RRetirement looks a little different for everyone – and the way we save should be too. Retirement accounts like 401(k)s and IRAs form the backbone of most people’s retirement savings plans, and many can also rely on Social Security for help.
But these are not the only ways to finance your retirement. Here are three lesser-known sources of retirement income you might want to add to your financial plan.
Certain stocks pay dividends to shareholders periodically, generally once a 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.
If you have a $500,000 portfolio that has an overall dividend yield of 3%, that means you’ll earn about $15,000 a year in dividends alone. This can go a long way toward covering your retirement expenses and helping you maximize your personal savings even further.
You can invest in individual stocks paying dividends if you wish. But it might be easier to look for a dividend index fund. These give you instant ownership in many dividend-paying stocks. Spreading your money across multiple companies like this is smart because if a few of your stocks have to cut their dividends during tough times, you’ll have others to pick up the slack.
2. Health savings account
You can store your savings in a health savings account (HSA) if you have a high-deductible health insurance plan. It is 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 won’t owe any tax on those funds if you spend them on medical expenses.
But if you hope to use your HSA for retirement savings, try to avoid early withdrawals whenever possible. Look for a provider that will allow you to invest your HSA funds and let them grow until you are at least 65 years old. After this age, you can make non-medical withdrawals, although you will owe taxes on these. And if you make a non-medical withdrawal when you’re under 65, you’ll have to pay a 20% penalty plus 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 add an additional $1,000 to these limits. Those considering incorporating an HSA into their retirement plan should keep an eye on these limits over time. They may be able to set aside more money in future years.
3. Your house
There are many ways to use your home to earn money in retirement. If you travel often or have a spare room, you may consider renting it out to guests, either on a short or long term. There are many online home rental sites that can help you advertise your rental and collect payment easily.
Another option is a reverse mortgage. This is only available to adults 62 and older who have significant equity in their home. Essentially, it allows you to borrow against the equity in your home and use the money for whatever you want. You don’t have to make any payments as long as you live in the house, but if you die or move, you or your estate must pay the loan balance plus interest.
These loans can be complex and incur fees, so they are not suitable for everyone. But it’s an option worth considering for seniors who find themselves short of retirement savings.
This isn’t an exhaustive list of all the ways you can fund your retirement, but I hope it gets you thinking of some other cool ideas. See if you can brainstorm other sources of retirement income, then review your list and decide which one you’d like to incorporate into your retirement plan.
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