Managing Multiple Revenue Streams in Retirement
Taking the time to look ahead – maybe far ahead – to retirement should be an important part of your annual financial planning checkup. Most older adults will rely, at least to some degree, on Social Security benefits as a source of income during retirement. Though seeking out and managing other revenue streams in retirement will likely become more and more important for retirees to come. For 2016, the average Social Security benefit for retired workers is $1,341 a month. For couples, it’s $2,212 a month, assuming both receive benefits.
If you’re fortunate, you might also have additional revenue streams from stocks, IRAs and employer-sponsored plans: 401(k)s, SIMPLE Plans, pensions and the like. Collectively, the income from Social Security benefits plus any retirement investments and other savings can add up, but it’s not always enough to support your desired lifestyle during retirement. You need to take time to project forward to see what you think you might be able to assemble by the time you're ready to retire.
Doing your annual financial plan is a good moment to think about whether you’ll need additional revenue streams later in life and start planning how you'll develop them. Here are three options worth considering now. Except for the reverse mortgage, you don't want to wait until you're just about to retire to get started on them. You'll make more money if you start laying your plans earlier in your life.
Rental properties are a frequently overlooked alternative that can provide both a steady income stream and the opportunity to build equity. As an added bonus, the property may appreciate in value, and you may be able to enjoy certain tax benefits, including those related to:
- Home office expenses
- Management of the rental property
- Mortgage interest
- Property repair and maintenance expenses
- Traveling expenses related to the management of the property
Of course, it takes money to make money, and you’ll have to make an initial investment to generate cash flow – typically a down payment of 20% to 30% for rental properties. You’ll also have recurring expenses, including your mortgage, taxes, landlord-specific insurance policies and the costs of maintaining the property. It’s definitely not easy money, but after a few years it’s possible to have a steady income stream from rental properties. For more, see Real Estate Rents Can Fund Your Retirement.
Real estate crowdfunding is another option if you want to make money from property without owning it outright (see Real Estate and Crowdfunding: A New Path for Investors).
This is the revenue stream you probably won't tap until you've actually reached retirement. Many people get to that period house-rich and cash-poor. If you own your home and are at least 62 years old, you may be able to convert that home equity into cash using a financial product called a reverse mortgage, which lets you borrow against the equity in your home to get a fixed monthly payment or a line of credit. Interest accrues on the payments you receive, and repayment is postponed until you become delinquent on your taxes and/or property insurance, the house falls into disrepair, you move, sell the house or pass away.
A home equity conversion mortgage (HECM) is the most popular type of reverse mortgage. Private banks issue them and they’re insured by the Federal Housing Administration – plus there are no restrictions on how you spend the money. As far as payments go, you can choose to receive one of the following:
- A lump sum of cash at closing
- A monthly “term” option – fixed monthly payments for a set period of time
- A monthly “tenure” option – fixed monthly payments for as long as you live in your home
- A line of credit – to make withdrawals on a cash-needed basis
- A combination of monthly payments and a line of credit
In general, you can switch payment options if your needs change as long as you have funds remaining. For more, see The Reverse Mortgage: A Retirement Tool and 5 Signs a Reverse Mortgage Is a Bad Idea.
Retirement can be a period filled with relaxation, hobbies and travel. The reality, however, is that millions of Americans 55 and up work on a part- or full-time basis to stay active, challenged and involved in their communities. They also may be employed out of financial necessity – specifically, to create an income stream during retirement and/or to hang on to valuable benefits.
Some of the top-paying positions today for the over-65 crowd include:
- Patient advocate
- Project-based consulting
- Your former job
The Top-Paying Jobs for People Over 65 will give you details on each of these options.
If it’s an option (and you enjoyed your time there), your former job can be a great place to look. Your employer might be happy to have you – and your years of experience – back at work. And you get to keep doing something you enjoyed, but with more flexibility (and perhaps a little less responsibility). The pay depends on your previous salary, but for many, it’s the best way to maximize earnings potential during retirement.
On the other hand, you may want to start developing a consulting practice before you retire. Or even do some additional training to set yourself up for a new field to pursue in your 60s or later. These two options require planning ahead to put them into practice in retirement.
The Bottom Line
Other options for creating revenue streams during retirement include starting your own business (see Why to Start Your Own Business During Retirement and Using Retirement Funds to Fund Startups), downsizing and living off the proceeds, and selling some of the things you no longer need that are taking up space in your house and garage. With a little time and effort, for example, it’s possible to make an extra few hundred dollars a month selling used items on auction sites like eBay. You can also consider starting a website that you monetize or investing in peer-to-peer lending (Peer-to-Peer Lending: How Retirees Can Make Money explains how).
No matter which path(s) you choose, it’s important to do your homework – read books, talk to your friends, research online – to find the options that will work best for you and your situation.