Retirement Income Streams… The Expected, the Possible, and the Wild and Crazy
This next group of income streams are ones that lay outside the general pensions we might receive and any funds we might’ve accumulated in other registered savings products. I refer to these as “Possible” income streams because they may or may not be available to everyone, or not of interest to many folks.
“The Possible” – Others Most Often Considered
Personal Savings – If you have managed to accumulate some savings outside of your registered retirement accounts this is a good time to remember what you have been saving this money for. I think when all of us enter into retirement we are probably overly cautious about starting to spend our accumulated resources. But retirement is all about putting that saved money to work.
I think what we all need to be mindful of with this untapped resource, is that we need to have a clear plan as to how we will draw down on that money, rather than just doing it willy-nilly. First, you need to give some thought to what you might want to spend that money on. If you have to spend it on day-to-day living expenses so be it. But, if you are fortunate enough to be able to treat it like extra money, then you can plan on using it for some other more interesting purpose.
Secondly, you need to think about over what period of years, and exactly at what point in your retirement, you will begin your drawdown, and thirdly, how much you will withdraw each year… An equal amount, or a decreasing or increasing amount.
Sell Your Home – Some folks, who perhaps have not saved as much as they would like for retirement, might need to get their equity out of their home to help fund their retirement. The options for that are either purchasing a much cheaper property, often in a smaller urban center, or renting for a period of time until they decide what to do.
Alternatively, some folks simply cannot resist the temptation of cashing out for a large sum of money in some of the more expensive cities in Canada. They may not need the money for their retirement, but a bird in hand… If we could walk away with a million and a half dollars for our house, I might be tempted to do it. 🙂
Buy an Annuity – Basically, an annuity is a financial product which involves you giving some financial institution a chunk of money, usually a very substantial chunk, and they agree to pay you a monthly stipend. Doing this is a bit of a gamble.
A “Life annuity” will provide you this monthly stipend for as long as you live. You can choose to buy one to cover shorter periods of time, and of course, they will cost you less money upfront. That said, if you live for a long time, you will get all your money back, and then some. If you don’t live long after you buy the annuity and you die, you and your estate lose all the money you’ve put into it.
I personally don’t like the concept and would never buy one. The only real advantage I could see is that if you don’t really want to manage a big portion of your cash, and like the idea of a no brainer flow of cash… In large part your cash coming back to you… an annuity might be for you.
My poor opinion of annuities was reinforced recently during a phone call with a financial planner at a financial institution who manages pension funds. He said it would be a bad idea to buy one currently with interest rates being so low.
I am not keen on them, enough said. But let me qualify that. There be maybe many of you who think this makes perfect sense for you, so you should completely ignore what I have to say on the matter. 🙂
Rent from an Income Property – If you already own an income property, and it is producing a nice steady income stream for you in retirement, good for you. If you don’t own one already, and you have the resources, I suppose you could acquire something. The Love-goddess and I talk about it frequently but have never pulled the trigger. And that is probably for the best because I am thinking there’s a lot more grief and aggravation involved in owning a rental property then there might appear to be on the surface.
Business Income – if you currently own a business, or previously owned one you may continue to be enjoying an income stream from that effort. Some of you may have even started a new business in retirement.
“The Possible Continued” – Ones We Don’t Often Think Of
There are a couple of small income streams that everyone could avail themselves of if they so choose.
Credit Card Rebates – This may be one that you are doing already, but don’t really consider it being an income stream. We do, and I track it as income in our annual budget. For us it amounts to about $1200, again, of tax free income. It all adds up. All of these “cash” cards will charge you an annual fee to use them, so the amount you get back has to well exceed what it is costing you to use the card.
Key to this, for us anyway, is putting absolutely everything we purchase on our principal credit card. This only works of course if you are in position to pay off your credit card amount each and every month. If you can’t pay it off every month, you are losing money, so stop.
I discovered something interesting recently that is probably applicable to all of these cash back credit cards. As I was puttering around in our online banking site, I decided to see what was being addressed in the rewards section of our credit card section.
To my amazement, I discovered that you can either make immediate cash transfers from your credit card reward balance into your bank account, or you set it up so that each time the balance hits a specific amount, say $25, it automatically gets transferred into your bank account.
Most often, the reward amount is transferred to you once a year as a credit in your credit card statement – which is then applied to pay off current charges. It does still function as free money, but, for me, it feels a whole lot better actually seeing that cash being deposited into our bank account. 🙂
Sale of Personal Goods – If you read my article about my use of Facebook Marketplace to sell off “stuff “we have accumulated over the years, then you will know already what this is all about. In retirement, and especially now during the pandemic, it is a productive and fun thing to do to start getting rid of all the stuff you have accumulated over the years. Stuff, that probably does not have the same value for you as it once did.
Selling on sites like Marketplace, Kijiji, and eBay is quite simple if you have not tried it before. And it’s not a bad thing to get you thinking about the art of selling, which you may have absolutely no experience with. So, there may be some cognitive benefit in doing this as well.
My strategy has been to sell clusters of items bundled together… I’m really more interested in getting rid of this stuff than making a whole bunch of money. I can’t help but think that the people buying these bulk offerings are going to extract the few items they want, and then turn around and sell most of it once again. I am far too lazy to attempt this, but I think if you had the time and the patience you could buy larger offerings of items and break then up and sell them in smaller batches to provide income. That way you would have a small income drip even after you got rid of all your junk, err, family treasures.
“The Possible” – The Ones I Don’t Like
Part-Time Work – Work doesn’t work for me. But I do know that there are lots of folks who want to work part-time after they retire for many different reasons. Either you miss the personal interactions, haven’t figured out how to use your time in retirement yet, or simply need the money. The Love-goddess did do some consulting work after she retired, but has since dropped that simply because it interferes with really enjoying retirement.
Reverse Mortgage – I don’t know why but this one scares me. In my imagination it always ends with seniors running out of the money that they have borrowed against their homes and losing them to some heartless and soulless financial institution. I’m know it doesn’t happen like that, but it is one that I would only consider doing as a last resort. From the Government of Canada website:
“A reverse mortgage is a loan that allows you to get money from your home equity without having to sell your home. This is sometimes called “equity release”. You can borrow up to 55% of the current value of your home.
The maximum amount you’re able to borrow will depend on:
– your age
– your home’s appraised value
– your lenderYou pay back your loan when you move out of your home, sell it or the last borrower dies. This means you don’t need to make any payments on a reverse mortgage until the loan is due. You will owe more interest on a reverse mortgage the longer you go without making payments. At the end of your loan term, you may have less equity in your home.”
Life Insurance – For this to work you need to have owned a whole life insurance policy for a goodly number of years. Over the years they accumulate cash value. Policy holders are entitled to take out the cash reserves via a loan or an actual withdrawal.
Your Kids or Other Family Members– This one popped up in a Financial Post article about potential income streams in retirement. Pay back… I like it 🙂
Next Up: The “Wild and Crazy” Income Streams – And now we come to the really “interesting” potential income streams
TITLE PHOTO BY GETTY IMAGES/ISTOCKPHOTO
