Most of us are looking forward to retirement, but we shouldn’t approach it without some planning and preparation. For example, the average monthly Social Security retirement benefit was recently $1,674 — or about $20,000 per year — and many of those collecting above-average benefits won’t get more than $40,000, not to mention the maximum, which was recently around $50,000.
If you agree that that doesn’t look like enough, start thinking about how you can set up some other income streams for yourself in retirement. Here are some ideas.
1. Dividend-paying stocks
It’s hard to beat dividend-paying stocks. Not only do they kick out cash to you regularly, but the size of their payouts will tend to rise over time, assuming the company is healthy and growing. Better still, the stock price itself is likely to increase over time. It’s win-win-win.
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If you have a $400,000 portfolio of stocks with an overall average dividend yield of, say, 3%, you’re looking at annual income of $12,000, or $1,000 per month — without having to sell any shares. And that $12,000 will likely become $15,000 and perhaps even $20,000 over time.
2. Earn interest
This income-generating strategy has been close to useless for a long time, as interest rates were ultra-low for many years. But they’ve been on the rise lately, and for as long as they stay at a meaningful level, you can generate income simply by parking cash in bank accounts, money market accounts, CDs, bonds, and any other interest-bearing investment.
You might consider “laddering” some such investments, buying some that mature soon, some that mature later, and some that mature much later. When each comes due, you can renew it, or use the money, or invest elsewhere.
3. Tap your life insurance policy
If you have a permanent, or “whole,” life insurance policy, you may be able to withdraw much of its value. That will reduce your death benefit, but you may need the money now more than your heirs will need it later. Some such policies even pay dividends, which you might take in cash rather than reinvesting them.
It could be a particularly effective strategy to draw on a life insurance policy in a year when the stock market has fallen, so that you don’t have to sell stocks at lower prices.
Annuities, ideally fixed annuities, are well worth considering, too. You do have to fork over a hefty sum, generally to an insurance company, but in return you can get regular income for the rest of your life, guaranteed (as long as the company remains solvent, which is why you should stick to highly rated insurers).
As an example, a 65-year-old man might get around $600 per month with a $100,000 policy, at recent rates.
5. Free up dollars — by relocating
Relocating can free up a lot of dollars — which is kind of like getting extra income. You might move to a less expensive region where the cost of living is lower. Or you might just stay in your same town but move into a smaller home, which will cost you less in maintenance, upkeep, taxes, insurance, utilities, and more.
6. Free up dollars — by being smart about healthcare
Another way to free up more money is to make some savvy healthcare moves. If you have a high-deductible health insurance plan, you may be able to take advantage of a Health Savings Account (HSA), which will let you pay for qualified expenses with pre-tax dollars. Unlike a Flexible Spending Account (FSA), HSA money is not use-it-or-lose-it. Whatever remains in your account can eventually be tapped in retirement.
Choose your Medicare plans well, too, once you hit 65. There’s “Original Medicare,” of course, but there are also “Medicare Advantage” plans that are required to offer all that regular Medicare does, and they usually offer more, such as dental, vision, and hearing benefits, with an out-of-pocket spending cap.
7. Delay starting to collect Social Security
Finally, you can also aim to beef up your Social Security benefits. Earning more is one good strategy and so is delaying starting to collect your benefits. For each year beyond your full retirement age (typically 66 or 67) that you delay, up to age 70, your benefits will increase by about 8%. (You’ll get fewer checks, in total, this way, though.)
Think about what kinds of strategies will work best for you and that will get you additional income in retirement. It’s likely to be very important to your future financial security and comfort.
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