If you want to enjoy a comfortable retirement, you need an income. There are a number of ways to generate these types of profits upon retirement.
After a while of work, it can be great if your money works for you, and you'll also have money accumulated in the Social Security system through years of working and paying taxes as well. But while Social Security is a great starting point, you want to create various additional streams of retirement income.
Your options for generating income in retirement are many, but it certainly won't hurt if you already have a pile of cash from your working years. If you do, you will be able to convert it into a range of income sources, depending on what suits your needs and risk tolerance. And you may be able to cut your taxes significantly in retirement, with some careful planning.
1. Social Security
Social Security can form the basis of any retirement income plan, and while it was not intended to be a complete retirement income solution, Social Security offers a lot. One of the great benefits of the program is that by the time you retire, you have already made contributions to the program, so you have nothing left to do. You don't need to worry about an additional investment or set aside funds from a paycheck.The average retired worker receives more than $ 1,500 a month in Social Security, and some workers earn much more than that. This level of money can establish a steady income base, but it will likely need to be supplemented with other streams, such as the ones that follow.
If you are among those with lower incomes, you may be able to get a tax-free monthly check, and even those who earn a little more can get some of their tax-free benefits.
2. Rental income
Owning a rental property can be an excellent way to generate income upon retirement, and it should not be very difficult to do so, especially if you are investing in residential real estate. While you will have to spend some time managing the property, it can also turn up real money for you over time.It might be smart to think for years about renting real estate because you will be able to make more income this way. Rents usually increase over time, which gives you more protection over your costs, such as a mortgage. Over time, you can pay off or refinance your mortgage, which gives you more space to breathe on your expenses and more money in your pocket during retirement.
However, it is important to remember that real estate can also require income as well. It is not just a one-way cash generator. Ceilings need to be replaced, furnaces need to be repaired, etc. If you have little income, you will need to budget for unexpected repairs and get cash ready. If property management isn't your thing, you have other ways to invest in real estate as well.
Now may be a good time to invest in real estate, as mortgage rates are at historic lows. You may be able to secure a mortgage rate of less than 3 percent.
3. CDs
Investing in a CD is one of the safest and easiest ways to make a retirement income. The real downside is that interest rates are close to all-time lows, which makes it an especially unprofitable time for CD investors. However, CDs are easy to purchase, and FDIC backed CDs in bank are completely safe.One strategy for CD investors is to use a CD ladder, which helps reduce the risk of putting your money all at once. With a ladder, you prepare CDs with staggered maturities, for example, every year for five years. When the CD has matured for one year, you roll it into a five year CD and wait for the next CD to mature - now only a year later -. This way you always have a CD to ripen.
You can also strategize iron. Here you put about half of your money into long-term CDs where the rates are usually higher and the rest in short-term CDs, where the money is more liquid, giving you access to cash when you need it. You end up with an average return on your money but you also have good access to cash.
If you go with CDs, it makes sense that you will find the best prices across the country.
If you're looking to enjoy a comfortable retirement, you
need income. And there are a number of ways to generate these types of earnings
in retirement.
After a lifetime of working, it can be great to have your
money working for you, and you'll also have money built up in the Social
Security system through years of working and paying taxes, too. But while
Social Security is a great starting point, you're going to want to create
additional diversified streams of retirement income.
Your options for generating income in retirement are plenty,
but it certainly doesn't hurt if you already have a pile of cash from your
working years. If you do, you'll be able to transform it into a range of income
streams, depending on what suits your needs and risk tolerance. And you may be
able to drastically reduce your taxes in retirement with some careful planning.
1. Social Security
Social Security can form the basis of any retirement income
plan, and while it was never intended as a complete solution for retirement
income, Social Security does offer a lot. One huge benefit of the program is
that by the time you retire you've already made your contributions to the
program, so there's nothing left for you to do. You don't have to worry about a
further investment or otherwise setting aside money from a paycheck.
The average retired worker receives more than $1,500 a month
from Social Security, and some workers earn considerably more than that. That
level of money can establish a firm base of income, but you'll likely need to
supplement it with other streams, such as those that follow.
If you're among the lowest earners, you may be able to
receive your monthly check tax-free, and even those earning a bit more can
still receive some of their benefits tax-free.
2. Rental income
Owning a rental property can be an excellent way to generate
income in retirement, and it doesn't have to be too difficult to do so,
especially if you invest in residential real estate. While you'll have to put
in some time managing the property, it can make you real money over time.
It can be smart to think years out on rental real estate,
because you'll be able to generate more income that way. Rents typically rise
over time, giving you more of a cushion over your costs, such as your mortgage.
And with time you can pay down or refinance your mortgage, giving you more
breathing room on your expenses and more money in your pocket during
retirement.
