Income Diversity Can Ease Your Retirement

A variety of income sources can help protect you in retirement.

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Many people assume that accumulating a huge nest egg is the best way to save for retirement. A nest egg worth $1 million, for example, would allow you to safely withdraw about $40,000 from your retirement account each year. As long as you can live on $40,000 a year, this can be a good plan.

[See 10 Essential Sources of Retirement Income.]

But what if you aren’t sure you will be able to save up $1 million by the time you retire. You might not be able to set aside a sufficient amount of money to reach this goal or you could lose money in the stock market just before you need access to the account. Instead of relying on only Social Security and your retirement accounts, consider developing other sources of income that can help provide you with the money you will need. Here are some potential income streams that could benefit you in retirement.

Dividend stocks. Some stocks make dividend payments to stockholders on a regular basis. As you buy more shares in dividend paying companies, your income from dividends will grow. If you choose wisely, your income portfolio can even produce during times of recession.

[See How to Prevent Outliving Your Retirement Savings.]

Start a business. If you have an entrepreneurial spirit, you can start a business that will provide you with extra income to save for retirement. If you plan it right, you can also sell the business upon retirement. You can then use that capital to purchase an immediate annuity or another income producing investment. You could also start a business that provides you with income, even after you retire from running the company.

Create something. If you have the skills, creative works can provide you with royalties for years to come. Continued sales will roll in, providing you with an additional income stream during retirement.

Start a web empire. It can take time to build up enough traffic to earn money from advertising, AdSense, and affiliate programs. However, if you work at it now, later on you might find that you have a very substantial income. Owning a number of Web properties can improve your income diversity.

[See 5 Surprise Retirement Costs.]

None of these methods of cultivating income diversity are likely to help you earn a significant income quickly. But they will be able to increase your income to the point where it can contribute substantially to your comfort during retirement. At the very least, a variety of retirement income sources will help you reduce the need to drain your retirement accounts quickly.

Jeff Rose is a certified financial planner and U.S. combat veteran. He blogs at Good Financial Cents and Soldier of Finance.