Personal finance

6 Unexpected Sources of Retirement Income | Smart Change: Personal Finances

(Selena Maranjian)

Before you retire, you should have sufficient income streams lined up to sustain you for many years. After all, if you retire at, say, 65, you may well have 30 or more years of retirement ahead of you. If you don’t prepare, you may run out of funds before you run out of steam.

Fortunately, it’s not too late to increase your retirement income, even if you’re already retired. Here are six sources of income to consider.

Image source: Getty Images.

1. Your home

To start, consider a reverse mortgage, whereby you borrow money using your home as collateral, and usually receive a monthly income stream. Even better, the payments are also likely to be tax exempt.

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This income can save your life in retirement, although it is often not as high as you would have hoped. The loan will usually not have to be repaid until you no longer live in your home, such as when you die or move into a retirement home or care facility. At this point, many borrowers choose (or have to) sell the home to pay off the loan. If you are interested in a reverse mortgage, be sure to do more research on the pros and cons.

2. Your house (again)

There are other ways to profit from your home, such as renting out space. You can do this temporarily, in the short term, through a service like Airbnb or VRBO, allowing people to live in part or all of your home for a night or a week or two at a time.

For even more income, you may be able to host a boarder for a year or more. This can actually be a great arrangement for some older people, if you have one or more younger people living with you who can help around the house.

3. A different house

A third home-related way to generate more income — or simply spend less in retirement — is to relocate. You could move to a city or area with a lower cost of living, or you could stay in your current area but move into a smaller house. Either way, you may be able to spend a lot less on property taxes, insurance, utilities, maintenance, and repairs. In a lower-cost region, you might also spend less on food, health care, and other expenses.

4. Rent surprising things

In addition to renting space in your house (or the whole house), you may be able to generate retirement income by renting other things. There are online services, for example, that allow people to rent another person’s car, garage, pool, boat, camping gear, RV, garden, bicycle, etc. Depending on what you have to offer, you might be able to generate some handy income from things you don’t use much.

5. Pay off debts

Paying off debts, especially those with high interest rates like credit card debt, is a powerful strategy that won’t generate new income, but it can help you avoid a lot of money going out of your way. your pocket. If you owe $25,000 and are charged 20% interest, you’ll be paying about $5,000 a year. just out of interest. Once you pay off that debt, that $5,000 stays with you instead of going to your credit card lender. Likewise, paying off your mortgage before you retire can free up a lot of mortgage payments that you won’t have to pay.

6. Dividends

Finally, here is a classic way to generate retirement income: dividend-paying stocks. They’re great for retirees and near-retirees, but they can serve any investor surprisingly well. Imagine, for example, that you have a stock portfolio worth $400,000 with an overall dividend yield of 3%. This should generate an annual income of $12,000 – and this income should also increase over time as companies increase their payments.

Retirees can use that money — about $1,000 a month, on average — to live on, but those far from retirement can use that money to reinvest in stocks. This can be especially handy when you’re having trouble generating funds to invest.

For some inspiration, here are some familiar companies and their recent performance:

Company

Recent dividend yield

Verizon Communications

5.8%

IBM

5.2%

Walgreens Boot Alliance

5%

3M

4.4%

Real estate income

4.2%

AbbVie

3.8%

Pfizer

3.1%

Coca Cola

2.9%

Procter & Gamble

2.6%

Nucor

1.7%

Nike

1.1%

Data source: Yahoo! Finance.

Don’t ignore lower yields until you check how fast they’ve grown: a dividend of $1 today could be $2 in a few years if it grows quickly.

These are just a few of the many possible ways to generate valuable retirement income. A little online research may reveal additional ways. Take care of this problem and your retirement could be much safer and more enjoyable.

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Selena Maranjian has positions in AbbVie, Procter & Gamble and Realty Income. The Motley Fool holds posts and recommends Airbnb, Inc. and Nike. The Motley Fool recommends 3M and Verizon Communications and recommends the following options: Long Calls January 2024 at $47.50 on Coca-Cola. The Motley Fool has a disclosure policy.