Social security benefits provide an important source of Supplementing social security income for millions of Americans. However, for many people, social security alone does not provide enough money to cover all expenses in retirement. With the average monthly social security benefit around $1,500, most retirees need additional income streams to maintain their standard of living (1).
Fortunately, there are several strategies you can use to Supplementing social security income and generate extra retirement funds. This article outlines key options to consider boosting your retirement savings.
Why supplementing social security is important
There are several reasons why supplementing social security is critical for many retirees:
- Social security replaces only about 40% of pre-retirement income (2). This makes it difficult to maintain your previous lifestyle without other income sources.
- Social security benefits lose buying power over time due to inflation. Cost of living adjustments do not fully keep pace with rising prices.
- Americans are living longer in retirement. Average life expectancy after age 65 is around 20 years (3). You need to fund a longer time in retirement.
- Healthcare costs continue rising. Even with Medicare, out-of-pocket medical expenses can take up a significant portion of retirement budgets.
- Social security faces long-term funding challenges. While not in imminent danger, benefits could be reduced in the future without reforms.
Supplementing social security income provides a buffer against these risks and ensures you have adequate income during your retirement years.
Ways to supplement social security
Here are some of the best ways to generate additional retirement income beyond social security:
One of the simplest ways to add money to your retirement funds is to work part-time during your retirement years. Many retirees get part-time jobs to stay active and engaged while also earning extra income. Some popular part-time jobs for retirees include consulting, freelancing, retail work and food service. Even working just 10 to 15 hours per week can make a significant difference.
The income you earn will Supplementing social security income benefits and any withdrawals you take from retirement accounts. You may also have the option to delay claiming social security until age 70, allowing you to earn delayed retirement credits and permanently increase your benefit amount.
Build up your retirement savings
Retirement accounts like 401(k)s and IRAs are crucial vehicles for supplementing social security. These accounts grow tax-deferred and compound over time with investment earnings. Make sure you maximize contributions to retirement accounts during your working years.
In 2023, you can contribute up to $22,500 to a 401(k) and $6,500 to an IRA (4). Catch-up contributions allow those 50 and older to save even more in their retirement accounts. If you have the means, max out contributions to rapidly build your nest egg.
You can also withdraw money from tax-advantaged retirement accounts to Supplementing social security income in retirement. Following a prudent withdrawal strategy allows you to tap this source of lifetime income.
Invest in dividend stocks
Dividend-paying stocks can create steady income to supplement your social security benefits. Many stocks distribute dividend payments on a quarterly basis that you can use for living expenses. Building a portfolio of dividend stocks provides recurring cash flow without having to sell any shares.
Focus on stocks with consistent dividend growth that can provide rising income over time. Some great sectors to target include healthcare, utilities, real estate and consumer staples. With dividend reinvestment, you can accumulate more shares and greater dividend income.
Consider fixed annuities
For retirees wanting guaranteed lifetime income beyond social security, fixed annuities are worth considering. These insurance products allow you to deposit a lump sum of cash upfront in exchange for regular monthly payments lasting for life. Payments can start immediately or be deferred until later.
Annuity income can cover essential expenses in retirement that your social security does not meet. These products provide protection against market volatility and outliving savings as they generate income you cannot outlive. Fixed annuities often include death benefit provisions as well. Be sure to shop around and compare options from various insurers.
Generate rental income
Owning investment property you can rent out is a great way to produce income outside of social security in retirement. The rental payments received can supplement your retirement budget and help cover living costs. Owning rentals can also provide diversification for your overall nest egg.
To start earning rental income, purchase properties in desirable locations that you can market to long-term tenants. It is smart to own rental property free and clear so you keep all of the rental income. Consider hiring a property manager to handle maintenance, repairs and tenant screening. The passive income from rentals can help fund your retirement dreams.
Make a retirement income plan
With many options to supplement social security, it is essential to make a comprehensive retirement income plan. A detailed plan will analyze your expected retirement expenses, guaranteed income like social security and pensions, and how much additional income you require from your savings and other sources.
Work with a financial planner to run projections and determine the best mix of income sources to cover all needs in retirement, including essentials, discretionary spending and emergency funds. They can help you organize investments, retirement accounts and insurance products to generate sustainable income alongside your Supplementing social security income..
Creating multiple income streams to supplement social security provides the security of knowing your retirement expenses are covered. Paying close attention to your retirement income sources allows you to maximize your standard of living in retirement.