Many people expect that their living costs will go down after they retire, and are shocked to discover that their golden years are more expensive than they'd anticipated. In fact, the average retired household in the U.S. spends $46,000 a year, which is roughly $10,000 less than the average yearly outlay of all U.S. households, but a lot of money nonetheless.

When we think about the various things seniors spend money on, that figure makes sense. It's estimated that the average 65-year-old couple retiring today will rack up $285,000 in healthcare costs throughout their retirement years when factoring in Medicare premiums, deductibles, copays, and other out-of-pocket expenses. Throw in essentials like housing, transportation, food, utilities, and clothing, and it's pretty clear that seniors will need all the retirement income they can get.

Older man and woman seated on a couch, looking at documents


Most seniors' primary retirement income streams consist of Social Security benefits, withdrawals from an IRA or 401(k), and pension payments, where applicable. Now, given that Social Security is the largest income source for more than half of retirees, and it's only meant to replace about 40% of the average worker's pre-retirement earnings, those who are relying on it heavily will often fall short when it comes to meeting their needs. But depending on what your expenses look like, even Social Security coupled with a reasonable investment portfolio or a pension may not be enough. If you're having a hard time making ends meet -- or looking ahead toward a future in which you might -- here are eight things you can do to supplement your retirement income.

1. Get a job

Many people think of retirement as a period of life in which working isn't an option. In reality, it's a great time to get a job, and not just from a financial perspective. Many seniors struggle with boredom, especially those who go from full-time employment to an endless series of unstructured days. Working during retirement is therefore not only a great way to generate extra income, but also to keep yourself occupied on the cheap.

There are several avenues you can take if you're looking to get a job in retirement. If you enjoyed the career you left behind, look into consulting in your former field. Your old employer might be willing to hire you on a contract basis, and if not, you can reach out to your network of contacts and see if anyone has a need for a consultant.

If consulting in your former field isn't an option, or it's just not something you're eager to do, you can try working for a local business instead, whether on a year-round or seasonal basis. And if you'd rather take a job with more flexibility, look into something you can do on your own terms, whether it's editing web content from home or signing up to drive for a rideshare company. Keep in mind that if you do get a job that requires you to report to a specific location on a regular basis, it could serve as a nice social outlet as well as a means of staying physically active -- so don't write off the idea of going into an office again until you give it a chance.

2. Start a business

If the idea of having to report to someone else or follow another company's rules doesn't appeal to you as a retiree, but you're looking to supplement your current income, you can start your own business instead. That way, you'll get to work on your own terms, and it could be an opportunity to embark on a venture that's long appealed to you.

For example, if you've always wanted to know what it would be like to own a bakery or cafe, now's your chance. Similarly, if you love animals but couldn't exactly give up your former salary to groom dogs for a living, you can see about doing it now. And, of course, there's always the option to open a consulting business that plays on your former work skills.

Even if you're not looking to officially register a business or open a physical storefront, you can still aim to monetize hobbies you enjoy. These might include:

  • Crafting
  • Gardening
  • Cooking
  • Photography
  • Art
  • Creative writing

The great part about turning a hobby into an income stream is that it won't actually feel like work. Talk about a win-win.

3. Sell your home

If you're a homeowner, you're probably sitting on a sizable asset -- especially if your property's mortgage is already paid off. If you're willing to sell your home and move someplace cheaper, you can pocket the proceeds and use that money when you need it or invest it (which we'll talk about below).

Imagine you can sell your home for $300,000 and buy something smaller or in a less-pricey locale for $200,000. That frees up $100,000 to be distributed as needed between your investment portfolio, your bank accounts, and your bills. Obviously, that's an oversimplification, and there are certainly expenses involved in moving that you'll want to factor into your decisions. But even so, it can be a smart move. Furthermore, if you wind up downsizing to a smaller living space, you probably won't have room for all of your furniture and belongings. That gives you an opportunity to sell some of those items and pick up a bit more cash.

