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Reverse Mortgages: What are the most common sources of retirement income?

According to a 2019 survey conducted by Northwestern Mutual, 22% of senior US citizens only had about $5,000 as savings for retirement. A further 15% barely had any savings, while 45% believed they would outlive their savings in retirement.

Such shocking statistics reveal that the retirement crisis in which retirees have little cash to meet daily expenses is still a reality.

However, retirement is an end to steady formal income. So, as you transition from formal employment, you should have alternative income sources to keep you going.

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Whether you opt for social security, home equity, or sponsored savings accounts, knowing your sources of income is key to sound financial management.

Here, we explore the three baskets of retirement income that most senior citizens rely on.

First, let us draw inspiration from a farmer’s model;

A farmer has one cow from where he gets three buckets of milk every day. After milking, he carries all three buckets to the dairy in return for cash. All the milk comes from the same cow, so they have the same value. Although the buckets differ, they have the same content and will attract the same payment to the farmer.

Similarly, we can divide our retirement income into three buckets and use the farmer’s model for better understanding.

Monthly Income

The first milk bucket represents a regular monthly income. These include pension schemes, part-time wages, continued employment, and social security.


Some Americans opt to continue working in gainful employment after 65 years. As a result, income from wages makes 26% of senior citizens’ earnings.

Among citizens aged 65-69, 41% of their income originates from employment. Therefore, employment is the most common income source for senior citizens.


Dwindling pension schemes are among the significant contributors to the retirement crisis. Currently, only 24% of Americans expect to have a pension after retirement, down from 31% who had a pension in 2019.

Despite the dwindling pension, the lucky few still rely on pension and annuities as a reliable source of income.

Before retirement, be sure to check with your human resource officer how much you’ll get in pension. Your pension earnings depend on your earnings, how long you were at the organization, and your retirement age.

Social Security

Social security is the single largest source of income among retirees. Currently, 89% of American retirees aged 65 or more receive social security. Shockingly, there is an increase in dependence on social security funds among older people, contributing to the wide retirement crisis.

Social security benefits depend on your earnings throughout your career and the retirement age. When applying for your benefits, you have various options. You can take 75% of your benefits at 62 or wait until you qualify for full benefits at 66.

You can also delay your first payment to get a larger payment. Most financial experts recommend waiting for full benefits or postponing it for a larger share.

If you both qualify as a couple, then you’ll have a tough choice of withdrawing from individual accounts or one of you withdrawing joint spousal benefits.

Nest Egg

The second bucket is a collection of retirement savings, popularly known as the ‘nest egg.’ Here, you’ll have a lump sum of gold coins, change jars, savings accounts, CDs, IRAs, and contribution plans such as 403(b)s and 401(k)s.

Although it is hard to determine the income value of the retirement savings bucket, it often gives you a substantial income when required. You can earn interests, dividends, or cash out the principal investment.

However, most retirees live in constant fear of outliving this critical bucket.

Contribution Plans - Defined contribution plans allow you to invest a portion of your income into savings for use when you retire. Unlike pension schemes, contribution plans depend solely on your input and how long you’ve contributed to the plan. Standard-sponsored plans include 401(k)s, 403 (b)s, and employee pension IRAs.

Home Equity

The third bucket represents passive income held in home equity, real estate, and other property. Home equity is a potential source of income for retirement. It acts as a security when you require a reverse mortgage in your retirement.

If you have substantial home equity, you can sell the home and use a portion of the proceeds to support your retirement expenses.

The best thing about it is that you get tax-free profits up to $500,000. You can then downsize to a cheaper, smaller home using the remaining proceeds.

Monthly Income, Nest Egg, and Home Equity: Are They the Same?

Retirement means a change in regular monthly income from formal employment or enterprise. The bottom line is to have enough savings and alternative sources of income for survival.

Like three buckets from the same cow, all sources of income have actual costs and opportunity costs. It all depends on how you manage your cash flow.

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