Retiring can be scary. Without work, you won’t be getting that paycheck you’re used to anymore. That can cause some people stress. To compensate for this and to ease your qualms, consider creating and cultivating multiple passive streams of income.
It’s important to blend your types of passive income streams to create a diversified portfolio. For example, you shouldn’t put all of your eggs into the proverbial basket of real estate in case the housing market crashes.
Retirement Accounts
When you’re young, it would be financially prudent to invest in multiple retirement accounts. Diversity is important here, too. A Roth IRA allows you to make taxed contributions that grow exponentially that can be withdrawn tax free in retirement. Contributions to a Traditional IRA, on the other hand, are taxed at withdrawal time, but are tax deductible at the time of making the contribution.
Having a 401(k) or 457(b) employment-sponsored plan will supplement income in your later years, as well. These accounts will be a Roth or Traditional IRA, but these plans have larger contribution maximums, and your employer(s) may match contributions.
Pensions / Social Security
If your job offered traditional pensions while you were working, you can expect a regular payment in retirement. These careers commonly include but are not limited to teachers, state and local government employees, nurses, and military employees.[1]
Social Security is another form of regular income that will not vary depending on market conditions. In your working years, most jobs will take Social Security taxes out of your paycheck so you can get a monthly
Real Estate
Another common stream of income many in retirement utilize is real estate. Ideally, you would be able to build a portfolio of real estate properties over your life that you can use as a vacation rental or a month-to-month rental for tenants. Popular spots for these kinds of properties are burgeoning, up-and-coming cities, and college towns.
However, with the state of the real estate market and industry rates, this can be difficult to work your way into. Investments and retirement accounts are often more low stakes with a lower entry price point that can still yield exponential returns later.
Side Hustles
Many will also delve into the world of businesses or ‘side hustles.’ This may include creating artwork and selling it, writing books on a topic of interest, or selling some other homemade item– baked goods, hand-made furniture, and more. This option requires a bit more overhead and day-to-day involvement, depending on the size of your business. So, if you’re looking for more low effort
Stocks and Bonds
You may also consider investing in the stock market. Stocks represent equity in a company, in the form of shares purchased through financial brokers. Risk tends to depend on the company you’re purchasing shares from, with blue chip companies generally being viewed as less risky.
Bonds, on the other hand, do not involve any equity in a company. Instead, you are loaning money to a company or government entity. You’re paid interest on this loan for a set amount of time, and you receive the full amount you purchased the bond for after this period is up.[2]
Bonds are generally viewed as less risky, but the risk involved – like stocks – also wholly depends on the company or entity you’re loaning to. If the company you loaned money to goes bankrupt, you will not receive your interest payments. Financial professionals tend to suggest a diversification of stocks and bonds when you’re younger, with a larger percentage of your portfolio in stocks. As you get older, they oftentimes recommend investing more in bonds since they’re usually deemed less risky.
One benefit of investing in stocks will be dividends. Shareholders of qualifying companies will receive payments as long as they purchased shares before the ex-dividend date cut off. Dividend rates and payment schedules vary by company, but generally are paid out monthly, quarterly or annually. If you’ve invested enough in the stock market, dividends may be a good supplemental stream of income.[3]
Index funds, a collection of stocks or bonds that you can purchase shares in, also pay out dividends, and you may earn some money from these by selling off shares of your index fund when the stocks or bonds in the portfolio see a return. An example of an index fund is the S&P 500, which tracks the stock performance of 500 of the largest companies listed on stock exchanges in the U.S.
Supplementary income during your retirement years can help ease fears of going through your Golden Years money. If ever in doubt, consider consulting with a financial professional for a more personalized plan on how to make your money last in retirement.
The views stated in this blog are not necessarily the opinion of Cetera Advisor Networks, LLC or CWM, LLC, and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
Limitations and Early Withdrawals: Some IRAs have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. Retirement Plans: Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. Roth IRA: Converting from a traditional IRA to a Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the t ax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost.
The return and principal value of fixed income securities fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value.
Exchange-traded funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus containing this and other information about the investment company can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. Investing in mutual funds is subject to risk and loss of principle. There is no assurance or certainty that any investment strategy will be successful in meeting its objectives.
Investors should consider the investment objectives, risks, charges, and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact Kimberly Gieseler at 7609 Grandview Ave., Arvada, CO or (303) 393-2456 to obtain a prospectus, which should be read carefully before investing or sending money.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. A diversified portfolio does not assure a profit or protect against loss in a declining market.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
[1] “Eligibility for Social Security in retirement.” Social Security Administration, n.d. https://www.ssa.gov/retirement/eligibility. Accessed 08 Jul 2024.
[2] Davis, Chris. “Bonds vs. Stocks: A Beginner’s Guide.” Nerdwallet, 30 May 2024. https://www.nerdwallet.com/article/investing/stocks-vs-bonds. Accessed 08 Jul 2024.
[3] Hayes, Adam. “Dividends: Definition in Stocks and How Payments Work.” Investopedia, 07 Jul 2024. https://www.investopedia.com/terms/d/dividend.asp. Accessed 08 Jul 2024.
