12 Common Sources For Retirement Income
In my previous articles, we discussed about what Financial Independence is and why it is important to actively involve in retirement planning. Let’s review the 12 common sources for retirement income so that you can better prepare for funding your retirement.
This is one of the most obvious one on the list. You work hard during your career and you have been paying into social security. When you get to your retirement age, social security benefits could be one of your main income source during retirement. You can start to claim your benefit as early as 62. However, it will be reduced by 25%. If you are healthy and are able to fund your retirement with other income sources, it may be worth waiting until full retirement age to claim the maximum benefit.
Many financial companies offer Annuity plans. A life annuity plan typically pays out a fixed sum of money each year or each month, for the rest of the insured life. It depends on the terms, the insured either pay a lump sum of money in the beginning or monthly installments. When he or she reaches certain age, withdrawals can be made. There are other types of annuities and we will cover them in more detail in the future.
401K /IRA/403b, 457 plans
401k, IRA, 403b and 457 plans aren’t exactly the same thing, but the general premise is the same: Essentially these are tax deferred investments. A traditional IRA can include options for tax deductions and will not be taxed until withdrawn, for instance. A 401k allows you to invest your income from your employer pre-taxation. All of these options allow you to grow your investments more quickly by deferring taxes until it’s time to withdraw.
Selling a home to move somewhere cheaper isn’t a bad retirement plan. Two other options are HELOC, or a home equity line of credit, and reverse mortgages. Both are an effective means of getting money into your pocket right now. With HELOC, you need to have another form of income in order to pay them back. On the other hand, loan payments of reverse mortgages are deferred until you die or sell the home.
If you have a sizeable nest egg held in your brokerage, you may consider liquidating some of the holdings. It could be a great source to tap into these days because of the 8-year bull market. However, it is best to discuss with your financial advisor to come up with a plan to minimize the tax on capital gain.
If your company has a pension plan, take advantage. You may be surprised that 38 million people in the U.S. haven’t claimed the pension benefits they ave earned. Don’t leave the money on the table.
On the other hand, if your company does not offer pension, you may want to consider putting that on your must-haves list the next time you’re on the job hunt. Even when a pension does not cover the whole of your retirement needs, it’s a nice nest egg with which to get started.
Insurance benefits are paid out by insurance companies as part of the benefits for a life insurance. An insured person with a terminal illness, for instance, can tap into their benefits.
Don’t need the family house anymore? Why not rent it out? You only need to provide the property. You can hire a property manager to run the day to day business of renting a home out. Same goes for investing in an apartment complex or similar, and you don’t need to be sole proprietor, you can go in with other investors or take out a loan.
Stock Dividends and Bond Yields
Bonds are debt security issued by a government or corporate entity. Essentially you’re buying into the lending business. Stocks are investments into a corporation’s profits. Stock dividends fluctuate with company earnings , while bond dividends vary by market rate levels and the bond’s credit rating. This can be a hands-on approach to investing your retirement dollar.
CDs and Saving Accounts
CDs and saving accounts allow you to collect interest over time. Unlike stock and bonds, the value of CDs and savings are stable and not subject to market volatility. It is important to keep sufficient amount of money there so that you are not forced to sell your stock in the bear market.
Not everyone is fortunate enough to be able to rely on gifts or an inheritance, but if you do have some money coming your way, you will want to look into estate planning to ensure that there are no hang-ups.
Own a Business
Owning a business is easier said than done, but if you know your industry, if you can offer a great product or service, if you have some business savvy, it can be the very best option available. Start with a business you can start cheap (or free), and if it succeeds, invest those earnings into something more ambitious.
Or… Move to Alaska. Alaska pays out money to its residents every year just for living there. Not enough to retire on, but a nice helping hand to get you through your golden years.