Income during Retirement 11-29-17
You just finished your last shift. You have worked for 30+ years and hopefully, get to spend the next 30+ living the good life. Retiring can be a difficult decision for a lot of people. Others can’t wait to punch out for the last time, kick back, and relax.
Whether you are excited about retirement or unsure of what this next chapter holds, there is always one thing in mind, where is my money going to come from? I’ve worked for so long and made a living for myself, how will I now pay bills and buy what I need.
Hopefully, where your money will come from during retirement was planned out already. Either way, here are a variety of places you could use for income.
This should be on almost everybody’s list. Most of us paid into the system throughout our careers and most of us will receive some sort of retirement benefit from Social Security. Go to Social Security and use the calculator to find out how much you will be receiving. It is recommended, however, to only use Social Security for 40% of income, so you should plan on having additional sources.
Similar to Social Security, most of us should have contributed to these during our careers. Whether they were provided by your employer or you had to save on your own, you should have funded a retirement account throughout the last 30+ years. Not all retirement accounts are created equal.
Your 401(k), SIMPLE IRA, SEP IRA, and Traditional IRA were all contributed to with pre-tax money. This means you will be taxed on it when you commence withdrawals. Your Roth 401(k) and Roth IRA, however, were contributed to with after-tax money and can be withdrawn tax-free.
If you are lucky enough to be receiving a pension during retirement, congratulations, you are now in the minority. Pensions are defined-benefit plans that your employer contributed to on your behalf during your career. It’s designed to pay you a certain dollar amount or percentage of your working salary until you pass away.
Annuities are similar, in a sense, to pensions in the way that it pays you a defined amount until you pass. An annuity is an insurance product, which can be tailored to a clients’ needs. There are several different types of annuities, which you can learn more about here.
Stocks are pieces of a company that you invest in. Some of these companies distribute a part of their earnings back to their shareholders in the form of dividends. Additionally, some companies will pay a higher percentage (dividend yield) than others.
The dividend yield is a percentage of the share price, and there are companies, like AT&T, as well as others, that pay a high yield.
This method of income is useful when you have an expense in the future that you know the date of. This technique involves buy bonds with expiration dates that increase incrementally. For example, you buy bonds that expire at 5, 10, 15, 20, and 25 years. You will receive the interest payments on these bonds until they mature.
When the bond matures, you should receive the par value of that bond ($1,000 per bond). If you know that you have a down payment on a house due in 5 years, then you can use that maturity payment and receive interest for the next 5 years.
This can be a relatively easy way to receive income during retirement. The work required to maintain a rental property portfolio really depends on how large that portfolio is. If you have one or two properties, you can probably take care of them yourself. This is only an option, however, if you don’t mind being a landlord.
You have spent years, maybe even decades paying your mortgage and have accrued thousands of dollars of equity. A reverse mortgage uses your home’s equity to pay you money during retirement. Once the equity in your home is spent, you will no longer receive payments.
If used some or all of the options above and still come up short, or you enjoy being part of the labor force in some way or another, get a part-time job. A little income on top in addition to your current retirement income will provide some comfort and keep you social. Both of which are necessary for a happy retirement.
If you are in or nearing retirement and are unsure of where your income will come from, there are many sources. Social security and retirement accounts are some of the most common, but there are other ways to provide for yourself during your golden years.
Note: The content of this article is for informational purposes only. Please consult a financial professional for advice and guidance on your personal situation. As always, please do not make decisions solely based on what you read or hear.