More Americans Are Funding Retirement These 3 Ways — But Here's the Risk
As pensions continue to disappear and confidence in Social Security remains shaky, more Americans are looking beyond traditional retirement income sources. A new Clever Real Estate survey shows growing interest in alternative ways to generate retirement income — but each strategy comes with significant risks.
Here are the alternative income sources being used to fund retirement, and the risks you need to know about each.
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Using Part-Time Work To Supplement Retirement Income
For many workers, retirement is becoming less of an exit from the workforce and more of a shift to flexible, part-time employment, with 34% of Americans planning to depend on part-time wages to fund their post-9-to-5 life. There are several advantages to continuing to work in retirement.
"Continuing to work, even part-time hours, may provide them with disposable income they can invest, qualifying them for matching contributions to 401(k) plans and more," said Josh Anderson, president and CEO of Eagle Legacy & Financial in Eagle, Idaho. "For some, continuing to work may also provide access to affordable health coverage in years prior to qualifying for Medicare."
The biggest risk of relying on part-time wages in retirement is that you may not be able to work for as long as you anticipated, so it's important to have savings and other income sources to fall back on.
Cryptocurrency: Potential Rewards but Major Risks
Nearly one-fifth of workers (19%) plan to use crypto to help fund their retirement. These numbers are even higher for younger workers, with 26% of both Gen Z and millennials expecting cryptocurrency to provide retirement income.
While cryptocurrency is becoming a more popular retirement strategy, Anderson said investors should proceed with caution.
"Cryptocurrency is extremely volatile and speculative," he said.
Anderson noted that while insurers and annuity providers are beginning to explore cryptocurrency-related products, the market remains too unpredictable for most retirement portfolios.
"It is still too early and the markets too volatile to rush in and adopt any specific strategy regarding cryptocurrency in a portfolio designed to fund retirement," he said.
Real Estate: Create Cash Flow — or Liquidity Problems
About 19% of workers plan to use real estate as part of their retirement portfolio. That figure rises to 22% among millennials.
"Real estate can be an excellent investment for retirement income for those who build portfolios early, buying when markets are depressed, and can create cash flow properties," Anderson said.
However, Anderson cautioned against buying investment properties at elevated prices without generating meaningful cash flow.
"Too many retirees buy high and place too much of their liquidity into non-cash-flowing properties," he said.
Anderson added that retirees with one or two rental properties may be able to earn stronger returns through more diversified investments, while maintaining better liquidity and potentially reducing risk.
Although part-time work, cryptocurrency and real estate are becoming increasingly popular retirement income sources, none should be viewed as a complete replacement for traditional retirement savings. Understanding the tradeoffs of each strategy can help workers avoid taking on more risk than they're prepared to handle.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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