Whether you’re heading towards retirement or it’s still a ways off in the future, you should be thinking about how to fund it. Many people define “retirement” as when a person stops working full-time, but this doesn’t mean that the person no longer needs a source of income. Even carefully budgeting retirees may need a little extra income outside of savings. You may even be sitting on an unknown income source and not realizing it!
Retirement accounts, also known as defined contribution plans, are one of the most popular sources of income in the retirement years. The best-known examples of defined contribution plans are 401(k) and 403(b) plans. These are plans that you can set up while you’re still working and watch your retirement savings grow. In most cases, employers who offer retirement plans will also offer to contribute to the plans, depending on what the employee is putting in.
These types of accounts are usually transferable between jobs. In general, the money in employee-sponsored retirement accounts can’t be accessed until folks are nearing retirement age, although there are some exceptions.
You may not realize it, but if you have a life insurance policy it could turn into a source of income during your retirement years. It will depend on the type of life insurance and the plan specifics, but you may be able to borrow from the cash value of your life insurance policy. In simple terms, the cash value of a life insurance policy is the portion of the coverage amount that accrues interest. Cash value options are usually considered a policy rider (or add-in) and are not a standardized feature of life insurance plans. Term life insurance plans do not offer a cash value option like whole life insurance policies do, though whole life insurance premiums are more expensive than term premiums.
Social Security is the most obvious source of retirement income. Available to Americans with disabilities or those aged 65 and older, Social Security is a reliable check sent from the government every month. However, keep in mind that Social Security is unlikely to cover all of your living expenses. This is one of the many reasons that finding other sources of income during retirement is so important.
It may be surprising, but there are many ways out there to “earn a living” even in retirement. Investing in retirement accounts, whole life insurance policies and other plans can add to your monthly Social Security check and help you earn a comfortable living.
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