Retirement looks a little different for everyone – as does the way we save for it. Pension accounts such as 401 (k) s and the IRA form the backbone of most people’s pension savings plans, and many can also rely on social security for help.
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 once a quarter. You may only get a few dollars per share that 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 an overall dividend yield of 3%, it means that you will earn about $ 15,000 a year in dividends alone. This can greatly help you cover your retirement expenses and help you further expand your personal savings.
You can invest in individual shares that pay dividends if you wish. But it may be easier to find a fund with a dividend rate. They give you instant ownership in many dividend stocks. Dividing your money between several companies like this is smart, because if some of your stocks have to cut their dividends in difficult times, you will have others to take your money.
2. Health savings account
You can keep your savings in a health savings account (HSA) if you have a high deductible health insurance plan. This is one with a deductible of $ 1,400 or more for one person or $ 2,800 or more for a family. Your HSA contributions reduce your taxable income for the year, just like traditional IRA contributions, and you won’t owe any taxes on these funds if you spend them on medical expenses.
But if you’re hoping to use HSAs for pension savings, try to avoid early retirements whenever possible. Find a provider who 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, although you will be charged for them. And if you make a non-medical withdrawal when you are under 65, you will face a 20% penalty in addition to taxes.
Individuals can contribute up to $ 3,650 to an HSA in 2022, while families can contribute up to $ 7,300. If you are 55 or older, you can add an additional $ 1,000 to these limits. Those who plan to have an HSA as part of their retirement plan should consider these time limits. They may be able to set aside more money in the years to come.
3. Your house
There are several ways you can use your home to earn a living. If you travel often or have a free room, you may want to consider renting it to guests, either short-term or long-term. There are a lot of online home rental sites that can help you advertise your rental and make your payment easy.
Another option is a reverse mortgage. It is only available to adults over the age of 62 who have significant equity in their home. In essence, 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 as long as you live in the house, but if you die or move, you or your estate must pay the balance of the loan plus interest.
These loans can be complex and have associated fees, so they are not for everyone. But they are an option that is worth considering for seniors who feel deprived of retirement savings.
This isn’t an exhaustive list of all the ways you can fund your retirement, but hopefully it will make you think of a few more ideas out of the box. See if you can analyze any other sources of retirement income, then look at the list and decide which one you want to include in your pension plan.
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