There are things to plan like your retirement income source before time but with planning comes responsibilities. Achieving this begins with identifying the best options available and weighing them as they meet your specific situation. If your retirement is in close view, you must certainly have started things to help you get ahead of living the best of your life after leaving employment.
Since life is in phases, we must pay attention to the latter part of staying strong and healthy, especially with enough income to enjoy the rest of our lives.
According to statistics, Americans live an average of 78.7 years yet many live longer than this. The implication is that you will require way more retirement income to live on after leaving the workforce.
While it is important to build system(s) of earning in retirement, it is not so easy for many to break even. Economic experts advised aging adults to plan for a retirement that could last for 20 years.
However, before planning, note there is no-all-perfect source of retirement income, instead, you will find different ways to make money and maintain a desired lifestyle before and all through your retirement journey.
Besides, the best source of retirement income for each person depends on needs, preferences, occupation, retirement awareness, and education.
In this article, we have identified the best sources of income in retirement you can trust whether you retire as a professional, business mogul, or a skilled entrepreneur. Read to the end, to learn and choose the best source of income that suits you in retirement. But before then, let us look at the definition of retirement.
What is Retirement?
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Retirement refers to the time of life when a person chooses to permanently stop their active professional career or leave their work life behind. It often results from planned events such as age or number of years of service and unplanned events such as illness or accident.
While many people dream of retiring to a life of peace and abundance, not much work is done for such life before retirement life dawns on them.
At What Age Should You Retire?
Young people want to retire early. A Gallup poll study, Yahoo Finance report, interviewed 18-to-29-year-olds about retirement, they expressed confidence to retire early, closer to their early 60s. While this is a welcome development, it is not easy to achieve as life can get in the way. When it does, youthful optimism for early retirement decreases.
In the U.S., the average retirement age is around 66 years old. The reality is that many soon-to-be retirees cannot boast of a prepared life before retirement. Certain factors are responsible for this including inflation, amongst others. However, retirement age is an individual decision in light of careful considerations like personal health, financial readiness, financial obligations, employer policies, retirement savings goals, and government regulation.
Also, receiving full social security benefits is another condition. Failure to wait before your early retirement will lead to no access at all. In addition, retirement has to do with careers in a governmental or private organization. One can continue to run their own business after retiring. If you work in such settings, you may have to follow the retirement conditions to enjoy pension benefits. Meanwhile, now is the best time to start planning your retirement. It’s a good idea to talk to money experts or retirement planners to make sure your retirement plan fits well with your situation.
What is Retirement Income?
Money earned through different sources after a person’s active professional service at work is called retirement income. This income is generated from social security benefits, pension plans, bonds, personal savings, and other areas when you must have quit working. Leaving the workforce does not take away completely the privilege of earning. It doesn’t stop you from getting involved in other means of service or passive work. Many Americans run their side businesses from home or are involved in consulting and voluntary service.
The Best Sources of Income in Retirement
1. Social Security
Social security is the income paid to qualifying retirees based on earning history and the age they choose to start receiving benefits. It is a popular income source for retirees. The National Institute on Retirement Security in her recent study shows that 40% of Americans rely only on Social Security benefits to fund their retirement.
While it is important to wait for full retirement age before receiving benefits to receive no-cut payment, you should opt for diversified streams of retirement income. Ultimately, you can only receive a maximum of $3,345 each month at full retirement age. This may not cover your lifestyle, health costs, and other contingencies.
The regular payment provided by your employer is another source of retirement income you can additionally trust to fund your retirement. It is often referred to as a defined benefit plan. The way it works is that payments are based employee’s salary history and period of employment with the organization rather than contributions.
Not everyone has access to employer-sponsored pension plans that can provide a steady stream of income throughout retirement. For instance, self-employed individuals who worked all through their own business may have to fund a pension plan themselves.
