Retirement can be a scary event for many people. If you are planning on your Social Security check to cover your monthly expenses, you may be in for a rude awakening. If you have a company pension along with social security it will be better, but those plans are disappearing or shrinking every year. The good news is that if you plan properly, you could have easily three or more income supplies when you retire. Here is how.
Creating Multiple Retirement Income supplies: Which ones will you use?
Source 1: Social Security – For most middle-aged or older Americans, social security will be around to provide one source of income. Unfortunately, if this is your only source of retirement income, you will probably have to cut back your spending or continue to work in some capacity just to make ends meet.
Source 2: Company Pension – Some individuals will be lucky enough to receive either a company or government pension which provide an additional monthly income to help bridge the gap between your needed cash flow and your social security. Unfortunately, most of these plans have been considerably reduced, alternation or already deleted as they are very costly to run.
Source 3: Personal Retirement Savings: This is one source that anyone can use. If your company offers a 401K, 403-B or other retirement savings plan, find a way to use it. If possible, maximize your savings and any company matching contributions and start as early as you can. If you leave your job, you can rollover your money and keep the savings going.
If your company doesn’t offer a plan, you can use an IRA. Set up a self-directed Roth or traditional IRA and add to it every paycheck, month or year. The younger you start, the more you will build up and you will also receive income tax savings for your contributions. Immediate tax savings for a traditional IRA and after retirement for the Roth.
Source 4: After Tax Savings – If you are already contributing the maximum you can to your 401K, IRA or Roth, you can also build up savings in several other “after-tax” ways. You can set up a brokerage account to buy mutual funds, stocks or bonds. You can establish a fixed or variable annuity and have the earnings grow on a tax deferred basis. Or you can just set up a savings account with CD’s or money market savings. The nice part about this area is that it can add a source of retirement income that will not adversely effect your income taxes when you use it in retirement.
(Income tax exception: Distributions from annuities will be taxable to the extent that they are earnings, but your principal amount is distributed tax-free.)
Source 5: Rental or Real Estate Income – Another nice source of retirement income can be rental character. If you buy real estate during down cycles and have been able to find similarities with positive cash flow (rental income less mortgage, taxes and expenses), then this income source can be a nice addition every month to your living expenses.
Owning these rental similarities can also be a nice source of cash if you strategically sell similarities for a capital gain when housing prices are high. Any proceeds you have accumulated from increasing character values and a decreasing mortgage can be additional to your savings and invested to generate income for future use.
Source 6: Tax-Free Income – Another source of income for retirement can be investments in municipal bonds or tax-free bond funds. While the income is usually lower than with taxable bonds, you will not have to pay any income tax on this source as it accumulates or when you use it. This source has a stable return and is generally not affected by stock market fluctuations.
Source 7: Part-Time Employment – As we are living longer and healthier lives, many retirees want to add a part-time job to their retirement income supplies. They will usually find something enjoyable without a lot of stress. If you love shopping, become an undercover shopper were you estimate store employees. If you like to excursion, auto dealers are always looking for shuttle van drivers. If you enjoy home projects, get a job at the local hardware store or Home Depot. If yard work is your thing, be a greens keeper at a local golf course. Find something fun and make a few additional dollars at the same time.
Source 8: Start A Business – For many retirees, starting a small business is right up their alley. If you enjoy travel, start a travel agency. If you love numbers, be a tax preparer. If you love to cook, open a bed and breakfast. at all event you love doing, it can be very profitable to find a small business that will allow you to enjoy your passions and get paid to do it.
Summary: As you can see, this is a short list of possible income supplies that just about anyone can begin to build up or plan to establish before retirement. Could you possibly have income from every one of these supplies? Sure. With proper planning you could. Do you need all these supplies? No, but it couldn’t hurt.
My favorite definition of retirement: When life is affordable and work is optional. Start planning yours today, include as many of these income supplies as you can and you will enjoy your golden years and have a lot of fun doing it.