Retirement looks a little different to everyone – and so should the way we save for it. Retirement accounts like the 401 (k) and IRAs form the backbone of most people’s retirement savings plans and many can also rely on social security to help them.
But these are not the only ways to finance your retirement. Here are three lesser known sources of retirement income that you may want to add to your financial plan.
Some shares pay dividends to shareholders on a regular basis, usually quarterly. You can only get a few dollars per share you own, but if you have a large investment portfolio, these dividends can add up over time.
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If you have a $ 500,000 portfolio that has a 3% total dividend yield, it means that you will earn about $ 15,000 a year on dividends alone. This can cover your retirement expenses and can help you expand your personal savings even more.
If you want, you can invest in individual dividend-paying stocks. But it might be easier to look for a dividend index fund. These give you immediate ownership of many dividend shares. Distributing your money among multiple companies like this is smart, because if several of your stocks have to cut their dividends in difficult times, you will need others to get rid of the will.
2. Health savings account
If you have a high-insurance health insurance plan, you can save your savings in your health savings account (HSA). That is, with a share of $ 1,400 or more for an individual or $ 2,800 or more for a family. Your HSA contributions reduce your taxable income per year, just like traditional IRA contributions, and you won’t owe taxes on these funds at all if you spend them on medical expenses.
However, if you hope to use your HSA to save for retirement, 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, even if you owe taxes on them. And if you make a non-medical selection when you are under 65, you will face a 20% fine in addition to your taxes.
Individuals can contribute up to $ 3,650 to the HSA in 2022, while families can contribute up to $ 7,300. If you are 55 or older, you can add another $ 1,000 to these limits. Those who plan to include the HSA in their retirement plan should monitor these limits over time. They may save more money in the coming years.
3. Your house
There are several ways you can use your house to make money in retirement. If you travel frequently or have a room available, you can consider renting it for short or long term guests. There are plenty of online home rentals that can help you advertise your rental and easily collect payments.
Another option is a reverse mortgage. This option is only available for adults aged 62 and over who have significant capital in their home. Basically, it allows you to borrow against the equity in your home and use the money for whatever you want. You do not have to pay any payments as long as you live in the house, but if you die or move, you or your estate must repay the loan balance plus interest.
These loans can be complicated and have associated fees, so they are not for everyone. However, there are options that are worth considering for seniors who are retiring.
This is not an exhaustive list of all the ways you can fund your retirement, but hopefully it will make you think of some other ideas. Find out if you can discuss some other sources of retirement income, and then look at your list and decide which ones you would like to include in your retirement plan.
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