7 ways to earn extra income in retirement



If you are looking to enjoy a comfortable retirement, you need an income. And there are a number of ways to generate these types of income in retirement.

After a lifetime of work, it can be great to make your money work for you, and you will also have money accumulated in the social security system from years of work and paying taxes. But while Social Security is a great place to start, you’re going to want to create additional diversified streams of retirement income.

Your options for generating income in retirement are plentiful, but it certainly doesn’t hurt if you already have a bunch of cash from your working years. If you do, you will be able to turn it into a range of income streams, depending on what suits your needs and risk tolerance. And you may be able to significantly reduce your taxes in retirement with careful planning.

1. Social security

Social Security can form the basis of any retirement income plan, and although it was never intended as a comprehensive retirement income solution, Social Security offers a lot. One of the huge benefits of the program is that by the time you retire you have already contributed to the program, so you don’t have to do anything. You don’t have to worry about an additional investment or setting aside money from a paycheck.

The average retired worker receives over $ 1,500 a month from Social Security, and some workers earn considerably more than that. This level of money can build a solid income foundation, but you will likely need to supplement it with other streams, such as the ones below.

If you are among the lowest earners, you may be able to receive your monthly check tax-free, and even those who earn a little more may still receive a portion of their benefits tax-free.

2. Rental income

Owning a rental property can be a great way to generate income in retirement, and it doesn’t have to be too difficult to do, especially if you’re investing in residential real estate. While you will need to spend time managing the property, it can earn you real money over time.

It may be a good idea to think about rental real estate for years, as this will help you generate more income. Rents generally increase over time, giving you better protection against your costs, like your mortgage. And over time, you can pay off or refinance your mortgage, giving you more wiggle room with your spending and more money in your pocket during retirement.

However, it’s important to remember that real estate can also require income. It is not just a one way cash generator. Roofs need to be replaced, furnaces need to be repaired, etc. If you have a tight income, you’ll want to budget for unscheduled repairs and have cash. If property management isn’t your thing, there are other ways you can invest in real estate as well.

Now may be a particularly good time to invest in real estate, as mortgage rates are at historic lows. You can even get a mortgage rate of less than 3%.

3. CD

Investing in a CD is one of the safest and easiest ways to earn retirement income. The real downside is that interest rates are close to their all-time lows, making this a wasteful time for CD investors. That said, CDs are easy to buy, and CDs in FDIC-backed banks are completely safe.

One strategy for CD investors is a CD ladder, which helps minimize the risk of putting your money in all at once. With a ladder, you install CDs at staggered maturities, say, every year for five years. When the one-year CD matures, you turn it into a five-year CD and wait for the next CD – now only a year away – to mature. This way you always have a maturing CD.

You can also implement a dumbbell strategy. Here you put about half of your money in long-term CDs where the rates are usually higher and the rest in short-term CDs, where the money is more liquid, giving you access to the money when you need it. You get an average return on your money, but you also have good access to cash.

If you go for CDs, it makes more sense to find the best prices across the country.

4. Annuities

Annuities are an always popular option for retirees, but they offer advantages in addition to some disadvantages. Anyone considering an annuity should understand that they are quite complex, although the promised benefits – a monthly paycheck – are relatively straightforward.

The options with annuities are everywhere. You can structure your annuity to have insurance-like benefits, such as a death benefit, and can even pass the monthly income on to a spouse. You can set the potential salary to be predetermined (as in a fixed annuity) or variable (as in a variable annuity). You can start payments now or later.

But all of these options lead not only to more complexity but also to a higher cost, and annuity contracts are almost infamous for their complexity and hard-to-understand rules. Yet, for the right person, an annuity can provide a stable monthly income that makes retirement more fun.

5. Bond funds

Bond funds are an efficient way to get a diversified bond portfolio without having to pick a bunch of bonds yourself. A bond ETF, for example, can provide you with a wide range of bonds or a fairly narrow range of bonds, depending on what kind of exposure you want.

Among the most common options, you can choose from issuers – federal government, corporations, states, and municipalities. You can choose between short, medium and long term bonds. You may have riskier issuers, such as high yield or “junk” bonds. And there are more obscure options as well.

For example, if you want short term government bonds or medium term corporate bonds, you can find funds for those. If you want a mix of all kinds of bonds, you can go that way as well. You can also focus on funds that offer a selection of tax-free municipal bonds. The point is, you have a ton of options with bond funds, and they’re easier to trade than bonds themselves.

Bonds offer stable income, and while interest rates aren’t particularly high these days, bonds are generally much safer than stocks and some other market-based investments.

6. Dividend shares

Dividend stocks offer two potential advantages over bonds. First, they often pay higher returns than those offered by bonds. Second, the best companies increase their payouts year after year, which means you’ll get a raise just for continuing to own your shares. Unlike bonds, where the payout is usually fixed, the income stream from a dividend-paying stock has the potential to increase over time.

Dividend stocks are generally less risky than growth stocks, but that doesn’t mean you can’t lose money on them, especially in the short term. Like all stocks, dividend-paying stocks fluctuate, although better-run companies tend to appreciate over time as they increase their payouts.

Successfully choosing dividend stocks can be difficult, so investors often look to a dividend stock fund, such as an ETF. These funds have low expense ratios and offer a diversified stock portfolio so that its performance is not too dependent on a single stock. A fund will generally be less volatile than individual stocks and may further increase its earnings over time.

While you build your retirement nest egg, keep your assets in a Roth IRA, and you’ll never pay dividend and capital gains taxes again. It’s tax-free retirement!

7. A new part-time job or a side activity

If you run out of options, you might consider finding a part-time job, especially if it’s for a short time when you need the money. You can also consider turning a lifelong hobby into a side business, turning some of your valuable knowledge into money.

While many people dream of never working in retirement again, many others find retirement to be very different from what they expected. For these reasons, some people decide to return to the workforce, if only to get out of the house a few days a week and see people.

At the end of the line

It’s not the easiest thing to generate income these days with interest rates as low as they are. Gone are the days of safe five percent returns on CDs or corporate bonds. But a little legwork and a lot of planning ahead can help you find the best returns. The sooner you start, the sooner you can start securing your retirement income.

Image presented by Luis Alvarez of Getty Images.

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