What Income Figure Should I Focus On
Pay attention to net income. Thats the amount of money you have to spend after expenses and taxes. For retirees, your net income calculation:
- determines the level of most government benefits/credits
- determines the income upon which tax is payable
- determines the amount of OAS/GIS claw back/reductions
- is used in the assessment of long term care per diems
- can factor into provincial pharma-care benefits
Lets consider the following types of investment income and how much of each type may be reportable for tax purposes as net income. The income amount is the same in all cases. The amount that may be subject to income taxes and calculations on eligibility for most government benefits can vary. Income is reported on your T3 and T5 slips each year.
Consider income tax on cash flows from investable assets, government programs and company benefits, if any. The focus should be on spendable cash flow and cash flow that is regular, reliable and responsive to your particular needs, particularly for guaranteed income that may be needed for a lifetime.
Coupled with that are the risks of losing invested money or not making the returns you need. You want to get this right as soon as possible and protect yourself against the downside by engaging the services of accredited financial advisors versed and trained in the specialty of retirement income planning.
And yes, retirees still need to invest for their future, which can last 30-40 years.
Yes It’s Actually A Thing: Renting Out Your Car
Finally, if you’re willing to let someone else drive it, there are people out there that would rather rent your car than rent one from a conventional auto rental venue. Personal car-rental service HyreCar reports you can make as much as $9,000 per year for doing so, assuming you sign-on with one of the several apps that connect would-be drivers with car owners that don’t always need access to their automobile.
The idea isn’t without its obvious risks and worries. First, your insurance company may or may not like the idea of covering a vehicle being regularly driven by a variety of people for commercial reasons even though these other drivers are supposed to be insured. So, be sure to discuss the matter with a qualified insurance agent first. It also puts wear and tear on your automobile that wouldn’t otherwise chip away at its resale value. Think carefully before taking this plunge.
If you’re comfortable with the terms being offered by a reputable peer-to-peer car rental platform though, there’s money to be made with the strange business model.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Your Health Savings Account
If you have a high-deductible health insurance plan, you may be able to contribute to a Health Savings Account and those who can, should seriously consider doing so. Yes, HSAs are meant to help you pay for qualifying healthcare expenses with pre-tax dollars, and that can save you a lot of money. HSAs have more great features, though: For starters, the money in them is not there on a use-it-or-lose-it basis. It can accumulate over time, and once you turn 65, it can be spent on anything, though withdrawals for anything other than qualifying healthcare expenses will count as ordinary income. So it doubles as a retirement savings account.
The deadline for contributing to HSAs is the same as the tax deadline, so 2021 contributions must be made by April 15, 2022. The contribution limit for 2021 is $3,600 for individuals and $7,200 for families and those 55 and older can contribute an additional $1,000. If you enter retirement with, say, $20,000 in your HSA, that money can serve as retirement income.
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Your House Via A Reverse Mortgage
Another way that your home can provide unexpected retirement income is via a reverse mortgage, where you borrow money using your home as collateral. As an added bonus, the payments you receive are often tax-free.
A reverse mortgage loan generally doesn’t have to be repaid until you’re no longer living in your home such as when you die or move into a retirement home or care facility. At that time, it’s often paid off by selling the home. For some, that’s a big drawback, as it makes it hard or impossible to leave the home to heirs. For others, the drawbacks are well worth it. Read up on reverse mortgages, if you’re intrigued, and weigh the pros and cons.
Don’t Put Too Much Stock In Retirement Calculators
While retirement calculators are designed to be helpful, the unfortunate reality is that many just aren’t. Now to be fair, some of these tools are better than others, so it does pay to do some digging and try a few out. This tool, for example, lets you input extra data like your life expectancy and various retirement income sources, so you might get a more accurate estimate of how well you’re doing.
All told, don’t panic if you use a retirement calculator and get a warning that you’re way behind on the savings front. If you’re consistently setting aside a nice amount of money for the future, rely on that more so than what a calculator tells you.
But also sit down with a financial planner or advisor and get a professional’s opinion based on your specific goals and circumstances. Doing so might bring you the comfort you need if you’re worried your nest egg won’t cut it.
