Rethinking Retirement: Ideas for Your Income Mix

We’re long overdue for a redefinition of “retirement.” According to the U.S. Census, the percentage of Americans at the traditional retirement age of 65 or older has more than doubled since 1950—and, with the Baby Boomers reaching their golden years, that percentage is projected to continue to increase.

If you are among the 63% of Americans who are unsure about the sufficiency of their retirement savings, you may be wondering what you're supposed to do as age 65 approaches (or is already in your rearview). After all, the average Social Security payout of $1,177 is a far cry from the 80% of current annual income that the IRS recommends having saved to comfortably retire.

To make things even more complicated, the definition of “comfortably retiring” has changed over the years. Especially after COVID-19, we’re acknowledging that our health and relationships are the most important things in life. Retirement isn't about life on the golf course or walks on the beach for most people—it's about finding creative ways to stay financially stable, socially connected and a valued and contributing member of society.

So, what is retirement now?

For many, there may not be much "retiring” involved. Whether still working full-time or starting an encore career, older adults are staying more professionally active than previous generations. In 2018, Pew Research found that 29% of Boomers ages 65 to 72 were working or looking for work—an historic high for a generation at this age.

No matter what your lifestyle looks like, there’s one thing the majority of people over 65 have in common: homeownership. While this generation may not have big pensions to rely on like their predecessors did, 81% of pre-retirees and 75% of retirees own a home, according to a recent survey from the Society of Actuaries.

The communities and memories that make those homes are worth preserving, but not everyone can afford to stay where they are. Without hefty pensions or savings buffers, retirement today requires thinking through an income mix that can support you for the long term. Let’s take a look at some income mix ideas that can help you create the retirement you want.

What is an retirement income mix?

Throughout our lives and careers, we may contribute to more traditional savings accounts, IRAs or 401(k)s through work or a personal account. In recent decades, however, those traditional methods have become less predictable. Once a key retirement savings vehicle, pensions are now the exception to the rule—less than one-third (31%) of US adults receive retirement payments from a pension, according to a 2019 report. (Many have also lost track of their 401ks and need help finding their lost retirement account.) And while Social Security income provides critical support for many older adults, the program was never intended to serve as a sole source of income or to support the longevity many Americans enjoy today.

Today's older adults are developing their own unique retirement plan—an income mix. An income mix is a way to consider the various income streams throughout life that can support retirement. For example: will you have Social Security income to count on? A private or employer-sponsored savings account? A part-time job? An annuity? Investment accounts?

However your income mix is designed, it can include two types of income:

• Active income, such as an encore career or part-time work.
• Passive income, such as a savings account or Social Security payments.

One often-overlooked mechanism for generating passive income for millions of retirees and pre-retirees? Their home.

Ideas for active retirement income

Active income is steady but requires consistent work into “retirement” years. Older adults may be able to find reliable work such as advisory board positions, clerk roles, office managers or customer service representatives. A part-time consultancy role could also lend hard-earned expertise to the next generation while netting some steady cash.

Another option is finding an encore career, as just under half of retirees say they have done. Work, creativity and productivity don’t have to be cut short by arbitrary age constraints, and later-in-life career pivots can be incredibly rewarding.

The sharing economy provides ample opportunity for continued income and experimentation. Millions of people need pet-sitters, dog walkers, rideshare drivers, tutors, task workers and more.

Brushing up for a job interview for the first time in years? We’ve got advice on how to nail it.

Ideas for passive retirement income

Passive income can be generated from savings accounts, Social Security payments and investments, among other sources—including your home.

If you are age 62 or older, have home equity available and plan to stay in your home for years to come, that equity can be a source of passive income by way of a reverse mortgage.

What it is: A reverse mortgage allows you to take payments from the home equity you’ve built in your home in the form of a lump sum, annuity, term payment, line of credit or some combination thereof. In a reverse mortgage, the bank essentially lends you back the money you’ve paid into your home (with interest).

The benefits: For many Americans, a significant portion of their wealth is tied up in their home equity. A reverse mortgage is a way to tap into that wealth to support a more comfortable retirement.

Find out if a reverse mortgage is right for you.

You can also use the space in your home to create income by homesharing.

What it is: renting out space in your home to someone whose lifestyle is compatible with yours.

The benefits: On Silvernest, homeowners earn an average of $850/mo for every room they rent out—income that can go towards living expenses, home improvement, entertainment, travel, savings or whatever is important to the homeowner.

Homesharing can also be a big help to homeowners who are almost entirely independent but could benefit from assistance with home upkeep or simply having another person around. An estimated $101M/year is spent on caregiving services in the US, when what many of these families need is simply the peace of mind of another human being in the house to call for help if their loved one falls.

Other sharing economy options for monetizing the space in your home include renting out storage space (using websites like SpareFoot, for example) and renting out a parking space (see JustPark).

While retirement may look very different today than it did for previous generations, the good news is that we have more options and flexibility than ever—and more opportunity to be creative and intentional about the life we build. Taking an active role in planning your income mix can help you do more than you thought possible and create benefits far beyond the financial.

There's no need to make any rash decisions. Reach out to your financial advisor to find out if homesharing or reverse mortgages are beneficial for you.