It's tough to work with insufficient resources. If you don't put enough gas in the car, you may have to walk home. If you don't drink enough water, you get dizzy and dehydrated. And if you don't have enough income to cover your living expenses, you could rack up expensive debt that constrains your cash flow even more.
Living on too little income is hard enough when you're working, but it's basically unsustainable in retirement. Too many Americans are feeling this pressure. Studies confirm that many pre-retirees don't have enough savings to support a comfortable retirement. And while Social Security might help, most savers know it's not designed to be a sole source of income. According to a survey from Schroder Investment Management, 67% of respondents did not believe their monthly Social Security benefit would be enough to live on.
Of course, knowing that Social Security won't be enough and being able to address it are two different things. If you're already close to retirement, for example, it's not realistic to save up $1 million really fast to supplement your Social Security benefit. Instead, you'll have to be resourceful about your income streams to make the situation work as best you can. Here are four income options to consider in your retirement years.
1. Savings distributions
You might not have a huge savings balance, but you might not need one, either. Financial experts say you'll need about 80% of your working income to maintain your lifestyle in retirement. Social Security benefits typically cover about 40% of your income, which means you're already halfway there. Some rough calculations can show if you have enough savings to cover the other 40%.
First, figure out what your Social Security benefit is at full retirement age. You can find this on your annual Social Security statement or by creating an online account at My Social Security. If your monthly benefit is roughly 40% of your working income, it's also the same amount you'd need monthly from your savings, since that gets you to the target income replacement of 80%.
Take your Social Security benefit and multiply it by 12. This represents the distribution you'd want to take from savings in that first year. Now, divide your answer by 0.04. Here, we're using the 4% rule in reverse. This rule states that you can safely withdraw 4% of your retirement portfolio in the first year after you leave the workforce. Normally, you'd multiply your portfolio balance by 4% to identify a safe withdrawal amount. We know your annual withdrawal, so we'll divide that number by 4% to calculate your target portfolio balance.
In 2019, the average Social Security benefit was $1,422 monthly. Let's use that number to show how this math works. If you want to withdraw $1,422 monthly from your savings, that equates to annual withdrawals of $17,064. Divide $17,064 by 4% and you get a starting savings balance of $426,600. That's not chump change, but it's not the oft-quoted $1 million retirement savings target, either.
2. Passive income
Most of us will face health problems in our later years that affect our ability to work. That's why passive income is so appealing for retirees: The money just keeps rolling in, no matter what.
Typical sources of passive income include dividends, real estate and rental income, and business income. Unfortunately, these mostly require cash investment up front, which is the very thing you don't have. Granted, a business venture that takes off could easily out-earn a stock market investment, but you also run the risk of losing all of your money.
In this digital age, however, you can also generate passive income in less traditional ways and with considerably less risk. Some options include renting out a room in your home on Airbnb, renting your garage on JustPark, or renting your unused basement or attic as storage space on Storemates. You could also start a blog or sell your photography to a stock photo website like Shutterstock.
3. Part-time work
If you're comfortable working with technology, a remote part-time job could be the right option in your earlier retirement years. Try job sites like FlexJobs and We Work Remotely for remote customer service roles, teaching and tutoring jobs, data entry positions, bookkeeping opportunities, and more.
4. Gig work
A part-time job should provide a steady paycheck but comes with the responsibility of working regular hours. If you'd prefer to set your own schedule, you could supplement your retirement income with gig work instead. By definition, gig work is flexible. You decide what projects to accept and you choose when to complete them.
Fiverr and Upwork are two popular gig work websites, where you can promote your skills as a freelance writer, graphic designer, quality assurance specialist, accountant, computer programmer, and more. You could also outsource your skills as a handyman, mover, housekeeper, delivery service, or personal assistant on TaskRabbit or Thumbtack.
Get creative to generate income
Social Security is your retirement safety net, but it doesn't get the job done by itself. If your savings don't fill the income gap, get creative about generating income, either through assets you already own or skills you have. It may not be the retirement you dreamed of, but it's better than skipping a mortgage payment or reaching for credit cards when the budget doesn't balance.