4. Become a landlord

Owning a home in retirement offers you the option of turning it into an income stream, provided you're willing to become a landlord in some capacity. In this regard, you have options. You could find yourself a full-time tenant and collect rental income year-round, or you could rent out your home seasonally. The former option is, of course, more viable if you have an area of your home that can be closed off from the rest, like a finished basement or a garage with its own entrance.

If you don't want to take on a full-time tenant, you can look into renting your home on occasion. Sites like HomeAway, VRBO, and Airbnb make it easy to attract seasonal tenants, and while you will pay a fee for using one of these services, they are excellent tools with which to find renters that won't require you to invest too much time or money into advertising.

One great thing about renting out your home on a limited basis is that if you do so for 14 days or less in a calendar year, you won't be required to pay the IRS taxes on your rental income. If you do rent your property for longer, the IRS takes a cut of your proceeds (though you will be eligible to deduct certain expenses related to that rental income, like mortgage interest, property taxes, and home repairs).

To qualify for the aforementioned 14-day tax break, you must also use the home in question yourself for 14 days or more of the year, or for at least 10% of the total days you rent it out. Also, the 14-day rule applies whether you're renting out your entire property or just a single room in your home.

5. Get a reverse mortgage

If you need to add to your retirement income and you own your home, a reverse mortgage could be your ticket to extra cash. Keep in mind, however, that there are drawbacks involved, and often, this is a last-resort option for seniors in need.

We're all familiar with the concept of a regular mortgage: You borrow a chunk of money from a lender to buy a home, then repay a set amount every month until the loan is retired and you own your home outright. With a reverse mortgage, a bank pays you a certain amount of money each month, depending on the value of your home. You're not selling your home, though -- you get to continue living in it while getting those payments. In exchange, however, the bank making those payments gets more and more equity in your home. It's a loan, but one you won't need to repay until you die, sell your home, or vacate your home for more than a year. 

To qualify for a reverse mortgage, you need to be at least 62 years of age, and your home must conform to certain standards as established by the U.S. Department of Housing and Urban Development. Also, you'll need to have a certain amount of equity in your home to make this arrangement appealing for a bank.

A reverse mortgage might seem like a good deal at first, since it allows you to collect income while also getting to remain in your home. And also, those payments aren't taxable. But it's far from a perfect arrangement. Not only are there costs involved in setting up a reverse mortgage, but you also may not get as much money from your bank as you'd hope, depending on circumstances such as the value of your home, your age, and your life expectancy. Also, you'll still be responsible for maintaining your home and paying property taxes on it -- the bank you work with won't take over that burden.

Furthermore, as mentioned above, when you die, the loan comes due. If your estate can't settle the balance in other ways, your heirs may need to sell your property to satisfy that debt. Therefore, while a reverse mortgage is certainly a viable option for supplementing your retirement income, you should be clear on the disadvantages involved, too.

6. Cash out your life insurance policy

If you have permanent life insurance -- the most common variant of which is called "whole life" -- your policy will accumulate a cash value over time. (That's in contrast to term life insurance, which is much less expensive for the same size payout, but provides coverage only for a specified number of years. If you outlive that period, your return on the premiums you've paid is zero -- except for the years of peace of mind it provided.)

You generally have the option to cash out either a portion of that whole life policy's cash balance, or even the entire balance, anytime you need money.

The downside of going that route is that, as with any investment-type account, the more of your cash value you remove, the lower your returns on it will be. If you continue to simply pay your high premiums regularly, at a certain point, the returns from your cash balance should be sufficient to cover the premiums for you. At that point, you could stop paying and keep your coverage. Or, you could continue delivering your premiums, and keep building up the policy's cash value.

From a tax perspective, cashing out a life insurance policy may not hurt you. Cash-outs are usually tax-free up to the amount you paid in. In other words, if you paid $200,000 in premiums over time and withdraw $200,000 from your cash value, the IRS won't come after you for taxes.

