Tuesday, April 9, 2013

10 Sources of Retirement Income

People always ask how we are able to retire at such young ages.  Besides the fact that looking at us can be a bit misleading (hubby is 64 yet looks 44 and I am 45 and look...well, 45), the simple answer is that we live frugally on a fixed income.  The income part, however, is usually what people are wondering about when they talk about retiring so here are ten sources of retirement income that you can acquire at just about any age and then, if you choose, promptly retire!

  1. Social security.  Obviously you aren't going to retire early if you are waiting for social security.  In order to draw social security you need to be at least 62 years old and I bet that this minimum age will increase in the future (if it is even still there to draw from because mathematically the formula for this program worked great when the Baby Boomers were working industriously to fill the coffers; I doubt that the formula is going to work very well when the mass of Baby Boomers start drawing from this program while the mass of younger people are unemployed/underemployed and thus unable to keep this program propped up financially).  Also, the amount of social security you can draw is based on your previous income so you can do OK on only Social Security if you made a lot of money throughout your earning years AND have mastered the art of living very frugally (along with having some assets).  If you have always earned minimum wage, your social security income is going to be quite meager and probably won't support you no matter how frugally you live.
  2. A pension.  Pension programs are a boon for retirees.  Generally the combination of a pension and social security has allowed many people to retire rather well.  Hubby began drawing his military pension at 40 years old after serving for 22 years in the Navy.  While this isn't a huge amount of money, having a pension coming in every month beginning at 40 years of age is a very nice additional source of income.  A caveat about pensions: depending on what type of pension you have, it could just disappear due to financial mismanagement or other market factors (the government pension will probably be the last to implode while many private pension plans are teetering on the brink as we speak).
  3. Investments.  Oh how I wish that I had bought Microsoft stock way back in the mid 1980s.  I would be retired and living off my stock investments, but alas, I didn't.  Bummer.  However many retirees have made investments over the course of their lives and are living on the proceeds from these, whether they invested in IRAs and 401ks, bought rental properties, or bought stocks and CDs, etc.  Investments generally need time to grow over time before they start paying off and often the aforementioned investments still require a bit of work whether it is doing upkeep on rental properties, reinvesting dividends, etc. 
  4. Royalties.  I am learning that royalties are the gift that keeps on giving.  Simply, you do a bit of work (write a book, publish a song, make an app, appear in a TV show, etc), from then on, if you have contracted correctly, you get a bit of income every time your book is sold, your TV show is syndicated, your song is sung on the radio, etc.
  5. Rental income.  Unlike owning investment properties, above, some people find a source of income (and sometimes companionship) by renting out rooms in their home.  After the kids have moved out and a spouse has passed away, the person may be left with a big house and many house-related bills. One way to generate some income from this big house is to rent out rooms either to long-term renters like college students or someone looking for a kind-of permanent place to live or through AirBNB for short-time room rentals.  I've also known people who rented out their garages for storage, their fields to other farmers, their land for parking if the state fair is held near by, etc.
  6. Savings.  Oh how I wish I would have put at least a little of my earnings throughout the years into a savings account.  But I didn't.  Bummer.  There are some people, however, that are really good about saving, either through a small effort made monthly over years or via a concerted effort to get gazelle-intense and build up a savings account quickly and then using either the savings or the interest on the savings as a source of monthly income.  Obviously living off the interest is better than drawing down the principle of your savings account each month.
  7. Hobbies.  Another popular source of retirement income is to turn hobbies into small money-making ventures.  This rarely equates to what you could earn with a full-time job but even a few hundred dollars a month garnered from trash picking and reselling items or quilting and selling your creations or baking specialties from your home country and selling them to others for parties, etc. can generate a small amount of extra income that can help you pay your living expenses or pay for extras like travel or eating out.
  8. Temporary jobs.  I know quite a few people who have no real "job", who tend to travel quite a bit or otherwise live lives with no obvious source of a steady income, yet get by just fine.  They do this by picking up temporary or seasonal jobs to make a bit of extra money.  My grandmother did this decades ago.  She worked full time through the war (this was WWII for those who wonder what war I am talking about) then after the war she promptly quit ("because I didn't feel like working any more").  Of course she liked working, she just didn't like official 9 to 5 jobs so she would pick up whatever interesting work she came across.  Among her temporary jobs: growing and selling produce at a roadside stand (my grandparent had u-pick strawberries and grapes for years), working at each election, house sitting for a wealthy couple in Santa Barbara when they went to Europe each summer, babysitting occasionally for a neighbor couple when they wanted a date night, doing seasonal work at a fisheries plant (which probably is why she never ate smelt...after cleaning a million of them, I wouldn't want to look at another smelt either!)...etc.  These are things she did as a widow but before my grandfather passed away they both had "itinerant" job histories and did everything from welding projects (granddad), running a Saturday-night dance hall (both), picking up guitar-playing gigs (granddad), horse training (granddad), and sewing (grandma when the Jantzen Mills needed extra help).
  9. Selling an asset.  Obviously the bigger the asset, the more money you will have to fund your retirement.  When people want to retire they often sell houses, cars, businesses, baseball card collections, etc. and use the lump sum to bulk up their savings, pay for a smaller house to live in, or fund their retirement travels.
  10. Barter and trade.  An often forgotten way to help fund your retirement is to barter or trade for the things you need in order to stay retired.  I had an uncle who retired to Solvang years ago.  He traded his services as a gardener and handyman for free rent on a guest cottage and lived there for years.  He got to surf every day and do gardening, things he wanted to do in retirement anyway, but which, due to his bartering skills, also got him a free place to live.  Retires often barter for food (I'll fix your car for a side of beef in the fall), services (I'll babysit your kids after school if you reroof my house), and other goods (I'll trade you these water skis I no longer use for your old lawnmower).  You get the idea...   
And then there are sources of retirement income that you can't really count on, but, nonetheless, can and do provide income for some retirees including: inheritances (from aging parents and relatives), reverse equity mortgages (these are fraught with complications so be very aware of what you are doing with these), life insurance payouts (from the death of a spouse), winning the lotto (uh, good luck with this one), etc.

And one other thing about retirement: you MUST be debt-free before you retire.  It is SO much easier to cover your basic living expenses on a fixed retirement income than it is to pay all of your bills each month PLUS pay on a variety of debts (credit cards, student loans, bank loans, second mortgages, etc).


  1. Quite helpful! Thanks a lot for this very informative post.