After decades of working from day to day, and contributing hundreds of thousands of dollars to your retirement, it’s finally time to sit down and read a good book, go for a walk in the morning or go for a walk (alone, with a partner, or with friends, as you want), but there is one small detail: your retirement check is designed to replace only a small part of your work income, so you have to be creative to ensure that your lifestyle remains the same, and all your expenses are covered for the years to come.
First of all, start by determining your possible sources of retirement income and how much income they are likely to provide you in retirement. Several of the possible sources of income include guaranteed income (Social Security, annuities, etc.), pension plans, Individual Retirement Accounts (IRAs), employer-sponsored pension plans (401(k), 403(b) and 457(b) government, etc.), and even additional investments such as real estate or others.
What Is an Annuity and How Does It Work for Retirees?
An annuity is a good option to provide a steady stream of income over time, which can serve as a supplement when it comes to retirement. It works like this:
First, the initial investment, when the individual invests a sum of money, either as a one-time payment or in periodic installments, through an insurance company or a financial company that offers annuities as products. Then, the annuity fund is earning interest or is invested in financial assets to generate more additional earnings.
Once the individual reaches his retirement age, or the time agreed with the company is reached, the annuity begins to pay its owner periodic income, for a specific time, or for life (the latter is a life annuity). There are different types of annuities, such as fixed income, which offer consistent payments, and equity income, whose payments may vary depending on the performance of the underlying investments, and that’s why you should seek the help of a financial advisor specialized in the subject to find the one that best serves you.
For retirees, annuities can be a valuable tool to ensure a stable and predictable income during retirement, helping to cover living expenses and maintain a desired standard of living. However, it is important to consider the costs, fees, and terms of the annuity before acquiring it, to ensure that it suits individual financial needs and goals.
Real Estate as a Retirement Income
If this doesn’t sound so friendly to you (yes, it’s complicated to understand, we know) you can opt for the old and well-known option of investing in real estate. They are an excellent way to secure an additional income, such as having a home that generates a monthly rent that can be added to your retirement check.
The advantage is the constant income, because, hey, people are always going to need somewhere to live, and the appreciation of the value of properties are a long-term gain per se. Additionally, you can deduct property expenses from your income and thus deduct them from taxes.
On the other hand, of course, like any investment, it has risks and disadvantages: it requires a strong initial capital, it can be a cumbersome job to manage a rental property, and there may also be delinquent or harmful tenants with the property.
Investing in REITs (Real Estate Investment Trusts) in Your Retirement
REITs are companies that own, operate or finance real estate. By investing in REITs, you can get exposure to the real estate market without having to buy and manage physical properties. REITs pay dividends to their shareholders, which can provide an income stream for retirement.
Advantages:
- Diversification of the investment portfolio
- Liquidity (easy to buy and sell)
- Access to a wide range of real estate properties
Disadvantages:
- Dividends are not guaranteed and may fluctuate
- REITs may be subject to income taxes
- Risk associated with the real estate market
Real estate crowdfunding is a way of investing in real estate by contributing small amounts of money to real estate projects. This allows investors to participate in real estate projects that might otherwise be out of their financial reach.
