These days, tens of millions of people collect a monthly benefit from Social Security. And for many retirees, those benefits are a true lifeline. For some older Americans, though, they're too much of a lifeline.
While some retirees live off Social Security and other income sources combined, there are some people who rely only on Social Security to cover their needs. And that's a problem.
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Why you can't retire on just Social Security
Once you retire, there's a chance your expenses won't be quite as high as they were when you were working. Your home may be paid off, and if you're not going to a job every day, your commuting costs won't be a factor.
Still, as a general rule, retirees are told to expect to need 70% to 80% of their former income to cover their expenses. Social Security will replace about 40% of your paycheck if you're an average earner. That means a fair amount of your retirement income will need to come from other sources.
Ways to supplement your Social Security
Supplementing your Social Security benefits isn't something you should try to do on the fly once you retire. Rather, it's something you should plan to do in advance. Here are some ways to generate additional income for your senior years.
Save well
Funding a retirement account, such as an individual retirement account (IRA) or 401(k), during your career is a great way to build up a sizable nest egg. And starting as early as possible is your best bet. That way, you won't necessarily have to part with a ton of money on a monthly basis to build up a large amount of savings.
Imagine contributing $200 a month to an IRA or 401(k) plan starting at age 27 and retiring at 67. If your investments give you an 8% yearly return during that time, which is a bit below the stock market's average, you could end up with about $622,000.
Hold investments that pay consistently
Investing your nest egg during your working years is a great way to grow that money. But it's also important to stay invested during retirement and to focus on assets that can provide steady income.
Some options to look at include:
- Dividend stocks or ETFs (exchange-traded funds)
- REITs (real estate investment trusts)
- Bonds
Continue working
There's no rule stating that you can't hold down a job in retirement, even if you're collecting Social Security. Granted, if you claim benefits prior to your full retirement age, you'll be subject to an earnings test. And earning too much could result in some benefits being withheld.
Once full retirement age arrives, though, you're free to earn as much money from a job as you're able to without a negative impact on your monthly benefits. And you may find that working a few hours a week is a great way to not only boost your retirement paycheck but also get you out of the house.
Although some people do manage to retire solely on Social Security, it's not ideal. Rather than aim to retire on Social Security alone, save during your career, choose the right investments for your senior years, and be open to the idea of continuing to work, even if it's for minimal hours. The more income streams you have, the less financial stress you may have in retirement.
