If there's a downside to retirement, it's that your salary generally stops coming in at about the same time you stop showing up to work. If, like most of us, your bills don't go away just because you're no longer drawing a paycheck, it makes sense to have a source of income to cover those bills.
While most Americans get access to either Social Security or a similar program as a source of retirement income, that alone may not be enough to cover your costs. With that in mind, these four sources of retirement income are ones you may not have considered yet. With proper planning, you may be able to build one or more of them into your retirement plan to help you make it through your golden years.
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No. 1: A bond ladder
As a general rule, money you need to spend in the next five years or so does not belong in stocks. That's where a bond ladder can come in handy. With a typical bond ladder, you buy bonds that are scheduled to mature just before you need the money. As long as the bonds pay as agreed, those maturing bonds turn into the cash you need to spend, just before you need to spend it.
As bonds are higher priority than stocks on the corporate pecking order, it is extremely likely that if a company can make good on its bonds, it will make good on its bonds. That higher assurance makes it possible to use a bond ladder as a source of retirement income, but it's still important to recognize that the promise of payment is only as good as the issuer of the bond is. As a result, if you're using a bond ladder as a form of retirement income, it makes sense to:
- Stick to investment-grade corporate or treasury bonds
- Diversify the companies whose bonds you buy
- Keep an emergency fund large enough to cover for the occasional default
No. 2: Your Health Savings Account
The typical use of a Health Savings Account is to cover costs associated with your medical care. That use is still valid in retirement, where you can continue to pull from your HSA completely tax free to cover your qualified healthcare costs. Above and beyond that, you can use your Health Savings Account money to cover your Medicare Part B, Part D, and/or Advantage premiums as tax-free qualified medical expenses.
Perhaps more importantly, though, once you're age 65, your HSA becomes fairly close to a Traditional IRA in terms of your ability to spend the money. Once you reach that age, you only pay ordinary income taxes on any non-qualifying expense that you pay from your HSA. That makes it an often surprising source of income in your retirement.
No. 3: A retirement job
Just because you're ready to give up the rat race of a high-stress job doesn't necessarily mean you need to give up working altogether. There are often jobs available in the non-profit sector that may not pay all that well, but which support a mission that you're personally aligned with. In addition, even in for-profit companies, there are often jobs that need to get done that you can use to stay engaged and involved, without the stress and headaches of many career roles.
From a financial perspective, working a bit can provide income to help cover your costs. Plus, your earned income may get you additional Social Security benefits, depending on what the rest of your earnings history looks like. In addition, the time you spend working is time you're likely less tempted to be spending, which can help your available money go farther.
No. 4: Wait a bit to take your Social Security
Speaking of Social Security, there's a wide range of what your monthly benefit check will be, depending on how your age when you start collecting. You can take your benefit as early as 62, and the longer you wait -- up until reaching age 70 -- the higher each benefit check will be.
The difference can be substantial. Say your expected monthly benefit at your full retirement age would be $2,000 per month. If you were born in 1960 or later, taking it at age 62 would reduce that to $1,400. On the flip side, if you waited until age 70, your benefit would be increased to $2,480 per month . That's over a $1,000 per month difference, based on the exact same earnings record.
Get started now
Regardless of where you are in your retirement planning journey, your time is the most important tool you have when it comes to getting your plan in place. Whether it's having sufficient assets to make put some of the plans in place or the right contacts and reputation to get a great retirement job, the sooner you get started the more time you will have on your side. Make today the day you start getting your plan in place to improve your chances of having enough retirement income to meet your goals.
