If your goal is to generate more income during retirement is a goal of many retirees. Pensions, 401(k)’s, IRA’s, and Social Security just aren’t enough to pay the monthly expenses for many people. They need to supplement these income sources, and they’re finding they have options.
If you look closely, you’ll find that opportunity abounds for retirees to generate income. The Internet provides retirees with numerous resources to find methods that fit their personality, skills, and lifestyles.
Let’s take a look at three strategies you can use to create additional income during your retirement.
1. Defer Retirement
It’s very tempting to want to receive a Social Security check when you’re first eligible. You’ve been paying at least 6.5% of your income into the system for many years. And at age 62, you finally have the chance to get something back in return.
However, as tempting as that may be, it’s not your best move financially. The longer you can defer retiring and collecting Social Security, the bigger your monthly check will be. And it can make a big difference; as much as 30% between age 62 and age 70.
And deferring payments from retirement accounts doesn’t just pertain to Social Security. IRA’s and 401(k)’s are two other types of accounts that will provide you a bigger payday if you wait.
Compound interest works in your favor with these retirement accounts. Using “The Rule of 72” can work in your favor to dramatically increase your account balances.
The rule works like this:
- Calculate your annual average rate of return on your investments
- Divide that rate into 72
- See the number of years it will take your account balance to double.
For example, let’s say you average a 6% annual return on your stock portfolio. If you divide 72 by 6, you’ll get a result of 12. That means it will take 12 years for your money to double. So, if you’re 62 with a $300,000 account balance, your account would be worth $600,000 at age 74. All because you waited and let your money continue to grow.
According to IRS regulations, the “required minimum distribution (RMD) must begin at age 72, as of January 1, 2020. The RMD is the amount of money that must be withdrawn from a retirement account by owners of retirement plans. You don’t have to take all of your money, but you must meet the minimum requirements. A tax professional can help you calculate your required minimum distribution.
2. Get A Job
“Get A Job” is more than the name of a popular song in the 1950s. It’s now the mantra of many retirees that are enjoying new careers. They’re finding that it’s fun to get paid for something you want to do, not have to do.
Let’s take Sally as an example. Sally recently retired from a job she didn’t enjoy doing but liked the rate of pay. It helped her build a nice nest egg for retirement. After retiring at age 67, Sally found herself wanting to work again, but on her terms. She wanted to find something where she could be physically active, enjoy the work, and get paid. That’s when she discovered dog-walking.
Through a website on “side hustles,” Sally discovered that dog-walking was in greater demand than ever. With more people remaining in the workforce, the need for someone to walk their dog during the day increased. This job gave Sally all of the elements she was looking for. She was never happier with her work.
Roger is another fine example. An avid golfer on the weekends when he was working as an accountant, Roger wanted to continue working to supplement his monthly annuity payment. He approached the management at his favorite golf course and told them about his desire to work there. To his delight, they had an opening for someone to work part-time in their pro shop. Roger works there three afternoons a week now, and he gets discounted golf prices too!
3. Buy An Annuity
Another way to generate income during retirement is to purchase an annuity. An annuity is a long-term investment that is issued by an insurance company. It is designed to help protect you from the risk of outliving your income. Through annuitization, your purchase payments are converted into periodic payments that can last for life.
For example, let’s say that you have an IRA worth $500,000. Instead of subjecting it to market risk, you’d like to safely begin getting monthly checks to generate more income. So, you buy an annuity and start getting a check each month for $3,000 (dependent upon your age).
This monthly payment will last you the rest of your life. You can’t outlive it. And if you’re married and you die before your spouse does, they’ll receive $2,000 per month for the rest of their life. If you’re not married and don’t name a beneficiary, your monthly income will be even greater.
An annuity is an excellent source of income and is not dependent upon your health. You don’t have to qualify for it, even though an insurance company issues it. It’s a very straightforward arrangement: you give them your money, and they give you an income for the rest of your life with a guaranteed minimum interest rate.
These are just three ways you can generate income during retirement. Do a Google search, and you’ll find many more. Increasing your income as a retiree can be gratifying and stress-relieving. Explore the possibilities.