3 Unexpected Sources of Retirement Income | Smart Switch: Personal Finance


Retirement looks a little different for everyone, as does the way we save for it. Retirement accounts like 401(k)s and IRAs form the backbone of most people’s retirement savings plans, and many can also count on help from Social Security.

But those aren’t the only ways to finance your retirement. Here are three lesser-known sources of retirement income that you might want to add to your financial plan.

1. Dividends

Certain stocks pay dividends to shareholders on a regular basis, usually once a quarter. You may only get a few dollars per share you own, but if you have a large investment portfolio, these dividends can add up over time.

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If you have a $500,000 portfolio that has an overall dividend yield of 3%, that means you’ll earn around $15,000 per year in dividends alone. That can go a long way toward covering your retirement expenses and can help you stretch your personal savings even further.

If you want, you can invest in individual stocks that pay dividends. But it might be easier to look for a dividend index fund. These give you instant ownership in many dividend stocks. Spreading your money across multiple companies like this is smart because if some of your stocks have to cut their dividends during tough times, you’ll have others to pick up the slack.

2. Health savings account

You can keep your savings in a health savings account (HSA) if you have a high-deductible health insurance plan. That’s one with a deductible of $1,400 or more for an individual or $2,800 or more for a family. Your HSA contributions reduce your taxable income for the year, just like contributions to a traditional IRA, and you won’t have to pay taxes on these funds if you spend them on medical expenses.

But if you hope to use your HSA to save for retirement, try to avoid early withdrawals whenever possible. Look for a provider that lets you invest your HSA funds and let them grow until you’re at least age 65. After this age, you can make non-medical withdrawals, although you will have to pay taxes on these. And if you make a non-medical withdrawal when you’re under 65, you’ll face a 20% penalty on top of taxes.

Individuals can contribute up to $3,650 to an HSA in 2022, while families can contribute up to $7,300. If you are age 55 or older, you can add an additional $1,000 to these limits. Those planning to make an HSA part of their retirement plan should keep an eye on these limits over time. They may be able to set aside more money in future years.

3. Your house

There are several ways you can use your home to earn money in retirement. If you travel frequently or have a spare room, you might consider renting it out to guests, either short-term or long-term. There are many online home rental sites that can help you advertise your rental and collect payment easily.

Another option is a reverse mortgage. This is only available to adults age 62 and over who have significant equity in their home. Essentially, it allows you to borrow against the equity in your home and use the money for whatever you want. You don’t have to make any payments while you live in the house, but if you die or move, you or your estate must pay the loan balance, plus interest.

These loans can be complex and have fees associated with them, so they’re not for everyone. But they are an option worth considering for seniors who are running out of retirement savings.

This isn’t an exhaustive list of all the ways you can finance your retirement, but we hope it will get you thinking about some more innovative ideas. See if you can think of other sources of retirement income, and then go through your list and decide which one you’d like to incorporate into your retirement plan.

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