And if it turns out you are behind on savings, that person can give you concrete advice on how to ramp up. An online calculator, on the other hand, might spit back something like “You’ll need an extra $1.2 million if you want to enjoy your retirement,” and that’s apt to be far from helpful.
The $18,984 Social Security bonus most retirees completely overlook
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Top 10 Sources Of Retirement Income
The income from your job has probably been your sole source of income for most of your life. Once you retire, that source of income will be gone. However, even in retirement, youll still need money to live and pay for your need expenses. Your retirement income will likely come from several sources. In this article, well review the 10 most common sources of retirement income.
1. Social Security Social Security is perhaps the most valuable and stable income resource for you in retirement. The income benefit cant be outlived and features a generous Cost of Living Adjustment or COLA. Also, the longer you defer collecting benefits, the more income youll receive when you finally start collecting.
However, if you have a certain type of job, your Social Security benefits might not be a reliable source of income. For example, if youre a public-school teacher in Texas who is expected to earn a pension, your Social Security benefit will be reduced by two-thirds. To learn more about Social Security, click on the my article: What You Need To Know About Social Security.
5. Annuities Fixed annuities are excellent sources of longevity insurance. If you own a lifetime annuity, you have guaranteed income for the rest of your life, even when other sources of retirement income have been exhausted. However, fixed annuities can be expensive. Furthermore, variable annuities feature unreliable returns and a myriad of hidden fees.
Implications For Social Security
With almost 90% of older Americans receiving Social Security benefits, it is the dominant source of retirement income, according to the research.
Yet for many elder Americans, those Social Security checks still fall short of what they need.
That’s because Social Security replaces just 40% of pre-retirement income, on average. Meanwhile, most financial experts recommend at least a 70% income replacement rate, the study said.
Those findings are in line with recent research from the University of Massachusetts Boston, which found that retirees generally face a shortfall between their Social Security benefits and the cost-of-living, no matter where they live.
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Tips On How To Save And Plan A Comfortable Retirement For Self
. Posted in Retirement.
Being self-employed brings you the perk of greater freedom with the challenge of learning how to do many things on your own, including funding your own retirement. Understanding how to save for retirement and retire comfortably are incredibly important lessons you should learn sooner rather than later. Here are 3 tips on how to plan and save for a comfortable retirement for self-employed Canadians.
Watch this short video summary if you prefer to learn about the main points in video format
What Will My Advisor Do To Help Me Create A Smart Retirement Income Plan
Youve probably heard lots of advice about investing over the years. With retirement on the horizon, you need to disassemble your hard-earned assets and figure out what is best for you.
An advisor can help you understand the difference between retirement planning and retirement income planning. There are tax implications and other things to consider, so you need to take your money out in the smartest way possible. This means you need to work with someone who can help you with retirement income planning.
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Makes Enough Sense: Rental Property
Obviously, being a landlord requires you to own real estate you yourself don’t need to live in. If you don’t own a second residence to rent out, move on to the next retirement income idea.
If you do have a second home or half of a duplex though, now’s a great time to monetize it. Rental rates are sky-high rate now due to a housing shortage that isn’t likely to abate anytime soon. Market research outfit RSM suggests the United States needs about 3.5 million more homes that it currently has to achieve market stability. Moreover, the country will need to be build 1.7 million new houses per year through 2030 to fully keep up with demand growth. That’s an incredibly tall order, boding well for anyone with homes to rent in the meantime.
You Should Still Be Making Money After You Stop Working
After a lifetime of working and saving, retirement is the light at the end of the tunnel. Most of us envision it as a time of rest and relaxation when we enjoy the fruits of our labors. We envision a steady source of income without the need to go to work each day.
It’s a great vision, but generating income without going to work tends to be a murky concept during our working years. We know what we want but aren’t totally sure how it will happen. So how exactly will you turn your nest egg into a steady flow of cash during your retirement years? Developing a concrete strategy based on these income sources can help.
