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.
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.
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.
4. Your spouse’s or ex’s Social Security
If you’re married or divorced, you may be able to squeeze more money out of Social Security by collecting spousal benefits instead of your own retirement benefit. To collect spousal benefits on a current spouse’s work record, they’ll need to be taking benefits already. To collect on an ex-spouse’s record, they don’t need to be taking benefits, but they need to be eligible. Your marriage must have lasted 10 years, and you’ll need to have been divorced for at least two years.
Spousal benefits are capped at 50% of the amount your current or former spouse would be eligible for at full retirement age. So you’ll only get extra money if your spouse or ex-spouse was a much higher earner.
When you apply for benefits, Social Security will calculate both your retirement benefit and your spousal benefit, then give you whichever is larger (but not both). But if your work history is limited or your earnings were low during much of your career, spousal benefits can provide more income than you may have expected.
5. A part-time job
If your retirement income sources are still coming up short, you may wish to consider working part-time to fill the gap. That could be disappointing if you were planning on a carefree retirement.
But keep in mind that work looks a lot different today than it did just a few years ago. Work-from-home jobs and freelance opportunities are abundant. You can also choose to work the gig economy on your own schedule, whether it’s by driving for Uber Technologies or Lyft, delivering groceries through Instacart, or hosting guests in your spare room through Airbnb.
You don’t need to go back to working 40 or more hours a week if you need some extra cash in your retirement. Even if you aren’t hard-pressed for extra money, working just a few hours a week could provide the funds to pursue travel and other hobbies in your golden years.