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

(Kailey Hagen)

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

But those are not the only ways to fund your retirement. Here are three lesser-known sources of retirement income you may want to add to your financial plan.

1. Dividends

Certain stocks pay dividends to shareholders periodically, usually quarterly. 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 with an overall dividend yield of 3%, that means you’re making about $15,000 a year from dividends alone. That can go a long way toward covering your retirement costs, and it can help you expand your personal savings even further.

You can invest in individual dividend-paying stocks if you wish. But it might be easier to look for a dividend index fund. These give you direct ownership in many dividend stocks. It’s smart to spread your money across multiple companies this way, because if a few of your stocks have to cut their dividends in hard times, you’ll have others to catch up.

2. Health Savings Account

You can deposit savings into a health savings account (HSA) if you have a high deductible. 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 lower your taxable income for the year, just like traditional IRA contributions, and you owe no tax at all on these funds if you spend them on medical expenses.

But if you hope to use your HSA for retirement savings, try to avoid early withdrawals whenever possible. Look for a provider that allows you to invest your HSA funds and grow them until you turn at least 65. After this age, you can make non-medical admissions, although you will be liable to pay tax on them. And if you make a non-medical admission if you are under 65, you will be fined 20% on top of the taxes.

Individuals can contribute up to $3,650 to an HSA in 2022, while families can contribute up to $7,300. If you are 55 or older, you can add an additional $1,000 to these limits. Those who plan to make an HSA part of their retirement plan should keep an eye on these limits over time. Maybe they can put more money aside in the coming years.

3. Your house

There are several ways you can use your home to earn money after retirement. If you travel frequently or have a spare room, consider renting it out to guests for short or long term. There are plenty of online home rental sites that can help you advertise your rent and collect payments with ease.

Another option is a reverse mortgage. This is only available to adults aged 62 and over who have significant assets 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 pay anything as long as you live in the home, but if you die or move out, you or your estate must pay the balance of the loan plus interest.

These loans can be complex and incur costs, so they are not for everyone. But they are an option worth considering for seniors who find themselves short on savings in retirement.

This isn’t an exhaustive list of all the ways you can fund your retirement, but hopefully it will get you thinking about some more out-of-the-box ideas. See if you can brainstorm other sources of retirement income, then review your list and decide which ones to include in your retirement plan.

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