Millions of seniors rely on Social Security to stay afloat during retirement, but those benefits only go so far in paying the bills. In fact, the average senior on Social Security today collects $1,519 a month. But here are a few income sources that could actually pay you a lot more money during your senior years.
1. Retirement savings
The more money you save in your 401(k) or IRA, the more flexibility you'll have to take generous withdrawals during retirement. Say you manage to retire with $750,000. That's a lot of money, but a manageable goal if you save consistently throughout your career. If you follow the 4% rule for taking withdrawals from your savings, that will give you $30,000 a year, or $2,500 a month -- which is roughly $1,000 more than you might get from Social Security if you're an average wage earner.
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How do you save that $750,000 in the first place? Well, if you give yourself 40 years to save (say you start at age 27 and retire at age 67), you contribute $315 a month to a retirement plan, and your investments in that plan deliver an average annual 7% return (which is a few percentage points below the stock market's average), you will wind up with a little over $750,000. That assumes you only save for 40 years. If you retire on the later side or start setting funds aside for retirement as soon as you start working, you may end up with a 45-year savings window or longer.
2. Real estate
Owning real estate in retirement can be a very lucrative investment. In fact, with the right income property, you could set yourself up to collect monthly rent that exceeds what Social Security will pay you.
Of course, owning a rental property as a senior is not without risk. You may run into expensive home repairs, rising property taxes, and tenants who don't pay. Long-term vacancies can also eat into your profits. But if you buy in the right area, you may find that your rental income more than covers your mortgage and property maintenance expenses and still puts enough money in your pocket to surpass what Social Security gives you.
3. Small business earnings
Retirement could be a good time to start a business. If you go that route, you'll have something meaningful to do with your time, and it could work to your advantage from a tax standpoint. A successful business could even generate enough income to pay you much more than what Social Security can offer.
While Social Security may be a crucial source of income for a lot of people, it absolutely should not be your only retirement income source, or even your primary one. If you set yourself up to rely less heavily on Social Security and more so on other income streams, you'll be more likely to enjoy your dream retirement without having to grapple with the financial worries so many seniors face.
