There are several ways to continue getting paid after you have cleared out your office. Diversifying the sources of your retirement funding will take the pressure off your nest egg, insulate you from market volatility, and, in some cases, provide non-financial benefits.
Five Types of Investing Strategies
These pie charts show the five types of investing strategies as well as hypothetical asset allocations. Pie slices without a percentage represent 5%. Here are some common sources of retirement income. Depending on your goals and circumstances, some of them may yield significant monthly returns, while others may just provide beer or lunch money.
Income Investing
During your prime earning and saving years, your investment portfolio should be focused on growth stocks—shares that are expected to steadily increase in value over the years. But as you near retirement, consider shifting your emphasis to income-generating assets, including stocks that pay regular dividends and bonds that pay interest. You might also consider investing in real estate investment trust (REITs), which are publicly traded baskets of real estate holdings; shares of preferred stocks, which are a sort of hybrid between common shares and bonds; and master limited partnerships, which pay you a return of capital from income generated by natural resource and real estate operations. While you are in savings mode, income generated by these assets should be re-invested to turbocharge the growth of your nest egg. When you retire, those dollars can go straight into your bank account.
Social Security
The size of your monthly Social Security check will depend, in part, on when you elect to start taking benefits. You can begin receiving Social Security benefits as early as age 62, but if you do so, your check will forever be 30% less than if you had waited until your full retirement age, which hits sometime between age 66 and 67, depending on what year you were born. Your potential monthly benefit will grow by about 8% every year that you don’t take Social Security after the age of 66—until age 70, when it levels off at 132% of the usual amount. That doesn’t mean you should necessarily wait until you are 70. Any number of factors will influence this decision, including your health and financial situation. The bottom line: Take your benefit when you truly need it to meet your specific needs.
Rental property
Owning rental property can generate a steady stream of income if you are willing to take on the sometimes grinding role of being a landlord. If you are relocating when you retire, consider renting your current home instead of selling it. If you’ve fully funded your retirement accounts and still have money to invest, you might look into buying a rental property or two. Real estate can be tricky, especially for rookies. Study up on the market before committing to the rental game. Think long and hard about how much of your post-career life you want to spend managing your rentals. One option is to hire a management company, which will reduce your headaches but will also reduce your income.
Part-Time Jobs
Consider post-career work, especially in the years immediately following retirement. A part-time job can generate worthwhile money, even if you work only 10 to 15 hours per week. What’s more, working can provide structure, social contact, and a sense of purpose, all of which are important to a satisfying retirement. Ideally, you shouldn’t take some awful, boring job just to make a few bucks. Look for a gig that feeds your passions. If you love golf, get a job at the local course. If you’re good with kids and can play the piano, offer lessons or become a substitute music teacher.
Pensions
Once the cornerstone of retirement funding, pensions are pretty much a thing of the past in the private sector. But they are going strong in the public realm, where the life-long payments help offset the relatively low salaries paid to teachers, firefighters, and police officers. If you’ve held several jobs in your career, it’s worth checking back to see whether you are due any pension benefits. It might be only a couple hundred dollars per month, but every dollar matters.