According to statistics, there has been a decline in pension plans. Recent stats from the Pension Rights Center show that only about one-third of American retirees receive income from defined-benefit retirement plans. Meanwhile compared with private pensions, government and military pensions offer greater benefits.
3. Personal Savings and Investments
Personal savings and investments play a crucial role in retirement planning. This source of income includes funds accumulated in retirement accounts like 401(k)s and IRAs, as well as other investment channels. The goal is to build a nest egg over time, allowing retirees to tap into their savings to cover living expenses during retirement. A diversified investment portfolio is commonly used to generate returns and sustain financial well-being.
Annuities are financial products that offer a series of payments over a specified period or for the rest of one’s life, providing a guaranteed income source in retirement. They come in various forms. One must be careful to purchase the right annuity contract.
Some experts suggest that retirees should invest their savings to buy annuities. This is particularly advisable if they do not qualify for social security benefits or pension plan payments. According to Investopedia, purchasing an immediate annuity is an easy way to have an ongoing income stream that will outlive you.
5. Real Estate as a Form of Retirement Income Source
How about Real Estate? Smart investors will save up to invest in rental properties during working years to maintain a steady income even in retirement. While real estate is a guaranteed retirement source of income, it does not defer taxes or insurance. You may still spend on those costs yet you will be safe from incurring debts, afford your lifestyle expenses, and meet unplanned demands depending on your real estate income.
Real estate marketers are everywhere; you can decide to focus on residential rental properties to afford a steady retirement income at low maintenance costs.
6. Part-Time Work
Several retirees want to stay active after leaving full employment, so they find jobs they can engage their time with part-time. This form of continued employment is a guaranteed income source for your retirement if you are physically healthy and have the time to spare.
If you are interested, there are several paid opportunities for retirees. Some of these opportunities are tutoring, child care services, virtual assistance, pet care, and content writing. You can find highly lucrative side hustles from your networks and online platforms so you can supplement your income as a retiree.
7. Start a Small Business
Running a small business or entrepreneurial venture during retirement is a profitable source of income at this phase of life. You can turn a lifelong hobby into a side business that keeps you productive and offers you a sense of purpose.
If you are good at crafting items, knitting, or making jewelry, you can run it from home, selling your items online and in local stores near you. Take a look at how to start a home-based handmade craft. Meanwhile, starting a business can be demanding. This is why you should focus on your passion, strengths, and interests that will easily fuel and sustain your continuity in business.
8. Consulting or Freelance Work
Consulting in your field of expertise can be a rewarding experience. You may continue as a consultant in your profession, offering your experience, skills, and knowledge to individuals and organizations within your reach.
You can also find freelancing roles you can offer within your profession by exploring online job platforms. The good thing about freelancing is; that you can determine your work hours, and work rates and decide when to call it quits. And for as long as you have work demands, your income is stable.
9. Dividend Stocks
Dividend-paying companies distribute a portion of their profits to investors who own shares with the company in the form of dividends. Retirees can include these stocks in their retirement portfolio to provide a regular income stream and potential capital appreciation as the stock price increases.
This type of investment comes with its own risk as the value of stocks can fluctuate. In addition to that, companies may reduce or suspend dividend payments during challenging economic times. You can also explore other safe investment opportunities suitable for retirees.
10. Bond Funds
Bond funds are an effective way to invest in the bond market than trading the bond yourself. The advantage is that it holds multiple funds with different credit quality, interest rates, and maturities which provide immediate diversification of funds, reducing the risk of poor performance by any individual bond.
Bond funds are debt securities issued by governments, municipalities, or corporations to raise capital. They are often managed by professionals who have the expertise to help navigate the bond market to make strategic decisions to optimize returns. Such funds can provide retirees with a stable income stream through regular interest payments.
The best source of income in retirement is what provides you with the highest chances of reaching your retirement income goals with minimal risk involved. You could decide to integrate two or more of the above income sources but you certainly should seek personal retirement planning advice to enhance your retirement plan and purpose.