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Building Income Through Assets

Oct 11, 2017 by

Building Income Through Assets

Retirement is an exciting prospect – but also a scary one. Once you retire, you’ll no longer be earning regular income from your job. No more salary, bonuses, or benefits: you’re on your own!

But that doesn’t mean that you won’t have any income at all. Saving for retirement isn’t just about saving cash in the bank that you can draw back out when you’re done working. It’s also about investing in stocks and maintaining your assets. Investments and assets like your home can increase in value over time, adding to your net worth. And since these things have real value, you can draw on them when you need them down the line. Here’s how it works.

Investing and your future

The single most important way to generate wealth for retirement is to invest. Investment can be scary to some, but the underlying principles are fairly simple.

The idea of investment is to generate interest in order to stay ahead of inflation – and, ideally, to build wealth. The more important core idea is called compounding interest. Compounding interest just means that as your investment generates interest, it grows – and then the next time interest comes around, it represents the growth of a larger amount of money. A few cents interest on a dollar one year doesn’t just mean a few cents – it means a few cents and the fact that next year’s interest will be calculated on $1.03, not just on $1.00. Over time, the mounting interest causes your investment to grow far faster, all because you’re just reinvesting the interest.

Stocks are the most widely known form of investment, but they are far from the only type. A healthy portfolio should include lots of diversity in the form of bonds and other types of investments. Gold bullion, which is available through organizations like American Bullion and is traditionally seen as more recession-proof than stocks, is another good way to diversify. Commodities are another option, and even the things you own – like your house or your baseball card collection – can be seen as investments and may grow in value.

Drawing on what you have earned

Of course, you don’t just keep earning interest forever: eventually, you’ll actually want to use all of this money you’ve saved up. When that time comes, you’ll want to be careful about how you pull value from your assets.

You may want to work with a financial planner during retirement to ensure that you’re keeping your tax burden low and maintaining the best financial position possible while you withdraw money. There are limits to how much you can draw from tax-sheltered accounts like IRAs and 401(k)s, and short-term stock gains are taxed at a higher rate than long-term investments when they are cashed in.

If you’re running low on cash from traditional investments, you may need to turn to your physical assets to make ends meet. Fortunately, the world of finance has ways for you to turn your possessions into cash. A reverse mortgage, for instance, will allow you to draw money out of your home’s worth (eventually, you or your heirs will have to pay back the money or give up the house). A reverse mortgage can allow a person to enjoy their home for years while also using its worth for day-to-day expenses.

It is assets like your home and investments in your portfolio that will sustain you in retirement – not salaries or bonuses. So take care to save and create wealth in your working years, and team up with experts in your golden years to make sure that you’re making the best use of government programs, reverse mortgages, and other financial tools that can make your retirement easier and better.

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