6 Sources of Retirement Income Beyond Social Security That You Should Have

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Social Security works well as a complement to retirement savings, but it shouldn’t be the only (or even biggest) source of income during your golden years. The average retirement benefit is only $1,872 a month as of September 2024, according to the Social Security Administration — that can’t even cover the bills in most U.S. cities. Yet, about one-fifth of Americans plan to use Social Security payments to fund their entire retirements.

The best way to enjoy a comfortable retirement is to rely on numerous income streams. Here are six sources of retirement income you should have beyond Social Security benefits.

Employer Sponsored Retirement Plans

Outside of Social Security, the biggest source of retirement income for most Americans is an employer sponsored plan such as a 401(k), 403(b), 457 and SIMPLE 401(k). With a 401(k), part of your earnings are deducted and put into retirement savings. Contributions come out of your paycheck before taxes are deducted, lowering your income tax obligation. You’ll only pay taxes when you withdraw the money, which you can do penalty-free beginning at age 59 ½.

A variety of investment options are available with a 401(k) plan, including stocks, bonds and mutual funds. If your employer matches your contribution, it represents free money that builds your savings even faster. The main downside of a 401(k) is that there’s a limit to how much you can contribute every year. In 2024, the limit for traditional 401(k) plans is $23,000. Once your annual income hits $345,000, you can no longer contribute to the 401(k).

IRAs

If you don’t have access to a 401(k), the closest option is an Individual Retirement Account (IRA). This works similar to a 401(k) in that you can make contributions tax-free and choose from various investment options. Even if you have a 401(k), adding an IRA can help broaden your portfolio. Here are the two main types of IRAs:

• Traditional: With this option, your balance will grow tax-deferred until you take a withdrawal. You might also be able to deduct part of your contributions from your taxes. With few exceptions, you’ll face a penalty if you take a withdrawal before age 59 ½. As of 2024, you can contribute up to $7,000 annually to a traditional IRA. If you’re 50 or older, you’re eligible for an additional $1,000 catch-up contribution.
• Roth: With a Roth IRA, you invest money using after-tax dollars, meaning taxes are not deferred and contributions are not deductible. However, when you reach the distribution stage, your money can be withdrawn tax-free. Eligibility for a Roth IRA is based on your income level (you can learn more by visiting the IRS website).

Pensions

Private-sector pensions are not nearly as prevalent now as they were a few decades ago, but they’re still offered to many government and union employees. With pensions, employers (and sometimes employees) contribute to retirement savings. If you’re eligible for one, be sure to take advantage because it could provide your main source of retirement income.

Personal Investments

Investing in assets such as stocks, bonds, mutual funds, savings accounts and real estate can provide needed retirement income through market gains, dividends, interest payments, rental income and other sources. Unless you are an expert, you’re probably better off hiring a financial advisor to help you develop the right investment plan. It’s also important to keep a balanced portfolio to maximize returns and minimize risk.

Annuities

Annuities have become more popular in recent years because they’re designed to provide guaranteed income in retirement. An annuity is a financial product that pays out a fixed amount of money, usually in a series of payments. The main benefit is that they reduce longevity risk for retirees, but their structure can get complicated. This is another case when you might want to hire a financial advisor to walk you through the best options.

Side Gigs

Just because you’re retired doesn’t mean you can’t pick up extra money when you need it. If you have reached full retirement age, you can earn outside income and not have it impact your Social Security benefits. Suitable side gigs for seniors include pet sitting, online tutoring, freelance writing and consulting services in your field of expertise.

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