Some retirees are finding it hard to get by on Social Security and their personal savings alone. Other seniors want to earn extra money for travel, gifts, or to enhance their lifestyle. Here are a few ways to expand your income in retirement.
Part time work. Many Americans are choosing to supplement their retirement income with part time work. But continuing to work isn’t just about the money. You will also enjoy some much-needed social interaction at work. Maintaining relationships can help to keep your mind and body healthy and sharp well into retirement.
[Visit the U.S. News Retirement site for more planning ideas and advice.]
Reverse mortgage. A reverse mortgage allows you to tap into your home equity. The amount you can borrow is dependent on many factors including interest rates, the market value of your home, and your life expectancy. For those age 62 and older the money generally doesn’t need to be paid back as long as you live in the house. However, you will be responsible for a variety of fees on the loan, property taxes, insurance, and home maintenance costs. And if you later decide you want to move, the balance of the loan is due.
Retirement account distributions. Avoid early retirement account distributions, which come with a 10 percent tax penalty and regular income tax on the amount withdrawn. Starting at 59 ½ you can begin to tap your IRA accounts without penalty. Retirees can take 401(k) withdrawals even earlier: at age 55. Financial planners recommend a conservative 3 to 4 percent withdraw rate in retirement to ensure your retirement assets last the rest of your life.
Reduce your expenses. Saving money can be as powerful as identifying additional income. Consider getting rid of one car or eliminating TV you have to pay for. Other powerful ways to reduce your expenses include clipping coupons and waiting for sales.
Maximize dividends and interest. Dividend paying stocks or bonds can provide an ongoing source of retirement income. An added bonus: Dividends tend to grow over time, which will help negate the impact of inflation.
Real estate income. Real estate investments are another great way to stay ahead of inflation. Rental properties offer tax benefits and generate ongoing cash flow, but the expenses of owning and maintaining the property should also be factored in.
Annuities. Annuities are financial products sold by insurance companies that promise guaranteed income for life. The annual income an annuity will pay out is largely dependent on your life expectancy, the price of the annuity, and interest rates.
Brian Jaeger is the author of 2million's Personal Finance Blog. For the past 5 years Brian has chronicled his journey to reach his financial freedom goal of a $2 million net worth.