Even when you retire from the workforce for good, those bills keep rolling in. Most people will receive a Social Security benefit, but for the average worker, Social Security checks will only replace about 40% of income. Yet the rule of thumb is that retirees should plan to replace between 70% and 80%.
If you’re retired or your golden years are fast approaching, don’t panic. Here are some unexpected sources you could turn to for retirement income.
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1. Your HSA
A health savings account (HSA) is designed to help you pay for medical expenses when you have a high-deductible health plan. But if you’re relatively healthy and you can sock away extra money in the account, an HSA can also serve as a retirement account.
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Before you turn 65, the penalties for taking distributions for non-health expenses are steep; you’ll pay a 20% penalty, plus income taxes. But once you’re 65, you can take HSA distributions for any reason without penalty, though you will owe taxes on the withdrawal.
2. A reverse mortgage
If you own your home outright or you have significant equity, a reverse mortgage may be an option. Essentially, it’s a loan in reverse where the lender makes payments to you instead of you paying the lender. You’ll need to be at least 62 to qualify.
When you move out of the home as your primary residence or you die, you or your estate are responsible for paying off the loan in full, plus interest. Your lender can sell the home if necessary to recoup the balance.
Reverse mortgages aren’t for everyone. They’re often complex, they come with fees, and your balance will grow higher each month as interest accrues. You also typically can’t borrow the full value of the home. But if you’re a homeowner who has a pressing need for retirement income, a reverse mortgage is worth considering.
3. Dividends and interest
When you’re building a nest egg, you often reinvest dividends and any interest you earn on investments like bonds or CDs. But once you reach retirement, you may want to stop reinvesting that money and use it for income.
If dividends are an important part of your income strategy, consider dividend index funds instead of individual dividend-paying stocks. When times are tough, a company may be forced to cut its dividend. Because a dividend index fund invests your money across many different stocks, you’re better protected from a dividend cut.