Retirement looks a little different for everyone — and so should the way we save for it. Retirement accounts like 401(k)s and IRAs form the backbone of most people’s retirement savings plans, and many can count on Social Security for some help too.
But those aren’t the only ways to fund your retirement. Here are three lesser-known sources of retirement income you may want to add to your financial plan.
Certain stocks pay dividends to shareholders periodically, usually once per 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 a 3% overall dividend yield, that means you’ll earn about $15,000 per year in dividends alone. That can go a long way toward covering your retirement expenses, and it may help you stretch your personal savings even further.
You can invest in individual dividend-paying stocks if you’d like. But it might be easier to look for a dividend index fund. These give you instant ownership in many dividend stocks. Spreading your money between multiple companies like this is smart because if a few of your stocks have to cut their dividends during difficult times, you’ll have others to pick up the slack.
2. Health savings account
You can stash savings in a health savings account (HSA) if you have a high-deductible health insurance plan. That’s one with a deductible of $1,400 or more for an individual 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 taxes on these funds at all if you spend them on medical expenses.
But if you’re hoping to use your HSA for retirement savings, try to avoid early withdrawals whenever possible. Look for a provider that will enable you to invest your HSA funds and leave them to grow until you turn at least 65. After this age, you can make nonmedical withdrawals, though you’ll owe taxes on these. And if you make a nonmedical withdrawal when you’re under 65, you’ll face a 20% penalty on top of taxes.
Individuals may contribute up to $3,650 to an HSA in 2022, while families can contribute up to $7,300. If you’re 55 or older, you can add an extra $1,000 to these limits. Those planning to make an HSA part of their retirement plan should keep an eye on these limits over time. They may …….