If you’re looking to generate extra income during retirement, you might want to explore ways to make your hobby into a more profitable venture. After all, hobbies are the activities that, in most cases, you’d happily do for free. And pursuing a hobby-related business can make for a relatively smooth second-act transition since you likely have many of the skills, expertise and personal connections needed for success.
Thanks in large part to advances in technology, the possibilities for monetizing your hobby—both locally and online — have never been better. So, if you’re eager to turn your hobbies into retirement cash, here are six winning strategies to consider.
1. Teach Your Hobby
Whether you’re a skilled photographer, an experienced chef or a talented musician, there’s a good chance that others will pay you to teach them what you do so well. There are lots of ways to share your expertise. For example, you can set up shop in your home — just like your neighborhood piano teacher — or teach at a local adult education program or school. Alternatively, you could aim to reach a broader audience and create your own online courses and deliver them using an online instructional platform like Udemy.com or Pathwright.com.
2. Sell Your Products Online
Thanks to the proliferation of online marketplaces, the options for selling your products online have improved dramatically. Etsy is probably the best-known marketplace for artisans and crafters, but there are plenty of other smaller sites you might want to consider like ArtFire.com, Zibbet.com and HandmadeArtists.com.
3. Write About Your Hobby
Hobbyists enjoy reading books, magazines and how-to articles about their passions. So, if you love to write, there might be a way to profit from writing about your hobby. You can search for freelance writing assignments on sites like MediaBistro.com, FlexJobs.com or VirtualVocations.com.
Another option is to start your own hobby-related blog. While it will take time to build up a significant fan base, once you do, you can monetize your site through advertising, sponsorships or by selling your own digital information products—like e-books, downloadable tool kits, worksheets and more.
4. Create New Products Related to Your Hobby
Every hobby comes with its own set of specialized clothing, accessories, gear or gadgets. Hobbyists tend to be willing to buy products related to their hobby, so if you can craft, invent, or import an accessory for your hobby, you might be able to build a profitable income stream to supplement your retirement.
5. Find a Part-Time Job Related to Your Hobby
From the baseball enthusiast who gets paid to write about spring training for his local paper to the theater lover who works as an usher at the local arts center, finding a hobby-related job is a wonderful way to blend work and fun. Think about the places you’d happily spend time at for free—a ballpark, bookstore or gardening center—and see if they have any part-time job openings.
You might also find seasonal work at places like resorts, parks or tourist attractions.
An excellent resource for sourcing and learning about seasonal jobs is CoolWorks.com.
You worked hard to put money away for retirement, so it is important that you understand the various strategies available to you to make sure you maximize that savings by minimizing taxes and avoiding penalties. Here are several tips to maximize your retirement savings:
Avoid early withdrawal penalties. Over and above the income tax due on your withdrawals, you must wait until age 59 ½ before tapping your retirement savings to avoid the 10% early withdrawal penalty. However, you can take penalty-free 401(k) withdrawals beginning at age 55 if you leave the job associated with that 401(k) account at age 55 or later.
Roll over your 401(k) when changing jobs. If you withdraw money from your 401(k) when you change jobs, 20 percent will be withheld for income tax, as well as paying a penalty for early withdrawals. The mechanism to avoid these costs is to roll over your 401(k) into either a new 401(k) or an IRA.
Mixing your types of retirement accounts. If you qualify for a Roth IRA, these accounts have a variety of benefits a traditional IRA does not, including more flexibility on penalty-free withdrawals and no required minimum distributions. However the biggest difference between the two types of accounts is how they are taxed. IRAs are tax-deferred, so they provide you with an immediate tax benefit, but you must pay taxes when you withdraw the money during retirement. Roth IRA accounts require paying taxes when you deposit the savings, but that means you don’t pay taxes on them during retirement. Diversifying your money in a traditional IRA as well as a Roth IRA will allow you to moderate your tax burden during retirement. Also, if you expect to be in a higher tax bracket during retirement, maximizing your retirement funds in a Roth account will allow you to lock in today’s low tax rate.
Understanding minimum distribution. You are required to withdraw money from your traditional 401(k) and IRA after age 70 1/2. If you miss a required withdrawal, you must pay a 50 percent penalty on the amount that should have been withdrawn. Make sure you mark your calendar for that cutoff date and make arrangements with your financial institution to remind you automatically about your required distribution.
