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How Retirees Can Earn Extra Income

Investopedia logoInvestopedia 07-01-2016 Terri Williams
© Provided by Investopedia

With the loss of a steady paycheck, many retirees may find themselves financially strapped and in need of extra income. Even those with substantial savings may have underestimated the amount of money needed in retirement and depleted a sizable share of their savings.

The first step is to determine how much money is required to live this phase of life. Keith Baker, CPA, CFP, professor of mortgage banking and personal finance at North Lake College in Irving, Texas says all retirees need a budget or spending plan. “To be blunt, most people have no idea what they’re spending on daily expenses, and I advise about-to-become retirees to maintain a journal of their spending habits before retirement ­– most are surprised that they will need more than 70% of their current income just to be comfortable.”

Also, Baker says that retirees with more than $1 million think that they can splurge, but this is one of the financial mistakes that retirees can’t afford to make. He says this amount may be just enough to cover their average life span, healthcare, daily expenses, and housing.

Fortunately, there are several ways for retirees to supplement their income.

1. Obtain a Part-time Job

Retirees who are in relatively good health may be able to find employment on a part-time basis, and there are many seniors working past the typical retirement age. In fact, Jeff Reeves, analyst and executive editor at in Rockville, Maryland, tells Investopedia, “Some employers prefer older workers because they tend to be more loyal and experienced.” However, he says retirees may have to accept entry-level wages for entry-level work, and it may be hard for them to accept the fact that their boss may be the same age as their child or grandchild.   

2. Offer Services For a Fee

Some retirees may not embrace the idea of having a boss, but there are other options that will allow them to maintain their freedom. Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network, says, “Maybe you have skills that you can turn a hobby into a part-time, money-making enterprise. Or you can babysit, tutor, or do yard work.”

The good thing about the changing labor market is that it allows seniors to continue working as contractors. Reeves tells Investopedia that retirees drive Uber cars, prepare taxes for friends, walk the neighbors’ dogs, or perform other types of services. “Just make sure you’re keeping documentation of your income and filing 1099 tax forms to prevent running afoul of the IRS,” warns Reeves.

3. Consider Selling Your Home

While this is not an option to be taken lightly, it may be the right solution for some retired homeowners. Baker says many retirees don’t want to sell their house because they’re using this asset to fund their retirement. “But, if you move out of your larger home with its larger utility bills, taxes, and upkeep into an efficiency apartment or a smaller home or condo, this could free up some cash for other retirement needs.” A reverse mortgage may be another option for retired homeowners since they wouldn’t have to make monthly payments.

4. Sell Unused Items

Over the course of a lifetime, many retirees have accumulated a substantial amount of “stuff” that they no longer use or need. Reeves says this may include furniture and sports equipment that their kids left when the moved out. “Craigslist, eBay and local community exchanges are great ways to unload your excess possessions and make a few bucks in the process.”

5. Claim Rewards Points

Many credit cards have associated rewards that retirees can claim. Gallegos recommends checking the credit card statement to see how many reward points have been accumulated. “Then visit the company’s rewards website to find out if you can convert the rewards into cash or gift cards, use the gift cards for essentials, and put the cash into savings.” Gallegos adds that there may be double rewards at certain retailers.

6. Cut Grocery Store Costs

Most grocery store chains offer weekly specials. Conduct research to discover which items are on sale at what time, and then stock up on often-used items to save money. Also, Gallegos says retirees need to adjust their mindset. “If you have a grocery store savings card, you’ll see the savings the card accrues for you on your receipts. Take the amount of those savings each time you visit the store and actually put this money into savings.”

7. Commit to Making Adjustments

While retirees should enjoy their senior years, they also need to acknowledge that lifestyle changes may be in order. Steve Martin, CFP, senior managing advisor at BKD Wealth Advisors in Chicago, Ill., tells Investopedia that living on less doesn’t mean that retirees live like they’re impoverished, but they may not travel, eat out, or buy gifts as often as they once did. And ultimately, Martin says it’s a matter of choice. “We can choose to enjoy more of our income today by saving less, which leads to a smaller nest egg in retirement or we can defer some spending today by saving more with the goal of a more comfortable retirement.”

The Bottom Line

Retirees usually live on a substantially smaller income than they received when they were working. However, by making smart financial decisions, increasing income options, and exercising timeless money-saving tips, they can still live comfortably during their golden years.

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