After years of hard work, many professionals look forward to retirement. While careful planning can leave retirees with a handsome sum when that time comes, it may not be enough to cover their standard of living.
The average retired household spends roughly $46,000 a year, while Social Security and pension income provide $24,000 annually on average. That leaves a significant chunk that retirees must cover themselves. Savings and investments set up before retirement will cover most if not all of it, but retirees can go further.
Here are eight ways retired professionals can supplement their retirement income to support a higher standard of living.
1. Work as a Contractor
The most straightforward way to earn extra income in retirement is the same as before retirement: work. That doesn’t mean that people should never retire, but working a little can help stave off boredom and supplement retirement benefits. One of the best ways to do this is by working on a contract basis.
As a contractor, retirees can work flexible hours to suit their schedule and will often have more control over how much they work. With years of experience under their belt, it may not be difficult to find such a position that pays well. Some people may even be able to work as a consultant with their former employer.
2. Lease Property
Another popular option is to become a landlord. By the time some professionals retire, they may have plenty of capital to buy commercial or residential real estate and rent it out. Maintaining these properties often doesn’t involve much frequent work, providing a relatively passive income source.
Renters account for 36% of U.S. households, giving landlords a broad market to capitalize on. This market is also a profitable one, with individual investors receiving $353.7 billion in rent in 2018.
Leasing property doesn’t have to be a full-time commitment, either. Retirees with multiple homes can rent out one or two properties seasonally, fitting it to their own schedules.
3. Sell a Large Asset or Two
Selling large, unused assets can also help supplement retirement income. While this option won’t sustain retirees for extended periods, a large sale could provide a comfortable cash cushion that lasts for some time. Homes, yachts, cars and other big-ticket items often have eager prospective buyers and can fetch an impressive price.
When selling these assets, keep in mind that the right marketing approach can make a big difference. For example, 60% of potential boat buyers are researching on mobile devices, so yacht sales should include a mobile-first marketing strategy. Retirees looking to sell may want to partner with a broker or other intermediary to make a good sale faster.
4. Invest in the Stock Market
Earning a passive income is one of the best ways to supplement retirement benefits. While many people may assume the stock market is too volatile for retirement, it can be an excellent source of passive income. Stocks do involve some risk, but they can act as a hedge against inflation.
One of the best investment options for retirees is dividend stocks. These stocks pay investors a portion of the company’s earnings, giving retirees a steady, regular additional income. Some stocks have a history of increasing their dividends, too, which can be helpful if retirement ends up being several decades long.
For example, Procter & Gamble has increased its payout for 62 consecutive years with a 3.7% dividend yield. Retirees should look for records like that in steady, relatively recession-proof markets, avoiding fast-growing but riskier companies.
5. Start or Invest in a Small Business
If retirees want to invest in a newer company, it may be best to do that apart from the stock market. They could even start their own small business or help a family member or friend do so. In addition to providing extra income, this route can be fulfilling, giving retirees a sort of passion project.
For the most likely successful outcomes, aim to start a business in a lasting, essential industry. For example, since more than 70% of goods sold in the U.S. move via truck, a trucking business could yield considerable revenue. Alternatively, retirees could aim to get into an industry or service they’ve always been interested in but hadn’t had the chance to join.
6. Buy Municipal Bonds
Another investment option for retirees is buying municipal bonds. Like dividend stocks, bonds offer a steady stream of payments over an extended period. Unlike dividends, though, bond issuers have to make these interest payments thanks to contractual obligations. This interest is also exempt from federal income tax in most cases.
If retirees buy municipal bonds from their state of residence, they can avoid local and state taxes on interest payments, too. While these payments may produce smaller returns than some other investment types, they may be more reliable. As a result, they’re an excellent choice for those wanting to avoid the volatility of the stock market.
7. Buy an Annuity
A similar option is to buy an annuity. In these agreements, retirees give insurance providers a lump sum in return for ongoing monthly payments, often for life. Depending on the type of annuity, these payments can be substantial.
Immediate annuities offer security and quick results but typically offer lower payments. Deferred-income annuities require an earlier start and don’t offer payments until later, but the long wait leads to larger payouts. Retirees should compare their choices to find what option works for them and avoid putting all of their savings into an annuity.
8. Set Up a Reverse Mortgage
Reverse mortgages can also free up capital for retiree homeowners who need extra cash. As the name suggests, these work like the opposite of a traditional mortgage: banks pay homeowners regularly instead of the other way around. Homeowners don’t sell their houses this way, but the bank gets increasing equity in the home in question.
Keep in mind that reverse mortgages are typically a last resort. The process often incurs high fees, and the retiree’s heirs can’t inherit the property in most cases. Before choosing this option, be sure to analyze the specific situation to ensure it’s a sensible choice.
Retirement Doesn’t Have to Be a Financial Challenge
Retirement can be surprisingly expensive, but it doesn’t have to be challenging. These eight options can provide retirees with extra income, helping them maintain a high standard of living without a full-time job.
Often, the best strategy involves using two or more of these approaches. Retirees should examine their current position, plan for the future and see which mix works best for them.