There are many seniors today whose monthly incomes largely consist of the benefits Social Security pays them. But if you're looking at retiring on Social Security alone, you're basically setting yourself up for disaster.
If you earn an average wage today, you can expect Social Security to replace about 40% of your earnings in retirement. But that assumes that benefits won't be cut. Unless lawmakers find ways to address the program's pending financial shortfall, benefit cuts are a distinct possibility that could leave you with even less replacement income.
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But let's be optimistic and assume that Social Security cuts won't happen. Even so, can you really cut your spending to the tune of 60%?
Even if you're no longer commuting or paying a mortgage, those two expenses alone probably don't total 60% of your income (and if they do at present, well, that's a different sort of problem). All told, you'll likely need income outside of Social Security once your retirement kicks off. Here are three potential sources to look at.
1. Savings
Any dollar you put into a 401(k) or IRA is a dollar you can't spend on yourself today. But if you make an effort to fund a retirement account consistently throughout the years, you can build a nice nest egg without sacrificing too greatly.
Let's assume your savings are invested at an average annual 8% return, which is a bit below the stock market's average. If you contribute just $250 a month to an account over a 30-year period, you'll be looking at about $340,000. Make it $350 a month, and your total will come to more like $476,000.
2. Your home
Some people are quick to downsize their homes in retirement. But it could be beneficial to hang onto a larger home that's paid off and use it as an income source.
One option, of course, is to rent out a room or separate area of your home for consistent monthly income. Another option is rent out your home for limited periods, such as when you'll be traveling. You can potentially look to rent out your driveway if parking is tough in your neighborhood and there's a market for paid spots.
3. Part-time work
Some people feel that they shouldn't have to work in retirement because, well, it's retirement. But holding down a part-time job is an easy way to boost your senior income. And you may even find that you enjoy having a place to go and a reason to get out of the house.
Many retirees struggle with boredom in the absence of a schedule. So holding down a job is a good way to not only generate income, but also add some structure to your days.
Even if you're in line for a decent monthly paycheck from Social Security, there's a good chance you're going to need income on top of those benefits to live comfortably. So make an effort to build savings for retirement while you're still working. Also, explore your options for monetizing your home and working part-time in retirement to avoid problems with cash flow.
