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

(Kailey Hagen)

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

But those aren’t the only ways to fund 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 every quarter. You might only get a few dollars per share you own, but if you have a large investment portfolio, those dividends can add up over time.

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If you have a $500,000 portfolio with a 3% total dividend yield, that means you’re making about $15,000 a year in dividends alone. This can go a long way toward covering your retirement expenses and helping you expand your personal savings even further.

You can invest in individual dividend stocks if you like. However, it might be easier to look for a dividend index fund. These give you instant ownership of many dividend-paying stocks. It’s smart to spread your money across multiple companies like this one, because if some of your stocks have to cut their dividends during tough times, you’ll have others to fill the gap.

2. Health Savings Account

You can invest in a Health Savings Account (HSA) if you have high-deductible health insurance. 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 traditional IRA contributions, and you owe no tax at all on those funds if you spend them on medical expenses.

But if you’re hoping to use your HSA for retirement, try to avoid early withdrawals whenever possible. Look for a provider that allows you to invest and grow your HSA funds until you are at least 65 years old. After that age, you can make non-medical withdrawals even though you owe taxes on them. And if you make a non-medical withdrawal under the age of 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 55 or older, you can increase these limits by an additional $1,000. Anyone planning to add an HSA to their retirement plan should keep these limits in mind over time. They may be able to put more money aside in the years to come.

3. Your house

There are several ways you can use your home to make money in retirement. If you travel often or have a spare room, consider renting it out to guests for the short or long term. There are many online websites that can help you advertise your rental and collect payment easily.

Another option is a reverse mortgage. This is only available to adults over the age of 62 who have significant equity in their home. Essentially, it allows you to borrow 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 home, but if you die or move out, you or your estate will have to pay the balance of the loan plus interest.

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

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

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