However, it's important to remember that real estate can
also require income, too. It's not just a one-way cash generator. Roofs need to
be replaced, furnaces need to be repaired, and so on. If you're on a tight
income, you'll want to budget for the unexpected repair and have ready cash. If
managing property is not your thing, you have other ways to invest in real
estate, too.
Now may be an especially good time to invest in real estate,
as mortgage rates are at historic lows. You may even be able to secure a
mortgage rate under 3 percent.
3. CDs
Investing in a CD is one of the safest and easiest ways to
make retirement income. The real downside is that interest rates are near
all-time lows, making it a not especially lucrative time for CD investors. That
said, CDs are easy to buy, and CDs at FDIC-backed banks are totally safe.
One strategy for CD investors is a CD ladder, which helps
minimize the risk of putting your money in all at once. With a ladder you set
up CDs at staggered maturities, say, each year for five years. When the
one-year CD matures, you roll it into a five-year CD and wait for the next CD -
now just a year away - to mature. This way you always have a CD maturing.
You could also set up a barbell strategy. Here you put about
half your money in long-term CDs where the rates are typically higher and the
rest in short-term CDs, where the money is more liquid, giving you access to
the cash when you need it. You end up with an average return on your money but
you have good access to cash, too.
If you go with CDs, it makes the most sense to find the best
rates across the country.
4. Annuities
Annuities are a perennially popular option for retirees, but
they offer some positives in addition to some negatives. Anyone considering an
annuity should understand that they're quite complex, though their promised
benefits - a monthly paycheck - are relatively straightforward.
The options with annuities are all over the place. You can
structure your annuity to have insurance-like benefits such as a death benefit
and can even pass the monthly income on to a spouse. You can have the potential
paycheck be predetermined (as in a fixed annuity) or have it variable (as in a
variable annuity). You can start the payments now or at some future time.
But all those options lead not only to greater complexity
but also a higher cost, and annuity contracts are almost infamous for their
complexity and hard-to-understand rules. Still, for the right person an annuity
can provide stable monthly income that makes retirement more fun.
5. Bond funds
Bond funds are an effective way to get a diversified
portfolio of bonds without having to select a bunch of bonds yourself. A bond
ETF, for example, can provide you with a broad range of bonds or a quite narrow
range of bonds, depending on exactly the kind of exposure you want.
Among the more typical options, you can choose among issuers
- the federal government, corporations, states and municipalities. You can
choose between short-, medium- and long-term bonds. You can have riskier
issuers, such as high-yield or "junk" bonds. And there are more
arcane options besides.
For example, if you want short-term government bonds or
intermediate-term corporate bonds, you can find funds for those. If you want a
mix of all kinds of bonds, you can go that direction, too. You can also focus
on funds that offer a selection of tax-free municipal bonds. The point is: You
have a ton of options with bond funds, and they're easier to trade than bonds
themselves.
Bonds provide steady income, and while interest rates are
not especially high these days, bonds are typically much safer than stocks and
some other market-based investments.
6. Dividend stocks
Dividend stocks offer two potential benefits over bonds.
First, they often pay yields that are higher than what bonds offer. Second, the
best companies raise their payouts year after year, meaning you'll get a raise
just for continuing to hold your stock. Unlike bonds, where the payout is typically
fixed, the income stream from a dividend stock has the potential to climb over
time.
Dividend stocks are usually lower risk than growth stocks,
but that doesn't mean you can't lose money on them, especially in the short
term. Like all stocks, dividend stocks fluctuate, though the better-run
companies tend to appreciate over time as they raise their payouts.
It can be difficult to successfully pick dividend stocks, so
investors often turn to a dividend stock fund, such as an ETF. These funds have
low expense ratios and offer a diversified portfolio of stocks so that its
performance doesn't depend too heavily on any one stock. A fund will usually be
less volatile than individual stocks and can still grow its payout over time.
As you're amassing your retirement nest egg, keep your
assets inside a Roth IRA and you'll never pay taxes on the dividends and
capital gains again. That's tax-free retirement!
7. A new part-time job or side business
If you're out of options, you might consider getting a
part-time job, especially if it's for a short period of time when you need the
money. You might also consider making a lifelong hobby into a side business,
turning some of your valuable knowledge into cash.
While many people dream of never working again when they
retire, many others find retirement to be much different from what they
expected. For these reasons, some individuals do decide to return to the
workforce, if only to get out of the house a few days a week and see people.
Bottom line
It's not the easiest thing to generate income these days,
with interest rates as low as they are. Gone are the days of safe five percent
yields on CDs or corporate bonds. But some legwork and a lot of planning ahead
of time can help you find the best returns out there. The sooner you start, the
sooner you can begin securing your retirement income.