Older Adults' Guide to Income Streams and Money Management in Retirement

If you’re heading into retirement, the last thing you want to worry about is how you’ll continue to make money. Generating income without working can be complicated for older adults, but it’s not impossible. It’s essential to understand your options and be aware of potential scams. Unfortunately, older adults are the main target for financial scams.

Still, you can maintain smart spending in retirement and maximize your finances safely and successfully with the proper planning and strategies.

Social Security, pensions, and investments are common sources of income for older adults, but many additional possible income streams exist. From annuities and bond ladders to reverse mortgages, the options below may not fit every person but are an excellent place to start exploring what may be possible.

Get an understanding of multiple strategies for receiving a steady income, along with the pros and cons and why they’re important.

An annuity is an insurance product that provides the buyer with a guaranteed income for life. When purchasing a retirement annuity, you can do so as an immediate or deferred option. For most older adults, immediate annuities are more popular because they start paying out within a month of being purchased.

To buy an immediate annuity, you pay one lump sum exchanged for a monthly cash flow. If you prefer to let your principal increase before receiving payouts, you opt for a deferred annuity.

Typically, those facing retirement will take money earned during their working years to purchase an immediate annuity. Annuities come in many shapes and sizes, so it’s best to research different annuity options before buying one.

Annuities work like Social Security and can supplement for individuals who do not receive enough benefits to cover daily bills and expenditures from other income streams. Annuities can provide a consistent payout for older adults looking for a stream of income with low risks and should be purchased if you do not need the total sum of money soon. At times, annuities can result in higher fees than other investment options. When exploring annuity options, it’s best to work with a financial advisor versus an annuity seller.

Money in the bank is ideal, but without a strategic withdrawal plan you could end up running out of your savings with many years left to live. Strategic withdrawal includes a method for withdrawing your money and using it as cash flow in addition to allowing what you still have in savings to continue to work for you. Older adults need a strategic withdrawal plan for anywhere that you’re storing money, including 401k plans, IRAs, mutual funds, bonds and bank accounts.

Without a plan in place and some general knowledge of how much money you have and how long you need it to last, it’s easy to spend quickly. Strategic withdrawals provide a steady source of income without burning through your savings. While it’s a great way to provide regular income, it doesn’t take into consideration the tax implications of withdrawing from retirement accounts as well as any fund performance you’d receive from keeping the money in high-performing mutual bonds or retirement stocks.

Bonds are issued by companies or government entities but can be purchased as investments. Bond laddering is when you purchase a variety of bonds that all have differing mature dates. When a bond matures, it pays out an interest rate, typically twice a year. When you use a bond ladder, the maturity dates are staggered, leading to a steady stream of income. To build a bond ladder, you’d start with purchasing a bond. When the maturity date occurs, you then purchase a new bond. With each bond purchased, the maturity date is further in the future, which extends the ladder.

Bond laddering is a popular source of predictable income because it is low risk and allows you to avoid the impact of increased tax rates. It’s a valuable strategy to add to your portfolio because you know what you’re getting. With bond laddering, you receive cash from the interest payments until the bond matures. By understanding the maturity date, you know exactly when you’ll receive your money. It’s essential in bond laddering to ensure you’re investing in high-quality bonds. Fidelity’s bond ladder tool can help you get started building a bond ladder.

Pension plans are employee benefit plans that provide retirement income upon ending your career until the day you die. Typically, companies build pension plans by investing large sums of money into the stock market and bonds to ensure enough money to pay employees’ pensions once they retire. There are two types of pension plans, a defined benefit plan and a defined contribution plan. Both promise a specified amount of money at retirement, either in an exact dollar amount or based on a formula that includes salary and service.

Finding a company that offers a pension plan can provide valuable comfort in retirement. Pension plans provide a steady income for the rest of your life without you having to do much. Sometimes you can even choose a pension plan that includes a beneficiary. While a pension plan is not as individually flexible as a 401k, it provides a guaranteed source of income throughout the rest of your life, as long as the company continues to see success.

A reverse mortgage allows you to take the equity in your home and turn it into cash. For older adults who own a large portion of their home, a reverse mortgage can be used as a source of retirement income without risking the roof over your head. To access a reverse mortgage, you must be 62 years or older and have enough equity in your home to borrow against it. You can choose your payouts from a reverse mortgage loan in a monthly payment, one large sum or as a line of credit. When you purchase a reverse mortgage, you don’t make any loan payments.

Many individuals spend years paying off their homes and earning equity. A reverse mortgage can keep you in your home while providing monthly, quarterly, or yearly income. You can even take your loan in one lump sum. Reverse mortgages are a good option for retirement income because you can spend the money on anything you need. As long as you are committed to paying off your loan, you won’t go into more debt by pursuing a reverse mortgage. You can determine how much you may get from a reverse mortgage using a reverse mortgage calculator.

