Other Sources of Retirement Income
By: Source: AARP.org Date Posted: 2005-03-20 12:08:59
Your pension, Social Security checks, and IRA withdrawals are not the only retirement income you've got. Take a look around you and you'll find sources of retirement income you never knew you had.
What You Should Know
Home Equity
The equity in your home may represent your largest financial asset and an important source of income. You can generate income using your home in a variety of important ways:
- Rent all or part of your home if you need a steady monthly income.
- Some people can benefit from taking out a reverse mortgage. A reverse mortgage is a loan against the equity in your home. Reverse mortgages are different than typical home equity loans. You don't have to repay a reverse mortgage until you die or move from the house. Reverse mortgages do carry some costs. Make sure you understand these costs before you sign any loan documents.
- Think about a sale/leaseback arrangement. Through this unique real estate deal, you can sell your home to an investor but still have the right to live there as a renter for life. The investor pays you monthly installments over an agreed-upon period and also takes care of your insurance, taxes, and repairs.
- Take a second mortgage on your house. If you arrange the second mortgage as a line of credit, you can get quick cash by using a special debit card or writing a check. Sometimes there are financial advantages to using your home's equity when you borrow. However, most advantages disappear if you have to pay high interest rates and fees on the loan. Home equity loans with high rates, points, or fees are especially risky because you could lose your home if you can't make the monthly payments.
Your Business
If you owned your own business during your working years, you could realize substantial income by selling the business when you retire. Most owners hire a broker or investment banker to help them find a qualified buyer. Choose a broker who has had success selling other businesses at a price that is close to their estimated value.
Life Insurance
If you have no dependents, you can cash in your life insurance policy or borrow against it.
Annuities
An annuity is a contract issued by a life insurance company that guarantees you periodic payments for life or over a certain period of time specified in the annuity agreement. Immediate annuities start paying benefits shortly after you buy them with a lump sum pension or an inheritance. You buy deferred annuities by making periodic payments throughout your working years. The funds accumulate tax-deferred until you begin taking withdrawals. Shop around because annuities differ widely.
Personal Items
The contents of your jewelry box, fur closet, or coin collection could be converted to cash if you decide you no longer want or need these items. Be sure to enlist the help of a professional appraiser to make sure you get the price you deserve for these items.
For More Information
Home Equity Resources
For a complete guide to borrowing against the equity in your home, see the AARP Home Loan Options Web page.
URL: http://www.aarp.org/homeloans
For a complete guide to reverse mortgages, visit AARP's Reverse Mortgages Web site.
URL: http://www.aarp.org/money/revmort
Your Business
The U.S. Small Business Administration has a similar guide posted on its web site. "How to Buy or Sell a Business" was written by the SBA's Portland, Oregon, district. You can read the guide online at the SBA Web site.
URL: http://www.sba.gov/or/orguide3.html
Annuities
The Securities and Exchange Commission has published two brochures about annuities on its Web site. A general brochure called "Annuities" explains what an annuity is, and what types of annuities are available to consumers.
URL: http://www.sec.gov/answers/annuity.htm
A second brochure, entitled "Variable Annuities: What You Should Know" explains what a variable annuity is and how it works.
URL: http://www.sec.gov/investor/pubs/varannty.htm
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