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No Lifetime Income Sources
If you dont expect to receive Social Security benefits and pension plan payments, or if these amounts wont cover your essential living expenses, consider investing a portion of your savings into an annuity.
Guarantees are based on the claims-paying ability of the issuing insurance company. Guarantees apply to minimum income from an annuity they do not guarantee an investment return or the safety of the underlying investment choices.
Each annuity feature may incur additional cost.
Variable annuities are long-term investments appropriate for retirement funding and are subject to market fluctuations and investment risk.
Wells Fargo and Company and its Affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.
Investment and Insurance Products are:
- Not Insured by the FDIC or Any Federal Government Agency
- Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank Affiliate
- Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested
Insurance products are offered through non-bank insurance agency affiliates of Wells Fargo& Company and are underwritten by unaffiliated insurance companies.
Improve Your Retirement Income With These 3 Top
Strange but true: seniors fear death less than running out of money in retirement.
Also, retirees who have constructed a nest egg have valid justifications to be concerned, since the traditional ways to plan for retirement may mean income can no longer cover expenses. Some retirees are now tapping their principal to make a decent living, pressed for time between decreasing investment balances and longer life expectancies.
The tried-and-true retirement investing approach of yesterday doesn’t work today.
In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.
While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of more than $1 million.
And lower bond yields aren’t the only potential problem seniors are facing. Today’s retirees aren’t feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds will run out of money in 2035.
Invest in Dividend Stocks
Look for stocks that have paid steady, increasing dividends for years , and have not cut their dividends even during recessions.
But aren’t stocks generally more risky than bonds?
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These Financial Strategies Can Produce More Income With Less Risk
A Tea Reader: Living Life One Cup at a Time
When you retire, you will need to generate enough income to maintain your lifestyle without exposing your assets to too much risk. There are a few ways retirees earn income like 401 or 403 retirement savings accounts, social security payments, a key source of cash, and some retirees are fortunate to have a defined-benefit pension, an increasingly rare type of plan that pays out like clockwork.
Here are 10 other ways to obtain reliable income while keeping risk in check when you retire.
Your Social Security Benefits Will Only Get You So Far As A Senior Here Are Some More Robust Income Streams To Line Up
Millions of seniors rely on Social Security to stay afloat during retirement, but those benefits only go so far in paying the bills. In fact, the average senior on Social Security today collects $1,519 a month. But here are a few income sources that could actually pay you a lot more money during your senior years.
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In What Order Should I Access My Retirement Savings
Your retirement sources of income are your RRSP, pension, Canada Pension Plan , TFSA, or other savings.
Its important to determine when and how to access these savings to get the most from your retirement fund. Like a combination lock, you need more than just the numbers, you need the right sequence. Your financial advisor can help you determine the best sequence to layer all of your sources of income, which ones to take now and which ones to defer are all major decisions that need to be considered for a successful Retirement.
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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
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Taxable Accounts And Other Assets
All of the assets you own can potentially provide retirement income. Taxable investment accounts, real estate, collectibles, business interests, and other assets all have value, although some are more liquid than others. As with retirement accounts, verify your potential tax liability with a CPA before you sell anything. You may owe capital gains taxes and trigger other taxes, and its critical to know about those things ahead of time.
Taxable assets can be helpful because theyre available to you at any time. Unlike retirement accounts, there are no age restrictions on withdrawals, so they provide flexibility when early retirement is on the table.
Gender And Race Play A Role
Retirement income also varies by gender and race, according to the research.
Couples generally had a higher median total at $52,116, versus $23,064 for unmarried men and $19,764 for unmarried women.
Unmarried men and women were more likely to rely on Social Security for their sole source of retirement income, with 39.2% and 42.3%, respectively. That’s in comparison to 23.8% for couples.
Older white individuals also had higher retirement incomes compared to blacks or Hispanics, the two minorities measured by the data.
Median total retirement income for white individuals was $23,292, versus $16,863 for blacks and $13,560 for Hispanics.
While 39.2% of white individuals rely on just Social Security checks, that was higher for blacks, at 44.8%, and Hispanics, with 45.9%.
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