One big misconception about Social Security is that it'll provide you with enough money to live on. In reality, if you're an average wage earner, Social Security will only replace about 40% of your current paycheck.
Seeing as how most seniors need a lot more money than that to live comfortably, you'll obviously need a backup plan if you want to enjoy your retirement to the fullest and avoid financial worries throughout it. Here are a few things you can do to generate more retirement income and supplement the benefits you receive from Social Security.
1. Max out your IRA or 401(k)
Saving for retirement independently is a great way to set yourself up with plenty of money for your senior years. It pays to max out your IRA or 401(k) plan throughout your career, or get as close to maxing out as possible.
Right now, IRAs max out at $6,000 a year for savers under 50, while 401(k)s max out at a much more generous $19,500 for savers under 50. Maxing out a 401(k) is much tougher than contributing the maximum to an IRA, but if you have a 401(k), you should, at the very least, make sure to put in enough money to snag your full employer match.
Also, if you're 50 or older, you get an opportunity to make catch-up contributions in your retirement plan. These are worth $1,000 for an IRA and $6,500 for a 401(k).
2. Set yourself up to work part-time in retirement
Working in some capacity during retirement won't just boost your cash flow. It will also give you something to do with your time that won't require you to spend money.
If you're nearing retirement age, start thinking about the sort of work you might want to do as a senior. If you think you'll enjoy consulting in your current field, start networking and putting out feelers so you can establish a client base. And if you think you'd rather start a more creative venture, start mapping out those plans as well.
3. Secure a rental income stream
It takes money to buy an investment property, but if you have it, you might manage to set yourself up with a solid stream of rental income that not only covers your mortgage and maintenance costs, but leaves you with a lot of extra money left over. Plus, homes have the potential to increase in value over time, so if you buy an income property during your 50s in advance of retirement, by the time you reach your 70s, you may be able to unload it at a nice profit.
Social Security could end up providing you with a nice amount of income, and if you delay your filing beyond full retirement age, you can actually grow your benefits in the process, to the point where they replace more than 40% of your former paycheck. But even so, it pays to line up some income outside of Social Security. That way, you'll have extra money to not only pay your bills, but enjoy the freedom that comes with leaving the workforce behind.