Is the end of income with retirement a myth?
With life expectancy increasing and savings inadequate, many people continue to look for sources of retirement income.
Retirement will allow them to enjoy ample free time, free from all the commitments and business meetings they have during the week. However, they will no longer receive a salary. Instead, they will receive a pension from their employer or the state (or both). This is a fixed income, but retirement usually means a change in income level.
Income Differences
In most cases, the pension will be lower than your monthly income during your working years. Pensioners need to be aware of this.
Many people can tolerate this reduction, but for others, a lower income may not be sufficient in the long run. In this case, retirement means the end of working life, but it does not mean the end of the search for (other) sources of income.
If you need additional income, you must decide what you want to use it for: short-term supplemental income or long-term supplemental income when your savings run out due to low retirement income.
It may seem odd to plan for your financial future when you are already retired. But thanks to longer life expectancies, many people are retiring in their 20s or even 30s. Therefore, it is important to plan properly so that savings are not depleted.
Short-term income
More and more employees are reducing the number of hours they work, especially since the retirement age has been raised to part-time or other part-time jobs. This means that income will gradually decrease and become more manageable. However, many retirees still want to maximize their income after they stop working.
If they want to invest to generate extra income in the short term, they should invest in high-risk investments. These investments are likely to provide relatively high returns in a short period of time. On the other hand, the risk of loss is also higher. Financial advisors usually recommend investing in riskier assets only if you can save for at least five to ten years.
Another option for short-term returns is dividends. If you choose stocks or mutual funds with high dividend yields, you can earn a regular income when dividends are paid. However, dividends are not guaranteed, as was the case in 2020, when many companies reduced dividends to shareholders to improve their post-pandemic financial situation. However, investors can use fundamental data such as dividend coverage and long-term dividend growth rates to assess which companies have a high degree of dividend certainty.
Dividends are a valuable source of income. Equity investors can use it to boost their investments and further enhance their returns.
Long-Term Income
Long-term investing for additional income in retirement is not much different from investing during the working years. However, you need to be clear about what you are investing in. This can be difficult because most people underestimate their life expectancy and will probably live longer than their savings will allow.
In retirement, one can better understand the impact of reduced income. For example, a pensioner may need all of his income and savings to meet daily expenses, and over time his savings may run out. In this case, additional income from investments may be needed to compensate for the decline in savings.
Decisions need to be made about one's financial future: when do I need returns on my investments, and what risk profile is appropriate for different stages of retirement? In making these long-term decisions, it is best to consult a professional advisor for comprehensive guidance or simply to review your plans.
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