The Social Security Administration reports that the average benefit paid in 2014 was $1,329 per month, or $16,000 per year. Vanguard states that the median 401(k) account balance for those over 65 was $72,845 in 2014. Based on the 4% safe withdrawal rule that only works out to an additional $2,914 per year. Although some retirees may have access to other sources of retirement income, it’s clear that social security and savings alone will not be enough for the average American. How can you close the gap if you’re experiencing a retirement shortfall? According to a recent article, below are some ideas for supplementing your retirement income.1
Reverse Mortgages
A reverse mortgage may be able to provide you with the extra funds you need to live a more comfortable lifestyle. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration (FHA) insured loan. A reverse mortgage enables seniors to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3 Many seniors use the funds to consolidate debt, make home improvements, and cover unexpected expenses or to pay for medical expenses such as prescriptions or in-home care. The loan typically becomes due when the borrower moves out of the home as their primary residence or passes away. At that time, the borrower or their heirs can choose to repay the reverse mortgage loan and keep the home, or sell the home to repay the loan.
Another option is to use a reverse mortgage to downsize to a smaller home. This is called a HECM for Purchase loan. Many retirees live in the same home they raised their family in. However, oftentimes seniors don’t need all that space anymore and would prefer to move to something more manageable. With a smaller home, you also benefit from lower heating and cooling costs, as well as less maintenance. You also may benefit from lower property taxes.1
Continue Working
Another way to improve your income stream is by continuing to work, even if it’s just part-time. A part-time job will typically come with less responsibility and you won’t have to work the long hours. You might consider working seasonally for a retailer or as a researcher for a local university. Another option is to continue working for your current employer, but as a consultant, or on a part-time basis. If you have a particular skill, you could become self-employed and use your skills to tutor or sell handcrafted items on sites like Etsy.com. If you’re good at writing, you could do freelance work online, which gives you the freedom to choose your own hours and which jobs you want to accept. Even an additional $100 a week can increase your annual income by over $5,000…that’s enough to make a difference.1
Dividend Paying Stocks
According to the article, it’s recommended that you invest a portion of your retirement savings in dividend paying stocks. “The move comes with some risk, but it will also increase the amount of income you’re able to generate under current conditions. It’s not uncommon for stocks to have dividend yields of anywhere from 2% to 5% or higher, and although the highest-yielding stocks come with extra risk, you can find good conservative choices that will still far outpace what your bank is paying you in interest right now.” If you’re not comfortable picking individual stocks, then exchange-traded funds (ETFs) that focus on dividend stocks is an option. The benefit of ETFs is that they give you exposure to many different stocks which diversifies your portfolio and helps to mitigate your risk. The article states that eliminating stocks entirely from your portfolio can be a mistake. “Dividend stocks can boost your income and give you some much-needed growth potential to last you throughout your golden years.” Everyone’s situation is different, so it’s always best to consult a trusted advisor when it comes to your needs and financial goals.1
If you’d like to learn more about reverse mortgages, please use our Reverse Mortgage Calculator or call 800-218-1415.
1 Need Income in Retirement? Here are 3 Ways to Get More – fool.com, 2/14/16, http://www.fool.com/retirement/general/2016/02/14/need-income-in-retirement-here-are-3-ways-to-get-m.aspx.
2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
Author: Meredith Manz