As the editor of Peak Income, my beat is retirement income.
I’m good with that. It may not be a subject of life or death importance, but truthfully, it’s not far from it.
We have a basic social safety net in this country that will keep you from starving in your golden years, but that’s pretty much it.
If you want to live with any comfort or dignity, you’re on your own to make that happen.
For most working Americans, the company 401k plan is the backbone of their retirement savings, as it should be.
Between the tax break and employer matching, the humble 401k offers incentives you can’t legally find elsewhere.
In 2018, you can contribute $18,500 to your 401k plan, not including any matching from your employer. And if you’re 50 or older, that number bumps up to $24,500.
And remember, because you get an instant tax break from your contributions, your “return,” irrespective of any investment gains, is equal to your marginal tax rate.
If you’re in the 32% tax bracket, you make 32 cents on every dollar contributed just by showing up to play.
Add in another 4% to 6% in employer matching (the typical range for most employers) and you can sock away serious money.
There’s just one issue.
If you’re already close to retirement and running a little behind in the retirement race, you’re going to have a hard time making to the finish line with only your 401k savings.
You need an extra source of income or two. You need a side hustle.
Last year, I wrote that my friend David was retiring at the ripe old age of 40.
Well, David is still working today, but not because he has to.
He could walk away today if he wanted to, but he now has a cushy job that he enjoys all the more because he knows he doesn’t need it.
So, how did he do it?
He and his wife have lived relatively modestly over the past two decades, but that wasn’t the key to their financial success. David’s side hustle was.
Most men spend their Saturdays watching college football with a beer in hand, and there’s nothing necessarily wrong with that. But David instead chose to pound the pavement looking for real estate deals.
In 2009 and 2010, when prices were depressed, David bought a portfolio of fixer-upper rental houses and spent his Saturdays remodeling them. He also used any excess cash he had lying around at the end of the month to pay down his mortgages faster.
Today, his rental houses appraise at close to $2 million… and they’re paid for.
I’m not suggesting you try to put together a portfolio of rental houses. After years of appreciation, prices are no longer cheap in most markets, and there are a lot of Johnny-come-lately house flippers distorting the market. In most cities, the real estate ship has sailed.
But there are plenty of other ways to earn a buck. You can start an e-commerce site selling T-shirts, baby clothes or left-handed spin widgets with an off-the-shelf website template and a day or two of your time. You could drive for Uber a couple nights per week or start an Etsy or Amazon shop.
Or, as I wrote last year, you could be like my cousin’s ne’er-do-well friend from high school and become a millionaire playing videogames on YouTube. (You probably shouldn’t hold your breath for that one.)
In addition to enjoying the extra income you can generate from the business itself, you can dump some of the profits into an SEP IRA or other retirement plan and really turbocharge your retirement savings.
That idea – boosting your retirement savings – is really what my income-focused newsletter, Peak Income, is all about. I write it every Thursday, and cover a wide range of retirement topics with a major emphasis on generating current income.
To find out more, click here.