3 unexpected sources of retirement income

Retirement is expensive and becoming more so all the time. Meanwhile, fewer jobs are offering pensions to help cover retirement costs, and some are even canceling 401(k) matching temporarily due to the strain this latest recession places on their finances. Some workers are also struggling to set aside money for their futures right now, and that can amplify concerns about financial security in retirement.

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If your low 401(k) balance triggers anxiety every time you look at it, I have good news. You may be able to count on income from some unexpected sources in retirement to help you cover the difference between what you've saved on your own and what you need. Here are three you should look into.

1. Health savings account (HSA) funds

You're probably familiar with health savings accounts (HSAs) if you have a high-deductible health insurance plan -- one with a deductible of at least $1,400 for an individual or $2,800 for a family. Money you put into this account reduces your taxable income this year, and if you use the money for medical expenses, you won't owe any taxes on it at all. What most people don't realize is that it's also a great place to stash your retirement savings.

Normally, you can withdraw money for non-medical expenses, but you'll pay taxes on it plus a 20% penalty. But once you turn 65, this penalty goes away and your HSA becomes similar to a traditional IRA, with two key differences. The money is still tax-free if you use it for medical expenses, and you don't have to take required minimum distributions (RMDs) from your HSA once you turn 72, so you can leave the money in your HSA as long as you'd like.

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Only those with high-deductible health insurance plans may contribute to an HSA. In 2020, individuals may set aside up to $3,550 in an HSA and families may set aside up to $7,100. Adults 55 and older may add another $1,000 to these limits. Some HSA providers enable you to invest your funds, and this can help your savings grow more quickly.

Consider stashing some of your extra cash here if you want to save for your future but are worried about locking up all of your funds where you can't access them without penalty. You can still call upon your HSA to help you in a medical emergency, but if this doesn't happen, the money will just help you be more prepared for your retirement.

2. Side hustle

Working a side hustle in retirement may not feel like retirement to some people, but there are so many different ways to earn extra cash these days and many don't require much effort. Those with extra properties can rent them out to long-term renters or to travelers just passing through the area. It's also possible to rent out your parking space or vehicle these days if you don't use them that often.

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If you're creative, you could try selling your own photography or artwork, writing and self-publishing books, or doing small commissioned pieces for family and friends. Or you could share your expertise on any topic that interests you by blogging, creating an online course, or teaching local classes.

Think about what interests you the most and how you might turn your talents into money-making opportunities. The best part about a side hustle is that you can decide how much or how little you'd like to do and how much you want to charge, so you have a lot of say in how much you make from your side hustle.

You can't forget about taxes, though. Side hustles usually don't come with regular paychecks, but you still owe the government its cut. Set up a separate savings account where you can keep your tax funds so you don't accidentally spend them. If you've had your side hustle in previous years, your latest tax return should tell you how much you need to pay in quarterly, or you can use this form to estimate what you'll owe. Don't forget about state income tax as well.

3. Social Security

Some of you may think Social Security doesn't belong on this list, but there are still people who are under the impression that Social Security is going to disappear shortly and won't be around for them when they retire. Fortunately, that's not true. If you've worked at least 10 years, you will most likely qualify for some sort of Social Security benefit, though it might be a smaller benefit than you'd hoped for.

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The latest Social Security Trustees Report indicated that Social Security's trust funds would be depleted by 2035 if the government made no changes to the program. The COVID-19 pandemic and subsequent recession could accelerate this deadline, but in either case, Social Security won't disappear. The Trustees Report predicts that Social Security could still pay out 76% of scheduled benefits until 2090.

The government could also make changes to the program going forward to help keep it sustainable for generations to come. Proposed ideas include raising the full retirement age, raising the Social Security tax rate, cutting benefits, and reducing cost-of-living adjustments (COLAs). Some of these solutions could result in Social Security covering less in the future, but it's not going away any time soon.

You will always need substantial personal retirement savings to cover your living expenses, but you may be able to count on money from some of these other sources as well. Consider opening an HSA if you're eligible for one and think about which, if any, side hustles would interest you in retirement. You should also make sure you work for at least 10 years, and preferably longer, so you're eligible for Social Security when you're older.

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