5 Ways Retirees Can Supplement Income Outside of Their 401(k)

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You’re approaching a new stage of life that’s filled with creativity, purpose and freedom. The next great projects you take on may not be in a boardroom but in your kitchen, garden or studio. (Now it’s time for your kids to put your artwork on their fridges.) Your forays into baking might also be formidable. But the most important outlet for your creativity could involve finding ways to supplement your income in retirement.

You worked hard to build up your 401(k) during your working years, taking advantage of your employer match and even contributing the recommended 15% of your salary in most years. But it still may not be enough to fully support you in your golden years. You’ll likely need to cultivate additional sources of income for a secure, comfortable and, hopefully, fun retirement. 

GOBankingRates spoke with financial experts to get insights into strategies and resources that can help you create financial stability in retirement beyond your 401(k). 

Diversified Assets 

As Christine Mueller Coley, CFP, CDFA, wealth advisor at SteelPeak Wealth Management, explains, relying on one source of income can be risky. Living only on a 401(k), Social Security or a pension is like juggling a single plate — if that plate smashes, you’re left with nothing. 

Instead, she favors mixing different kinds of assets to create more flexibility when you need a larger cash flow. “Depending on various economic factors, certain assets may be better to liquidate than others,” she said. 

Working with a financial advisor, you should review whether a mix of the following asset types could work for you: 

• Cash and cash equivalents (savings accounts, money market funds, CDs, Treasury bills) 
• Bonds and fixed-income investments (U.S. Treasury bonds, municipal bonds, corporate bonds, bond funds, fixed annuities) 
• Dividend-paying stocks 
• Annuities 
• Inflation-protected investments (TIPS, inflation-indexed annuities, commodities exposure) 
• Alternative assets 
• Real estate 

Each of these asset types comes with its own strengths and disadvantages, so you’ll need to determine your level of risk tolerance and liquidity needs to decide what will work best for you.

Cash Reserves 

A diversified stock portfolio is essential to financial stability in retirement, but so are cash reserves. Coley wants you to ensure that you keep a portion of your portfolio liquid — whether it’s in a high-yield savings account, money market fund, or short-term CDs or Treasuries. 

“Interest rates are still fairly high versus where they have been in the last 20 years — take advantage of higher rates while we have them,” she said. “You don’t want all of your funds at the mercy of stock or bond market fluctuations.”

Having cash reserves gives you flexibility to cover unexpected expenses or avoid selling investments during market downturns.

Smart Withdrawal Strategies 

Coley said that when creating financial plans, including plans for retirement, you should categorize expenditures based on priorities — think essentials instead of luxury items. 

“It’s possible there could be an extended rough patch in the market where you may be more reluctant to take withdrawals and claw back on discretionary spending,” she said. “We try to model portfolios to create a sustainable withdrawal rate for essentials at all times, whereas discretionary spending like travel or dining out may be used sparingly when the portfolio isn’t performing as well — knowing that also isn’t the norm.”

In other words, a smart withdrawal strategy helps you protect your principal while maintaining your lifestyle, even when the markets dip.

Side Hustles 

Though you might think retirement means never collecting a paycheck again, Coley works with many retirees who take part-time jobs. Not only does it help ease the transition between their working lives and retirement, but it also allows them to socialize and earn additional income. 

“Some retirees do consulting work related to their field of expertise or more freelance jobs like working for ride shares or taking an occasional route to deliver packages,” she said. “Seasonal employment in retail spaces or even with local governments can be a nice option as well.” 

She added that some retirees actually return to work full time — they simply choose a role that’s less stressful, even as it provides them with benefits such as health insurance, which can be critical if they’re not yet eligible for Medicare. Coley offers the example of someone who retired from a high-pressure accounting job to work at a local hardware store.

Rental Properties and Real Estate 

Another smart approach to generating income in retirement involves investing in real estate — such as managing a rental property or putting your money in a real estate investment trust (REIT). 

Stephen Vecchione, MBA, CFP, co-founder and managing partner at Statera Advisors, says that rental properties can be a great source of income for a few reasons. 

“You may be able to get a higher yield — called a cap rate in real estate — than you can get in the public bond markets,” he said. “The underlying real estate can appreciate, and income can also rise with inflation.” 

Like any other investment decision, you’ll want to be aware of potential risks. Vecchione said that real estate investors could face concentration risk if they focus only on one property. Mother Nature may also wreak havoc on your best-laid financial plans via natural disasters that necessitate major repairs and imperil your income streams. 

Of course, there are also the personal and financial challenges of managing a property, which you may not want to take on in retirement. Vecchione cautions that one bad tenant can wipe out your profit in legal fees. He also reminds you that building a real estate portfolio takes time. 

“Real estate income can vary, and you need to factor in vacancy, repair costs, rising costs of insurance and new tenant acquisition,” he said. “We typically use 75% of anticipated income in our plans to build a conservative buffer. If we get the full amount, then we consider that a bonus.” 

Bottom Line 

You deserve a retirement where you get to create the life you want. But to do that, you’ll need to get creative about your sources of income instead of relying only on your 401(k). With smart strategies for diversifying assets and planning withdrawals — and a willingness to take on a side hustle or explore real estate investments — you can build a broad, reliable financial safety net for your retirement years.

This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.

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