One of the hardest parts of retirement is the fact that your bills won’t go away even if your salary is reduced. You need a source of cash to cover your costs, and as 2022 was poignantly reminded, stock prices don’t always go up. To get the money you need to live, it’s important to have a way to generate cash without selling stocks.
With that in mind, these five ways to generate income in retirement without going back to work will help you do just that. You don’t have to rely solely on We recommend using them in combination to maximize your chances of getting the cash you need for a comfortable retirement.
1. Delay Social Security
You can receive your Social Security retirement benefits anytime you turn 62. For someone born in 1960 or later, starting at age 62, she will receive 30% less benefits than if he claimed at age 67, at “full retirement age.” at full retirement age.
In other words, if the “full retirement age” benefit is $1,000 a month, actual Between $700 and $1,240 per month, depending on when you bill. This is a large shift in what is likely to be a substantial source of inflation-adjusted income for retirement.
The longer you wait within the 62-70 age window, the higher your benefits and the higher the inflation adjustment amount. The trade-off, of course, is collecting $0 for each month you wait for benefits to begin. As such, you will need another source of funds to cover the costs of getting Social Security.
2. Become a landlord
Owning real estate is a proven way to make money without a formal job. Investing in real estate can be an efficient way to generate retirement income, especially since depreciation can prevent a portion of your cash flow from being taxed too soon.
Despite that potential, being a landlord in itself can be something of a job. You are responsible for the repair and maintenance of your property and may need to take an active role in collecting rent. You’ll also need to cover your mortgage and property taxes whether the place is rented or not. Also, if the place is empty, you may incur at least some major utility bills.
On top of that, you often need a higher down payment than an owner-occupied home, and you have to pay a higher interest rate for a rental property. This may result in higher cash requirements and fixed costs than otherwise anticipated. As a result of all these trade-offs, teeth Cash flow generated from real estate is not as simple as it seems on the surface.
3. Buy dividend growth stocks
It was the power of dividend increases that allowed my own investment income to outpace significant inflation in 2022. and comes with trade-offs.
For example, one of the biggest risks is that dividends are not guaranteed payouts. If a company is in serious trouble, it may cut its dividend to free up cash that could help it recover. Another trade-off is that while dividends can grow over time, they are rarely a huge source of funding. Current income.current dividend yield S&P 500 about 1.7%. As a result, you’ll need to invest a sizeable nest egg this way to fully cover your retirement savings.
4. Own bonds
At the time of writing, the highest yielding regular US Treasury bond pays investors at an annual rate of 4.8%. That means the investor could earn $48 per year in interest for every $1,000 of her invested that way. Despite the political drama over the debt ceiling, US Treasury debt is seen as a safe investment. After all, the U.S. government has the power to print the dollars it needs to pay its debts, so inflation from overprinting currency poses a greater risk than default.
However, it also has its drawbacks. One is the concept of reinvestment risk. That his 4.8% yield is now available on a 6-month bond. However, when those bonds mature, there is no guarantee that the principal will have to be reinvested elsewhere to earn interest. new The bond will be paid at that rate. Another reason is that most bonds pay a constant interest rate over the life of the bond. This generally means that payments cannot keep up with inflation over time.
5. Write Covered Calls
If you own 100 or more shares of a company, you can typically participate in an options strategy known as issuing a covered call on that stock. Essentially, you give someone else the ability to buy your shares at a specified price (the “strike price”) on or before a specified date. Instead, a small amount of cash is paid before the contract is drawn up. In addition, you may retain your shares unless or until the other party to that contract exercises it to purchase shares from you.
While this is an attractive strategy, it is still risky. First, if the stock rises before maturity, the profit is capped at the contract price. Because this is the price at which you agreed to sell your shares. Conversely, if the stock price goes down, you can hold the stock, but you will have to sell the next round of covered calls at a lower strike price to get the same income. That means limiting your participation in recovery or forgoing the next round of covered call income.
Combine for Optimal Retirement Income
All five of these approaches can help you earn income in retirement without having to go back to work, but they all have trade-offs. As a result, the best approach may be a combination of some or all of them.
Whichever path you choose, you’ll want to plan before you retire to maximize your chances of getting enough nest eggs to support yourself. , you can have more time on your side. So, start today and get on the path to maximizing your potential for a greater retirement income.