In this video, I discuss seven common income streams that people have in retirement. Coming up next, on Holy Schmidt.
[Announcer] Holy Schmidt.You can never have too much money in retirement. Yet, those contemplating retirement or those in retirement, often miss opportunities that are right in front of them. This video discloses the seven most common income streams that retirees utilize when they’re in retirement. Before we begin, please make sure you click subscribe notifications so that you get alerted the next time I post a video. I post about twice a week.
All right, let’s get into it.
Number one is social security. This is the most obvious one. Most of this channel is devoted to the who, what, when, and how of social security. Getting social security right is really, really important because there are a lot of decisions that need to be made around this important to retirement asset. The number one question is when do you draw on social security? Age 62 for retired age, age 70, somewhere in between.
But there are other questions like how to optimize the spousal benefit, how to optimize the survivor benefit, how much can you earn and still draw on social security. All of these are really important questions, and that’s why social security should be a big focus for anyone entering retirement.
The next is your 401 /your IRA. This type of retirement account could be managed passively with an index fund, or actively with intent. The setting on a Roth versus a traditional investment vehicle, for example, is a big choice. As are the amount and timing of contributions, when to withdraw, and the tax consequences of your choices. Where you put your funds is equally as important. A mutual fund, stocks, even Bitcoin in some retirement accounts are now allowed.
Number three is a pension. Many employers offer a pension. Some are what are called defined-contribution pensions in which the amount going in is specified. Others are called defined benefit plans where the amount coming out is defined. In a defined contribution plan, the employee wears the risk of investment performance. In the defined benefit plan, the employer wears the risk.
Number four is personal savings. This is money in your checking and savings account, your rainy day money, Three to six months worth of bills for many people, as well as your everyday funds for things like your day-to-day expenses.
Number five are traditional investments like stocks and bonds. Stocks are often a source of great revenue, especially if they’re dividend stocks for retirees. But be careful with dividend stocks because there is a risk that the company can cut dividends if business turns south. A lot of dividends were cut in 2020, for example, because of the pandemic and business didn’t look very good for many businesses that were affected. Bonds are a little bit less risky. The company has to make regular interest payments that is an obligation of issuing a bond. Municipal bonds are particularly attractive to retirees because the payment is received free of federal income tax, in most cases.
Finally, under the category of traditional investments are mutual funds. This is by far the number one choice for just about anyone, not just retirees, but just about anyone, in terms of how their money is managed. Because, effectively, you’re taking the management risk and moving it off of your responsibility, away from your responsibility and onto someone else. One of the biggest advantages of mutual funds is that they don’t have single company exposure. So if you bought Apple stock tomorrow and it went out of business the next day, you lose everything. If Apple stock was part of a mutual funds overall holdings, the mutual fund might go down a little bit, but would not be vastly affected.
Retirees generally receive their money from mutual funds, both from dividends that are paid inside the mutual fund and from stock sales. As well as the sale of the mutual fund itself when the retiree wants to monetize some of the holdings and some of the growth that has occurred. Number six is more non-traditional investments. A lot of times non-traditional investments can now perform the market because they require work on the part of the investor. Rental real estate is a classic example of a non-traditional investment, but it does require the investor to oversee the property or pay someone to oversee the property. And that requires both time and money, depending on which choice you make.
Annuities are another form of non-traditional investment. Annuities can be structured to solve a particular problem, like having a certain amount of guaranteed payments over the life of an individual or a couple, depending on which type of annuity you purchase. What they don’t like about annuities is that most people don’t really understand how the money is being made, how much is profit to the insurance company, and how much is a return of investment, and return on investment for the annuitant.
Number seven is hobby income. And this is essentially taking the thing that you love to do and monetizing it. Collections like coins, cars, and baseball cards are a great source of income for some retirees because they have better knowledge about the value of those items than the people who are buying them or selling them. Depending on if they’re buying for their inventory to sell later, or if they’re buying for just pure interest. Blogs, podcasts, and videos can also be a source of income for retirees. A lot of this comes through advertising revenue.
The final item is teaching. I know a lot of retirees that go on to teach college part-time just for something to do. And they’re usually teaching something that they have a big interest in, that they’re good at, maybe even something that they did their entire career. And now the pressure of delivering on the business side of that is gone and they’re teaching others to do what they did. A final thought, most of you may only have two or three of these income streams in place.
This video is there to help you identify other possibilities and potentially have additional revenue coming from those streams in the future while you’re in retirement. If you like this video, please make sure you click subscribe notifications so that you get alerted the next time I post a video. Retirement information is changing fast. I work very hard to get what’s out there, in here for you. This is Geoff Schmidt. Thanks for watching.