Understanding the rules on your first distribution. Your first required minimum distribution is due by April 1 of the year after you turn 70 ½. All subsequent distributions must be taken by Dec. 31 each year. If you delay your first distribution until the same tax year as your second distribution, you will be required to take both distributions in the same tax year, which could result in an unusually high tax bill.
Start withdrawals in your 60s. While you must begin traditional retirement account withdrawals at age 70 ½, you can lower your tax burden by take smaller distributions starting at age 59 ½, which can spread the tax bill over more years, potentially allowing you to stay in a lower tax bracket and reducing your lifetime tax bill. Check with your financial advisor to find out if this option would make sense for you.
Calculate your tax burden with added Social Security or Pension Benefits. If you’re going to be receiving Social Security benefits or regular payouts from a pension, it’s important to incorporate them when planning your withdrawal strategy. Even if you’re receiving a relatively small amount each month from these sources, the extra income may increase your tax burden.
Keep tax-preferred investments outside retirement accounts. Investments that generate long-term capital gains receive preferential tax treatment when held outside of a retirement account. However, if you put them in a retirement account, you will pay your typically higher regular income tax rate when you withdraw the money from the account. In contrast, you can lower your tax bill by holding more highly taxed investments, including Treasury inflation-protected securities, corporate and government bonds and funds that generate short-term capital gains, inside retirement accounts.
By Caren Parnes
While most economic experts agree that the fundamentals of the economy are sound, many market watchers are beginning to ask the question: Is this Bull coming to an end? 2018 was a year of uncertainty, and most financial advisors are recommending investors revisit their portfolios with at least an eye to rebalancing. Here are some suggestions for weathering a potential downturn in the market.
Know that you have the resources to weather a crisis. If you’re retired, knowing that you have the next couple years’ worth of living expenses in a bank account—and several more years in bonds that mature when you need the money—can help keep you calm and clear-headed. You might think you are risk tolerant, but if you haven’t structured your investments to handle a sharp drop, your financial capacity to handle risk may change your attitude when the market does drop.
Match your money to your goals. Map out a plan that takes into account what you’re saving for, whether near-term expenses or future financial goals like retirement. Structure your portfolio to match those goals. Money that you’ll need in the short term or that you can’t afford to lose—the down payment on a home, for example—is best invested in relatively stable assets, such as money market funds, certificates of deposit (CDs) or Treasury bills. Goals that need funding in three to five years should be addressed with a mixture of investment-grade bonds and CDs. For money you won’t need for five or more years, consider assets with the potential to grow, such as stocks, which are more volatile. Your allocation should also account for your time horizon and risk tolerance.
Remember: Downturns don’t last. The Schwab Center for Financial Research looked at both bull and bear markets in the S&P 500 going back to the late ’60s and found that the average bull ran for more than four years, delivering an average return of nearly 140%. The average bear market lasted a little longer than a year, delivering an average loss of 34.7%. The longest of the bears was a little more than two years—and was followed by a nearly five-year bull run. No bull market endures forever, but neither does a bear. And historically the market’s upward movement has prevailed over the declines.
Keep your portfolio diversified. Let’s say there is a slump—what is the best way to insulate against losses? Being well diversified is a preventive measure you can take now. Being diversified means you have a wide variety of investment grade bonds—corporate, municipals, Treasuries and possibly foreign issues. And they should have varying maturity dates, from short-term to mid-term, so you always have some bonds maturing and providing you with either income or money to reinvest. Your long-term assets should be divvied up among a wide array of domestic stocks—big and small, fast-growing and dividend-paying—as well as international stocks, real estate investment trusts (REITs) and commodities. This mix of assets gives you enough diversity that it provides a cushion in your portfolio if specific parts of the market are taking a hit so your exposure in a downturn is lessened.
Include cash in your portfolio. Cash in your portfolio offers protection against volatility, and cash reserves can come in handy in down markets. With cash you can buy in when prices are attractively low—without having to sell securities at a loss, if they are also at a low point.
Find an expert you can count on. If you’re not sure how to structure your portfolio correctly, or you think you’d be tempted to do something rash in a market slide, you should find a financial professional you trust to collaborate with you. That person can walk you through a complete portfolio review and help prepare you and your portfolio for times when the market gets tough.
By Caren Parnes