7 ways to make extra income in retirement

If you’re looking to enjoy a comfortable retirement, you need income. Whether you’re a retiree now or years out, you have a number of ways to generate this income. And the earlier you start, the more options you’ll have to generate extra cash.

After a lifetime of working, it can be great to have your money working for you, and you’ll also have money built up in the Social Security system through years of working and paying taxes, too. But while Social Security is a great starting point, it wasn’t designed to cover all your retirement needs, so you’ll need to create additional streams of retirement income.

7 ways to make extra income during retirement

Your options for generating income in retirement are plenty, but it certainly doesn’t hurt if you already have a pile of cash from your working years. If you do, you’ll be able to transform it into a range of income streams, depending on what suits your needs and risk tolerance. And you may be able to drastically reduce your taxes in retirement with some careful planning.

Working with a financial advisor may be helpful as you weigh these factors and options. Need help finding one? Check out Bankrate’s financial advisor match to see who might be a good fit for you.

1. Social Security

Social Security can form the basis of any retirement income plan, and while it was never intended as a complete solution for retirement income, Social Security does offer a lot. One huge benefit of the program is that by the time you retire you’ve already made your contributions to the program, so there’s nothing left for you to do. You don’t have to worry about a further investment or otherwise setting aside money from a paycheck.

The average retired worker receives $1,920 a month from Social Security, and some workers earn considerably more than that. That level of money can establish a firm base of income, but you’ll likely need to supplement it with other streams, such as those that follow.

Plus, you can boost your Social Security payout as much as 24 percent, if you’re willing to delay taking your benefits past full retirement age. And you have still other ways to fatten your Social Security check.

If you’re among the lowest earners, you may be able to receive your monthly check tax-free, and even those earning a bit more can still receive some of their benefits tax-free.

2. Rental income

Owning a rental property can be an excellent way to generate income in retirement, and it doesn’t have to be too difficult to do so, especially if you invest in residential real estate. While you’ll have to put in some time — and possibly money — managing the property, it can make you real money over time.

It can be smart to think years out on rental real estate because you’ll be able to generate more income that way. Rents typically rise over time, giving you more of a cushion over your costs, such as your mortgage. And with time you can pay down or refinance your mortgage, giving you more breathing room on your expenses and more money in your pocket during retirement.

However, it’s important to remember that real estate can also eat up its income, too. It’s not just a one-way cash generator. Roofs need to be replaced, furnaces need to be repaired, and so on. If you’re on a tight income, you’ll want to budget for the unexpected repair and have ready cash.

If managing property is not your thing, you have other ways to invest in real estate, too.

3. Certificates of deposit (CDs)

Investing in a certificate of deposit is one of the safest and easiest ways to make retirement income. When interest rates are high, it can be a good time to lock in that rate before rates fall. When interest rates are low, new CDs may still pay higher rates than other interest-bearing accounts, such as high-yield savings accounts.   

One strategy for CD investors is a CD ladder, which helps minimize the risk of putting your money in all at once. With a ladder you set up CDs at staggered maturities, say, each year for five years. When the one-year CD matures, you roll it into a five-year CD and wait for the next CD – now just a year away – to mature. This way you always have a CD maturing, giving you ready access to cash and lowering your interest-rate risk.

You could also set up a barbell strategy. Here you put about half your money in long-term CDs where the rates are typically higher and the rest in short-term CDs, where the money is more liquid, giving you access to the cash when you need it. You end up with an average return on your money but you have good access to cash, too.

If you go with CDs, it makes the most sense to find the best rates across the country.

4. Annuities

Annuities are a perennially popular option for retirees, but they offer some positives in addition to some negatives. Anyone considering an annuity should understand that they’re quite complex, though their promised benefits – a monthly paycheck – are relatively straightforward.

The options with annuities are all over the place. You can structure your annuity to have insurance-like benefits such as a death benefit and can even pass the monthly income on to a spouse. You can have the potential paycheck be predetermined with a fixed annuity or hope for unpredictable but perhaps higher income with a variable annuity. You can start receiving annuity payments now or at some future time.

But all those options lead not only to greater complexity but also a higher cost, and annuity contracts are almost infamous for their complexity and hard-to-understand rules. Still, for the right person an annuity can help provide stable monthly income.

5. Bond funds

Bond funds are an effective way to get a diversified portfolio of bonds without having to select a bunch of bonds yourself. A bond ETF, for example, can provide you with a broad range of bonds or a quite narrow range of bonds, depending on exactly the kind of exposure you want.

Among the more typical options, you can choose among issuers – the federal government, corporations, states and municipalities. You can choose between short-, medium- and long-term bonds. You can have riskier issuers, such as high-yield or “junk” bonds. And there are more arcane options besides.

For example, if you want short-term government bonds or intermediate-term corporate bonds, you can find funds for those. If you want a mix of all kinds of bonds, you can go that direction, too. You can also focus on funds that offer a selection of tax-free municipal bonds. The point is: You have a ton of options with bond funds, and they’re easier to trade than bonds themselves.

Bonds provide steady income, and bonds are typically much safer than stocks and some other market-based investments.

6. Dividend stocks

Dividend stocks offer two potential benefits over bonds. First, they sometimes pay yields that are higher than what bonds offer. Second, the best companies raise their payouts year after year, meaning you’ll get a raise just for continuing to hold your stock. Unlike bonds, where the payout is typically fixed, the income stream from a dividend stock has the potential to climb over time.

Dividend stocks are usually lower risk than growth stocks, but that doesn’t mean you can’t lose money on them, especially in the short term. Like all stocks, dividend stocks fluctuate, though the better-run companies tend to appreciate over time as they raise their payouts.

It can be difficult to successfully pick dividend stocks, so investors often turn to a dividend stock fund, such as an ETF. The best dividend stock funds have low expense ratios and offer a diversified portfolio of stocks so that performance doesn’t depend too heavily on any one stock. A fund will usually be less volatile than individual stocks and can still grow its payout over time.

As you’re amassing your retirement nest egg, keep your assets inside a Roth IRA and you’ll never pay taxes on the dividends and capital gains again. That’s tax-free retirement!

7. A new part-time job or side business

If you’re out of options, you might consider getting a part-time job, especially if it’s for a short period of time when you need the money. You might also consider making a lifelong hobby into a side business, turning some of your valuable knowledge into cash.

While many people dream of never working again when they retire, many others find retirement to be much different from what they expected. For these reasons, some individuals do decide to return to the workforce, if only to get out of the house a few days a week and see people. Even those who retire early may want to pursue a job they feel passionate about.

The bottom line

It’s not the easiest thing to generate income these days. But some legwork and a lot of planning ahead of time can help you find the best returns out there. The sooner you start, the sooner you can begin securing your retirement income.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.