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4 Ways I Will Supplement Social Security -- And You Can Too

By Diane Mtetwa - Updated Jun 9, 2021 at 11:29AM

Key Points

  • 40% of working income comes from Social Security.
  • Long term investing is key, but continue to diversify but consider interest-paying bonds.
  • Timing your withdrawal of funds and watching your expenses are just as important, and even part time work in retirement can be a good option.

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Social Security probably won't be enough for me in retirement. Here's what I'm doing about it.

For the average person, Social Security will make up about 40% of their working income. But if you are a higher-wage earner, it could make up even less. 

And avoiding living on a fixed income could come down to how well you've prepared in advance for retirement. There are some things that can get you the highest possible payment from Social Security, but it still may not be enough. And if that happens to me, here's how I'll supplement it.

Calculator on top of a Social Security card on top of a bank statement.

Image source: Getty Images.

Generate it from investment income

Because I have at least 20 years until I retire, my current primary investment objective is accumulating wealth. And as a result, my accounts have more aggressive securities and I have very few income-producing holdings. But as I get older, my risk tolerance could change and my need for investment income could increase.

In general as you near using your money, making your accounts more conservative so that losses are limited in the event of a bear market could be warranted. This could be accomplished by moving some of your stock holdings to bonds that will pay interest. Or by transitioning growth stocks to more stable dividend-paying stocks. 

Withdraw it from my retirement assets

I have been contributing to a retirement account like a 401(k) or IRA for over 15 years now. And my contributions, combined with stock market appreciation, have helped these accounts grow. But if I plan on using them as supplemental income, I should have a plan for exactly how much I will need. Studies have shown that with an asset allocation model that consists of 60% stocks and 40% bonds, taking no more than 4% of your account value can help you avoid running out of money. 

Knowing this, I can work toward saving enough with the remaining years that I have until I retire. If I know that I will need about $12,000 from my accounts in my first year of retirement, I would need a beginning balance of $300,000. If I currently have $150,000 and 20 years until I retire, a contribution of $3,000 annually to my accounts, earning an average rate of return of 8% could get me there. 

The higher the average rate of return that you earn and the more time you have until you need your money, the less you need each year in contributions. While if you have fewer years or a more conservative rate of return, reaching it will require higher additions from you. 

Reduce my expenses

It's possible that I will live the same lifestyle in retirement as I do now, but realistically, I will probably lower my expenses. And by how much will determine how much extra income gets generated outside of Social Security. If I can't make as much money from my investments or meet my retirement savings goals as well as I thought I would, my expenses may get cut by more than if I end up with excess income. 

Lowering essential bills like a mortgage or car note could make it so that your biggest expenses in retirement are discretionary ones. And paying all of your bills isn't as stressful because you're spending your money on wants instead of needs. If this is impossible, eliminating or lowering discretionary expenses can still be very helpful. The fewer of these types of bills that you have, the more of your guaranteed income sources can go toward the important ones. And you can set the budget for things like travel or dining out each month or year based on the other income sources that you've created. 

Earn income working part-time

It's possible that even after reducing my expenses and creating income sources that I have a deficit; and the money that comes in every month is not as much as the money that goes out. 

If this is the case, I can consider working part-time. Working in retirement may seem like a worst-case scenario but it shouldn't be. Instead, it can be thought of as a time when you can keep busy while earning income. And if you give it some thought beforehand, you can even find work doing something that you've always loved or always wanted to try but couldn't because your full-time work was always your primary source of income. 

Retirement is a huge accomplishment that many people look forward to. And avoiding living on a fixed Social Security income will require planning in advance for what your income streams could be. The sooner you do this, the more achieving this major milestone in the way you want is in your control.

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