It's an unfortunate but well-known fact that a large number of Americans aren't prepared financially for retirement. According to recent date from the Economic Policy Institute, the average retirement savings across all American families is $95,776. But that's just the average, and because a handful of good savers can pull up that number, it's important to also look at the median savings balance among Americans. That figure -- $5,000 -- paints a much bleaker picture.
Whether you're entering retirement with limited savings or want to stretch your nest egg as far as possible, it's always good to have options for generating extra income during your golden years. Here are five ways you can make that happen.
1. Hold off on Social Security
Once you reach your full Social Security retirement age (which, for today's older workers, is 66, 67, or somewhere in between), you'll be eligible to collect your full benefit amount, which is determined based on how much you earned during your top working years. However, if you hold off on taking those benefits for a few years, you can boost them automatically. Specifically, you'll get an 8% increase for every year you delay your benefits up until you reach age 70, at which point the incentive runs out.
Imagine your full retirement age is 66, at which point you'd be eligible to collect $1,500 a month in benefits. If you wait until 70 to claim Social Security, you'll increase your monthly payments to $1,980. Better yet, that increase will remain in effect for the rest of your life.
2. Keep some dividend stocks in your portfolio
While retirees are generally advised to move away from stocks because of the risks involved, you shouldn't liquidate your stock positions completely. In fact, if you have dividend stocks in your portfolio that have been consistently performing well, hanging onto them is a good way to bring in additional income in retirement. Furthermore, if you decide to reinvest those dividends, you stand to earn even more money over time.
3. Collect bond interest
While bonds typically offer lower returns than stocks, they're also a safer bet for retirees who don't have time to ride out the stock market's ups and downs. If you load up your portfolio with bonds, you'll get to collect regular interest payments that could serve as a nice source of additional retirement income. And if you invest in municipal bonds, which are those issued by cities, townships, or states, you'll get to collect those interest payments without having to worry about federal taxes. Furthermore, if you buy bonds issued by your home state, your interest payments will be exempt from state and local taxes as well.
4. Start a business
It probably goes without saying that working part-time in retirement is a good way to make extra money. But there's no need to resign yourself to doing something you don't like just to earn a few additional bucks. If there's a hobby you enjoy that you can turn into a business, it pays to take the plunge.
According to research from the Institute of Economic Affairs, retirement increases the probability of falling victim to clinical depression or a physical illness by roughly 40% and 60%, respectively. Starting a business, on the other hand, can help keep your mind engaged and serve as a social outlet of sorts. In addition to helping you generate extra income, it's a good way to occupy some of your newfound free time.
5. Become a landlord
Many seniors downsize because they find they no longer need as much space once their children have grown and moved out. But if you're hanging onto a larger home for logistical or emotional reasons, you can capitalize on those extra rooms by finding tenants and renting them out. This especially works if you happen to live near a city or college town where housing is high in demand. If you're able to rent out your basement for $850 a month, you'll pocket an extra $10,200 a year without having to give up the home you've come to enjoy.
Once you're retired, you'll need all the income you can get. But if you're smart about Social Security, retain the right investments, and get a little creative, you could set yourself up for a financially secure retirement without having to make too many sacrifices along the way.