Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Motley Fool Issues Rare “All In” Buy Alert
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Chances are, your retirement plan didn’t account for this year’s 8% to 9% inflation rates. If you’ve already streamlined your budget to the extreme, increasing your income is the next available remedy to manage those higher prices on food and healthcare.
Working is one way to raise your income, but it’s not the only way. Below are five ways to generate income in retirement, none of which require you to punch a time clock.
Dividend stocks pay you to own them. The payments generally come quarterly, and you can earn annual yields of 1.5% to 3%.
Shifting some of your wealth into dividend stocks could solve your income shortfall, but there are caveats. For one, you need cash to invest. Since the stock market is down this year, it’s not an ideal time to raise cash by way of selling other stocks that don’t pay dividends.
Image source: Getty Images.
A better funding source is any money you have invested in low-yield instruments that you can liquidate without losses.
Another consideration in this strategy is your risk tolerance. Trading out a certificate of deposit (CD) for dividend stocks, as an example, would raise your risk profile substantially. Dividend stocks can lose value, especially if the company you’re invested in decides to pause or reduce those shareholder payments.
If you do go this route, lean into stocks that have paid dividends for decades. Dividend Aristocrats and Dividend Kings are usually good choices for retirees.
As inflation rates rise, so do yields on Treasury bonds. U.S. Treasuries are debt instruments backed by the U.S. government and are considered as safe as cash.
The simplest way to buy Treasuries is to invest in an exchange-traded fund (ETF) that holds these debts in varying maturities. Shorter-term maturities are the least risky because they adjust more quickly to prevailing rates.
Short-term Treasury ETFs are currently yielding about 3%. These don’t appreciate the way dividend stocks can, but they’re much safer.
As with a dividend-stock strategy, you’d need a funding source to buy your ETFs.
CDs with a one-year maturity are currently yielding between 2.5% and 2.75%. A CD is a deposit account, so it’s insured by the FDIC for up to $250,000.
The national average yield on cash savings is 0.59%. If you moved low-yielding cash into a CD, you could quadruple your interest earnings.
The drawback is that a CD isn’t quite as liquid as cash. You can cash out a CD before it matures, but you’ll pay fees in the process. For that reason, you should only lock up funds you won’t need anytime soon.
A reverse mortgage converts your home equity into cash, payable in a lump sum or via monthly income payments. It’s a loan, but you don’t have any monthly repayments.
Repayment happens when you pass away or move out of the home. At that point, your heirs can pay off the balance, or your reverse-mortgage lender can sell the home and uses the proceeds to repay your debt.
The downside here is that the interest rates and upfront costs on reverse mortgages can be high. For some, though, a reverse mortgage can be a good way to tap the equity in their homes.
You may already know about Airbnb, where you can market a spare bedroom to short-term renters. You may not know there are similar websites for renting out your garage, basement, spare car, motorhome, or travel trailer.
Your rental-income potential could be substantial, depending on where you live and the property you’d like to rent. Before you dive into this strategy, though, check with your insurance providers. Your policies may prohibit you from renting covered assets.
More seniors are returning to work in retirement to combat shrinking savings accounts. That doesn’t have to be your path, however. If your budget isn’t balancing the way you’d like, look at other, non-working ways to generate income first.
Dividend stocks are a classic choice for retirement income. Treasury debt and CDs may be viable options, too, thanks to today’s higher interest rates. You could also finance your retirement income through a reverse mortgage.
Lastly, if you’d rather avoid financial instruments and debt, you could rent out an asset you’re not using. You’ll have more foot traffic through your home this way, but that may beat going back to work.
Catherine Brock has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.
Market-beating stocks from our award-winning analyst team.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/16/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.
Market data powered by Xignite.
About Author
