If your financial situation is close to average, you may find yourself approaching retirement with far less money than you need. That will translate to far less income than you need. Consider, for example, that according to the 2022 Retirement Confidence Survey, 34% of working respondents said that the total value of their savings and investments, excluding the value of their primary home, is less than $25,000. Even worse, roughly 1 in 5 people had less than $1,000 saved.
All is not lost, though. There are lots of ways you might set yourself up to receive additional income in retirement -- many of which may not have occurred to you. Here are some examples.
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1. Your home
Your home actually offers multiple ways to generate income streams. You might, for example, rent out part of your home or all of it on a short-term basis via a service such as Airbnb. Alternatively, you might take in a boarder for one or more years, if your home can accommodate one.
Then there's the possibility of a reverse mortgage, where a lender delivers regular income via a loan that has your house as collateral. Reverse mortgages are not for everyone -- they tend to leave your heirs with less -- but they can be a great solution for some people.
2. Interest
Interest rates have been ultra-low for many, many years -- until recently -- so the idea of generating income from interest may not be occurring to many people. But as long as rates remain significant (and there's the possibility that they will keep rising for a while, too), generating income streams from interest is worth considering.
For example, some banks are paying more than 4% for one-year certificates of deposit (CDs), and I spotted a 4.75% two-year rate recently, as well. If you invest $20,000 and earn 4.5% on that, you're looking at $900 in interest for the year.
3. Paying off debts
When interest rates are relatively high, many people find themselves paying much more than before in debt repayments -- such as for credit card accounts. Average existing credit card account rates were recently more than 19%, for example, while new account offers were averaging nearly 22%. That's a lot to pay in interest, so if you're carrying any high-interest rate debt, paying it off will have you able to keep more in your pocket.
If you owe $25,000 and you're being charged 20% annually, that's $5,000 you'll be forking over in interest alone -- each year. Once that debt is paid off, that $5,000 will stay with you.
4. Dividends
Dividends are not a retirement-income secret, but they're often underappreciated by retirees and near-retirees. Consider this, though: If you have a stock portfolio worth $400,000 and your overall average dividend yield on it is 3%, you've set yourself up to collect $12,000 in cash each year from your stocks -- without having to sell a single share. That's $1,000 per month.
Note, too, that healthy and growing dividend-paying stocks tend to increase their payouts regularly, so in a few years, you may be collecting $1,200 per month or more. Dividends can help you keep up with inflation.
5. A job
You may not have imagined yourself working in retirement, and it might sound like an awful idea to you, but do give it some consideration. Many retirees find themselves bored and restless without the structure of work responsibilities, so having a part-time job on the side can help you bring in more money while offering opportunities to socialize. You might get a little creative, too, coming up with ways to make money doing things you actually enjoy, such as pet-sitting, making and selling crafts, giving music or language lessons, or offering freelance services such as writing, editing, or web design.
A little more online research or thinking outside the box may yield additional ways to generate income. Whatever you do, don't plan to rely largely on Social Security, as it's likely to deliver far less than you need. The average monthly retirement benefit was recently just $1,828 -- or about $22,000 on an annual basis.
