4 Surprising Income Sources for Retirees
Dear Rich Lifer,
A recent story about an assistant director of a Tucson supermarket caught our attention.
The employee in question had to make the tough decision to retire early over concerns about being exposed to COVID-19.
He was especially worried he might pass the virus on to his parents, for whom he cares for, both in their nineties.
“At first you didn’t see a lot of people getting sick. But then they started getting sick, and I was thinking, ‘I’m taking this home,’“ says the man.
The employee retired on Jan. 1, just before turning 62, instead of at 65, as he had planned.
Although it was a tough decision to make, the man says he made the right decision when he found out an employee in her 20s died of COVID-19 the day after he left.
Still, the decision cost this man $500 a month, which is how much less he says he’ll get from Social Security than if he’d waited.
Luckily, his house and cars are paid off and he has two IRAs, one from his 19 years at the supermarket and another from an earlier job.
But for many older workers, their situation and outlook is not nearly this good.
Two Million Older Workers Have Stopped The Job Hunt
Nearly 2 million older workers have left the labor force for good since the start of the pandemic, says the Schwartz Center.
That means the number of older workers still employed is down by about 5 percent, compared to less than 2 percent for workers ages 35 to 54.
If the pandemic did not happen, the Center estimates 3 million more older workers would be employed right now.
To make matters worse, employers are cutting retirement matches for employees still working. Among the companies that suspended their 401(k) matches are Amtrak, BestBuy, Choice Hotels, Dell Technologies, Expedia, Knoll, Norwegian Cruise Line, Quest Diagnostics, RE/MAX, Stein Mart and VMWare.
With less savings, more older workers are carrying mortgage debt into their retirement. Forty-six percent of older Americans have mortgage debt, nearly twice the proportion of three decades ago.
And unlike younger people living in poverty, most retirees have little or no prospect of upward mobility.
Social Security and pensions are adjusted to keep up with the rate of inflation, but other than that, you’re locked in for the rest of your life to the same basic income.
No Salary, No Problem
If you or someone you know was forced into early retirement due to the pandemic, we have some good news for you.
While pensions, retirement plans, and Social Security should be able to provide most retirees with enough income to live comfortably, not everyone may qualify.
And even if you are eligible, these might not be enough to cover your bills, pay for rising medical costs, and keep up with inflation.
If you can’t meet your needs through these traditional income sources, you may need to start looking elsewhere.
Today, we’re going to share four surprising sources of income most retirees overlook.
- The Largest Asset You Own
According to U.S. census data, your home is likely the largest asset you own. You probably have a few hundred thousand dollars of equity tied up in your home. However, that money is of no use to you until you decide to sell.
If you want a way to smooth out your retirement income, especially during market dips, a reverse mortgage is one way to tap into your home equity without having to sell your house.
There are several misconceptions about reverse mortgages, so here are a few myths and truths about this real estate option.
Myth: The lender takes title to the home.
Truth: You still retain ownership of your home. The reverse mortgage is only a lien against the property.
Myth: The loan can exceed the value of the property, sticking you or your heirs with a large bill when you eventually leave your home.
Truth: A reverse mortgage is a “non-recourse” loan, which means that you, your heirs, or your estate will never owe more than the appraised value of the home at loan maturity.
Myth: You can’t get a reverse mortgage if you currently have a conventional mortgage.
Truth: Although this is true, you can get a reverse if you use the proceeds to pay off your existing mortgage at close.
Myth: A reverse mortgage can cause you to be evicted from your home.
Truth: You leave your home when you choose. No one will force you from your home. The reverse mortgage is not due until your home is no longer your primary residence.
Like any financial tool, you must weigh the costs and benefits before you make a decision on a reverse mortgage.
- P2P Lending
Another surprising source of retirement income is through services like peer-to-peer lending. P2P lending platforms allow lenders to set standards for borrowers, match counterparties with agreeable terms, and distribute funds while managing repayment transfers.
If you’re looking for an alternative investment that can offer higher yields than most bonds, P2P lending is worth considering.
Plus, some of the more reputable P2P lending platforms are backed by major financial institutions and have positive track records.
But remember, consumer loans are typically riskier and less liquid than other retirement loans and debt products, so keep that in mind while considering this channel.
A few P2P platforms we like:
- Private REITs
A lot of retirees have money invested in publicly traded Real Estate Investment Trusts (REITs). But not many take advantage of private REITs, which often deliver higher yields.
One reason investors have avoided private REITs up until now is because of the large minimum required investment. Advances in technology and crowdfunding have lowered the barrier to entry, and now anyone can invest in private REITs for as little as a few hundred dollars.
But finding the right private REIT can be a challenge. There are different regulatory standards and private REITs often have higher fees that cut into returns, so make sure you do your due diligence before investing.
Also, private REITs are generally less liquid than their publicly traded counterparts, so you may not see your money for a long time after you’ve invested. But don’t let these points dissuade you from investing in private REITs, which can make for great extra sources of income for cash-strapped retirees.
- Become a Silent Partner in a Business
Ever wanted to own a business but felt like you didn’t have the time to manage and grow a company from scratch? The good news is you can still own a business that turns a profit, even in your golden years, by investing as a silent partner.
Just be careful when investing in startups. Roughly 20% of small businesses fail before finishing their first year and 50% or more are out of business within the first five years.
Even if a business succeeds, you may not see a return for several years. But this is a risk you might want to consider taking, especially if the payoff is exponential compared to your investment.
Not all alternative investments are right for everyone. Depending on your appetite for risk and your financial needs, these four overlooked sources of income could help bridge the gap between traditional income sources like Social Security, pensions, and retirement accounts and your desired retirement lifestyle.
To a richer life,
The Rich Life Roadmap Team