Sometimes people don’t learn more about investing and retirement because of the confusing lingo. I get that. It’s enough to make your head spin. One of the terms you might hear is “income streams.” Financial pros and retirement gurus talk about having several of these streams in retirement. But what does that mean, exactly?
It’s actually pretty simple. An income stream is any source of money that comes into your checking or savings account. Your job is an income stream. Your property, when it’s rented out, is another. Side businesses and freelance projects are streams too. Pooled together, they make up all of the income you have at a given time.
Typically while you’re in the workforce, your job is your biggest source of income. But those paychecks go away when you retire. When that happens, you’ll need to live off the money from other income streams.
Here are a few examples of what those income streams could be:
1. Social Security
Look at this as icing on the cake, not the actual cake. Why? Because the average payout right now is around $1,340 a month. That’s only a little more than $16,000 a year—which is right around the national poverty level. That’s why it’s so important to have other sources of income.
2. Retirement Accounts
Most full-time employees have access to some sort of contribution plan that allows participants to invest a percentage of their salary. Think 401(k) or 403(b) plans. With some help from an investing pro, you can find investments that fit your risk tolerance and stage of life. If you start saving early, you can build a sizeable retirement account—even into the millions of dollars!
3. IRAs and Roth IRAs
Unlike 401(k) plans, which are limited to employees of the company sponsoring them, anyone can contribute to an IRA or a Roth IRA—as long as you worked somewhere. You can contribute up to $5,500 a year in these accounts if you’re under the age of 50, or $6,500 if you’re older. There are different tax benefits for each kind of IRA, so be sure to talk with an investment professional about which one is best for you.
Back in the day, many companies made contributions into investments on behalf of their employees. Then, when the employees retired, they were given a certain amount of money to live on every month. Because of the costs, most companies have decided to get rid of their pension plans. But if you have one, don’t forget that it counts as an income stream in retirement.
5. Your Home
If you’ve paid off your mortgage but don’t have as much money as you’d like for retirement, you have the option to sell your home. You could buy a smaller property with cheaper monthly utilities and less upkeep and put the extra money toward retirement. And if you don’t want to sell your home, you could always consider renting out an extra room or garage apartment.
6. Part-Time Work
If the idea of retiring makes you cringe, you can always pick up a part-time job or start a side business. Lots of retirees are creating encore careers, which allow them to offer their passion, experience and skills to younger generations. This kind of work can be personally fulfilling and serve as an excellent way to supplement your retirement savings.
By themselves, these income streams probably won’t provide enough money for a comfortable and secure retirement. However, when you put them all together, you’ll have a much larger pool of money—and you’ll be able to enjoy those activities you’ve always dreamed about!