire a property management company. There are many sources for learning about how to invest in real estate. Due diligence is important.

Vacation Home: The right vacation home can generate tens of thousands of dollars a year in income. With AirBnB and VRBO, you can rent your vacation home to short-term renters.

Business Ownership: Business income from an existing and established business or enterprise that you own. You become an absentee owner and pay someone else to run the business, but you earn an income from it.

Royalties: One of the best sources of income of all time. Royalties can come from books or music that you’ve written or from inventions. You can also take up writing in retirement and publish and sell your books on Amazon. Amazing how many people do this and make money at it. If you enjoy writing or think you would, consider writing and selling on Amazon.