Every paycheck you receive has a small amount taken out that goes into Social Security for most individuals. You also earn credits for the number of years you pay into Social Security. Once you’ve reached 40 credits, you qualify for Social Security benefits which are monthly cash payouts from the government to supplement income in retirement. You must be 62 years old to claim Social Security, and the amount you receive is based on your earnings record from your working years.

Social Security is the most widespread form of income for retired adults in America. It’s important to take advantage of Social Security because it’s money you’ve already worked to earn that you can finally claim. For individuals who have other income sources, you may need to pay taxes on your Social Security. The Social Security Administration makes it easy to calculate your potential benefits, apply, and manage your Social Security account.

When considering government assistance for those facing retirement, most people do not think beyond Social Security and Medicare, but there are a variety of additional offerings to aging adults. Income programs like the Supplemental Security Income (SSI) and Senior Community Service Employment (SCSE) programs can provide another income stream for individuals in retirement. There are also numerous tax assistance programs as well as resources for federal workers and retired military. Learn about different avenues of income and government and public assistance in the resources below.

• 10 Ways to Start Preparing for Retirement: This downloadable resource provides 10 ways you can start preparing for retirement long before you get there
• The Basics of Retirement: Tips and information from USA.gov on how Social Security works, retiring from the civil service and managing a private pension.
• Supplemental Security Income: A guide to supplemental security income which provides payments to adults older than age 65 who meet specific requirements.
• Senior Community Service Employment Program: A guide to this program, offered by the Department of Labor, provides training for low-income, unemployed older adults. Participants also have access to employment assistance through American Job Centers.
• Navigating Benefits.gov for Senior Citizens: Information on government and public financial, nutritional and medical benefits for aging adults.
• American Savings Education Council: A public service that educates individuals on saving and planning for retirement.

While the amount of money you have coming in changes in retirement, daily bills tend to stay the same. Managing income streams wisely in retirement is crucial to making your money last long as you need it. Older adults need to consider the sources of income, how much they have, what they need to spend each month, and how long it will last you. This can be solved with a strategy for your retirement paychecks.

Several risks can impact finances throughout our lives, and that does not change in retirement. When crafting strategies to manage income streams it’s important to understand different factors that will impact how you strategize your finances. These include things like tax efficiency, income, investment strategies, and others listed below.

It’s never too soon to start implementing strategies that maximize your income. Even if retirement feels a long way away, there are things you can start doing today to improve your finances so that you’re secure down the road.

Even if you’ve been managing your finances for several decades, there are a variety of hiccups and mistakes that can impede your financial success as you age. A few wrong moves could leave you without enough money in retirement, from ignoring inflation to relying on the wrong income streams. When planning and managing your retirement paycheck, avoid making these common mistakes.

Aging adults are the center of money scams because they’re often polite, trusting, and believed to have a lot of money. Lottery, tech support, government impersonation and several other scams target older adults every year. Scammers will build relationships with their targets via email or telephone, and over 90% of the time, the scammer is a family member. Use the following steps to avoid the most common types of scams to protect yourself and your finances.

There are a variety of resources available for aging adults to begin preparing for retirement as early as possible. No matter what stage of life you’re in, the following resources are a good place to further your knowledge on potential income streams and how to get started today.

• Life Expectancy Calculator: The living to 100 life expectancy calculator will calculate your life expectancy using researched medical and scientific data.
• AARP Retirement Calculator: Answer questions about your household status, salary, retirement savings and other income and the AARP calculator can provide insight on whether you’re saving enough money for retirement.
• Social Security benefits calculator: Provided by the Social Security Association, this page consists of various tools and calculators to help you determine government benefits you may receive when you retire.
• American Retirement Association: This nonprofit organization was created with the goal to educate retirement plan and benefits professionals and create a framework that allows working Americans to retire comfortably. On the site, you’ll find professionals, advocacy, and a variety of connections for retirement education and support.
• PensionHelp.org: A website from the Pension Rights Center, PensionHelp.org connects individuals with counseling projects, government agencies, and legal service providers that offer free information and assistance in pension planning.
• Pension Counseling and Information Program: Assists Americans in managing their retirement benefits and assists with any employer negotiations for unpaid pension benefits.
• Center for Retirement Research at Boston College: A variety of research and information regarding retirement income. The CCR has been recognized by the New York Times as the nation’s leading center on retirement studies.
• National Council on Aging: On this site, you’ll find resources, tools, best practices and advocacy for aging with health and financial security.
• Internal Revenue Service — Tax Information for Seniors & Retirees: A free tax-filing tool including an Interactive Tax assistant. This tool includes information specifically for older adults, including deducting medical expenses, tax scams, finding a tax-aid volunteer and special rules.
• National Older Worker Career Center: Connects older adults, age 55+, with part-time and full-time career opportunities.
• SeniorLiving.org: A comprehensive website dedicated to helping adults with all aspects of aging. This is a one-stop-shop for aging adults, from money management and retirement resources to health, living and technology.