More than one-third of Americans are worried they’ll outlive their retirement savings according to the Transamerica Center for Retirement Studies. Nobody will require the same exact amount of money in retirement because different situations will inevitably require different amounts, but there are things everyone can do to make sure they’re financially prepared.
One of the best ways to ensure you’re financially stable in retirement is by having multiple sources of income. Here are three of your options.
1. Dividend payouts
Any dividend payouts are good, but they really reward investors who are willing to be patient and wait to receive payouts in retirement. Using a dividend reinvestment program (DRIP) — which automatically reinvests the dividends you receive back into the stocks that pay them — can add to the effects of compound earnings and put investors in a position to receive sizable income in return down the road.
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Let’s imagine you contribute $500 monthly to a dividend-focused ETF that returns, on average, 8% annually over 25 years. With a steady 2.5% dividend yield during that time, the difference in account totals between reinvesting dividends and taking them out is more than $197,000.
|Reinvested Dividends?||Account Total After 25 Years|
In either case, accumulating that amount could be a great retirement income supplement. Assuming the yield stays at 2.5%, that’s over $900 and $1,250 in monthly dividend payouts, respectively.
A 401(k) plan is the go-to retirement account, mainly because many employers provide it, and employees are often automatically enrolled. Individual retirement accounts (IRAs) and the benefits they provide can often fly under the radar, but when used properly, they can be a powerful player in achieving your retirement goals. There are two types of IRAs: Roth and traditional. Which one you choose mainly depends on your current versus projected tax bracket.
If your current tax bracket is lower than what your tax bracket will likely be in retirement, you’ll probably want to go with a Roth IRA, which allows you to contribute after-tax money and take tax-free withdrawals in retirement. IRAs work just like brokerage accounts in that you can invest in any stock you want, but the ability to take tax-free withdrawals with a Roth IRA can easily save you thousands of dollars in retirement.
If your current tax bracket is likely at its peak, you should consider a …….