7. Invest in dividend stocks

You may have heard that it's not a good idea to load up on stocks during retirement, because they can be volatile, and are best viewed as long-term investments. But if you're willing to put some cash into dividend stocks and keep it tucked away for a reasonable time frame (generally seven years or longer), you could wind up boosting your income substantially, even if the market heads lower.

A dividend stock pays shareholders a portion of the company's earnings, typically on a quarterly basis. Not all stocks pay dividends; some companies choose to reinvest their proceeds in the business, pay down debt, or simply build up cash on their balance sheets. But stocks that do pay dividends can provide a fairly reliable ongoing income stream.

Say, you assemble an investment portfolio with $40,000 worth of dividend stocks and with an average yield of 4%. That means you'll be looking at an extra $1,600 a year in dividend income.

Now, dividend income isn't guaranteed, because it's possible for a company that has been making regular payouts to reduce or eliminate them entirely if its financial circumstances require it. But if you choose a bunch of growing, financially sound companies, your chances of continuing to collect dividend income are pretty good. Also, while you will pay taxes on dividend income, in most cases, it will be lower than the tax rate you'll pay on your ordinary income -- meaning, you'll pay less tax on dividends than what you pay on your traditional IRA or 401(k) withdrawals.

8. Buy municipal bonds

Bonds are considered a pretty safe investment in general, and a suitable one for retirees. The upside of investing in bonds is that you're guaranteed an ongoing income stream in the form of semiannual interest payments. (Of course, that assumes your bond issuer doesn't default on its obligations, but that's a rare occurrence in the bond market.)

Imagine you buy $10,000 in bonds paying 4% interest. That's $400 coming your way each year, and unlike dividends, which are paid at a company's discretion, bond issuers are contractually obligated to make those interest payments.

Now when many of us think of bonds, we imagine corporate bonds -- those issued by companies looking to raise money for things like expansion and product development. But there's a downside to investing in corporate bonds -- you'll pay taxes on the interest payments you collect. On the other hand, if you buy municipal bonds -- those issued by states, cities, and counties -- the interest you collect will always be exempt from federal taxes. And if you buy municipal bonds issued by the state you reside in, you'll avoid any state or local taxes that might otherwise apply.

Furthermore, municipal bonds are even less likely than corporate bonds to default on their financial obligations based on historical data. And when you're investing during retirement, that sort of peace of mind is a good thing to have.

Of course, bonds should only constitute a portion of your investment portfolio during retirement. It's important to keep a significant share of your money invested in stocks that can provide more robust growth, too. But within the realm of bonds, municipal bonds are a good way to go. 

Don't struggle financially in retirement

Some seniors have a hard time financially because they're dealing with a fixed income, as dictated by their Social Security benefits, retirement plan withdrawals, and, in some cases, pension payments. If those sources alone aren't enough to allow you to cover your senior living expenses, then it pays to make an effort to supplement your income.

In fact, one thing you don't want to do is withdraw too aggressively from your IRA or 401(k) and run the risk of depleting that account in your lifetime. Withdrawing 4% of your account's value your first of retirement, and then adjusting subsequent withdrawals for inflation, is a good starting point to work with. But if you find that 4% a year doesn't provide enough income, you're better off using the above tactics than removing additional funds and running the risk that you run out of savings prematurely.

In addition, if you're finding that money is an issue during your golden years, it helps to set up a retirement budget. This way, you can review your different expenses, see where you're possibly spending more money than necessary, and find ways to cut back or make changes that free up cash.

Finally, remember that if all else fails, and you find that you really don't have enough income to pay the bills and live a reasonably comfortable lifestyle, there's always the option to go back to full-time work for a few more years and then take a second stab at retirement once you're in a more financially secure place. But before you go that route, it certainly pays to explore the above options for supplementing your income, tweaking your expenses, and seeing if you can make things work.