According to the Social Security Administration, the average benefit paid in 2014 was $1,329 per month, which works out to under $16,000 per year. According to Vanguard, which manages nearly 4 million 401(k)s, the median account balance of 401(k) plans the company manages for those over 65 was $72,845 in 2014. Based on the 4% withdrawal rule, that's worth only another $2,914 per year in additional income.
And while these two data points don't cover all the sources of income that every retiree may have, it makes it pretty clear that a lot of retirees won't have as much income when they retire as they want. The good news is, there are still plenty of ways to generate income in retirement. We had three of our contributors each discuss one, and here's what they had to say.
Tap into your home equity
Jason Hall: For many older Americans, the equity that they have build up in their home is an source of retirement income that goes untapped. There are two ways to take advantage of that equity, depending on your situation and needs.
If you want to stay in your current home, a reverse mortgage could be the right decision. This is especially true if you need to come up with money to make repairs to that home, or if you need to perform upgrades for accessibility or other reasons. It's also a better choice than a home equity loan or cash-out mortgage in most cases, since you don't have to make payments on a reverse mortgage, and it doesn't have to be paid off until your death, you sell the property, or move out of it.
Another way to use the equity in your home for income? Sell and downsize. Many retirees live in the same large house they raised their family in. Oftentimes, those houses are much bigger than they need, cost more to heat, cool, and maintain, and have higher property taxes than a smaller house. If you're "house rich" but "cash poor", downsizing to a smaller, cheaper home will lower your expenses, and let you access the leftover equity.
A little work can go a long way
Selena Maranjian: One proven way to have a bigger income stream in retirement is to earn it -- by working. It's not the most appealing option for many, but it doesn't have to be awful. You might be tired of the job you held for many years, but it was very possibly a full-time position with long hours and a lot of responsibility. In retirement, you might simply get a part-time job that's far lighter on responsibility, perhaps working seasonally for a retailer or as a researcher at a local university. You might even keep working for your current employer, but as a consultant, or on a part-time basis.
You can also earn money by working for yourself and using your particular skills. For example, if you're fluent in French or good at math or science, you might be a tutor in those or other subjects. (There are sites online where you can hang your electronic shingle.) You might give music lessons out of your home, or sell items you knit or make on sites such as Etsy.com. If you're good at writing, editing, or some other skill that's widely in demand, you can find freelance work online, choosing your own hours and even the jobs you accept.
Making just $100 per week extra can boost your annual income by $5,000 -- enough to make a meaningful difference.
Keep investing, but focus on dividends for income
Dan Caplinger: There are a lot of retirees right now who have gotten hammered in recent years by the low interest rates that the Federal Reserve has imposed on the U.S. economy. Income from savings accounts and bank certificates of deposit has dried up almost entirely, and that has put retirees on fixed incomes in a world of financial hurt.
If you have money saved up for retirement, it makes sense to invest a portion of it in dividend-paying stocks. The move comes with some risk, but it will also increase the amount of income you're able to generate under current conditions. It's not uncommon for stocks to have dividend yields of anywhere from 2% to 5% or higher, and although the highest-yielding stocks come with extra risk, you can find good conservative choices that will still far outpace what your bank is paying you in interest right now.
Those who don't like picking individual stocks can turn to exchange-traded funds that focus on dividend stocks. Many ETFs will give you exposure to dozens or even hundreds of different stocks, reducing your risk and diversifying your portfolio.
Many retirees give up on stocks entirely when they retire, but that can be a big mistake. Dividend stocks can boost your income and give you some much-needed growth potential to last you throughout your golden years.