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Social Security is not enough: How to set up alternative retirement income

James Royal, Ph.D., Bankrate.com on

Published in Business News

An annuity is another type of account that can be set up through an insurance company. The key benefit of an annuity is that it can pay you lifetime income, meaning you won’t run out of income, and it may offer other insurance-like benefits. You can set up an annuity so that you receive a fixed rate of return or one that depends on the earnings of the annuity’s investments.

“Annuities can be complex — there’s several options to consider, each with their own unique set of rules — so you really need to understand annuities before you get into them,” says Bond.

Health savings accounts (HSAs)

While health savings accounts were established to pay for healthcare expenses, they can also function as a way to save for retirement, and many financial advisers put HSAs near the top of the list for retirement savings. An HSA offers you a triple tax break:

—In an HSA you can save with pre-tax money, meaning you can skip the tax on your contributions.

—The money can compound tax-free inside the HSA.

 

—Finally, you can withdraw the money tax-free if you use it for healthcare expenses.

But if you wait until age 65, the HSA effectively becomes like a traditional IRA. At that time the money can be withdrawn and used for any purpose while paying only ordinary income taxes. So for savvy savers and those who don’t need to use the funds, the HSA can function as an additional retirement account and you may even be able to invest in high-return assets.

5 ways to set up alternative income streams

Inside the account types above — with the exception of the annuity, which itself is an income stream — you can invest in securities that can produce income for you. You have two main strategies here to get an income stream:

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