7 Ways To Avoid Living Only On Social Security in Retirement
Written by
Laura Beck
Edited by
Jenna Klaverweiden
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Relying solely on Social Security in retirement can put you in a precarious financial situation. With the average monthly benefit hovering around $1,900, many retirees find it challenging to make ends meet.
GOBankingRates spoke with financial experts to uncover strategies for building a more robust retirement income beyond Social Security. Here are seven ways to avoid living only on Social Security in retirement.
Focus On Income-Producing Investments
Steve Selengut, owner, founder and CEO of The Retirement Income Coach, emphasized the importance of income-focused investing. “Most monthly statements provide a ‘projected annual income chart.’ It tells you the hard truth, that the income is way below the 4% advisors tell you is the typical withdrawal rate from retirement assets,” he said.
Selengut said there are “hundreds of securities, both equities and income-purpose, individual and within funds, that pay way more than 4%.” He said he believes this is where people need to be investing to make real money.
He suggested reviewing your portfolio regularly to make sure you’re not missing out on any gains. “Look in the ‘unrealized gains and losses’ column either on statements or online. If you have old positions, you’ll probably see several that have significant unrealized gains (in positions that have caused the portfolio to become poorly diversified),” he said.
Maximize Retirement Contributions
It’s also important to ensure you’re maximizing all of your retirement contributions as well. That way, you’re putting as much money to work as possible.
Dutch Mendenhall, author and founder of RADD Companies, recommended contributing to 401(k)s and IRAs, leveraging tax advantages (such as Roth accounts), and doing catch-up contributions (post-age 50).
Matt Willer, managing director of Capital Markets and partner at Phoenix Capital Group, also highlighted the importance of your contributions. “Open an IRA as early as you can, and try to make monthly contributions a habit even if it’s $50 each month, and increase it as much as you can until you are maxing it out annually,” he said.
Invest In Real Estate
Mendenhall suggested several real estate strategies to boost your retirement income as well.
Examples include buying income-generating properties, house hacking (renting out accessory dwelling units and rooms) to help pay the mortgage and using equity wisely – think reinvesting in equity and doing renovations that add value.
Create Multiple Income Streams
Diversifying your income sources can not only bring in more income but also provide financial stability. Mendenhall recommended dividend-paying stocks, side businesses and royalties from intellectual property as a few options.
These types of investments can bolster your income. For example, according to Hartford Funds, “Dividends have played a significant role in the returns investors have received during the last several decades.”
Manage Your Portfolio Wisely
Of course, your money and investments also need to be managed wisely. “No position should ever be more than 5% of the total investment portfolio. Take the profits and move the capital into higher income producing securities,” Selengut said.
It’s also important to examine your risk. “Cull speculative investments from all portfolios: These are the ones that you bought on a tip and never made it. They don’t pay any income and may be way below what you paid for them. Bite the bullet and say goodbye,” he said.
Carefully evaluating your holdings is key to portfolio management. “You should be able to safely generate more than 8% in today’s environment,” he added. “Avoid any security that isn’t ‘liquid’ — i.e., something that you can’t buy or sell at any time during the trading day and look for funds that pay monthly or quarterly distributions.”
Seek Professional Advice
Getting expert guidance can be invaluable. Selengut recommended attending a coaching session, getting a portfolio review or going to a private Q&A with an experienced income coach.
“Find one who will show you their own portfolio income production from stock market and income-purpose securities,” he said.
Live Within Your Means
Anthony DeLuca, CFP, an expert contributor for RetireGuide.com, said it’s all about making do with what you have. “So many individuals are caught up in a ‘keeping up with the Joneses’ mentality that they find themselves in debt,” he said. “They use credit cards as if they are ATMs and find themselves drowning in credit card debt at 20% interest rates.”
This is particularly affecting younger generations, as DeLuca noted. “The millennial generation has surpassed the baby boomers as the biggest population estimated at 72.7 million. This generational timeline is from 1981-1996. The vast majority of these Americans grew up with social media. Because of this, there has become this extreme demand to be relevant,” he said.
Willer offered practical advice to avoid falling into this trap. “Don’t get into credit card debt, and pay your credit cards off in full. For every $1 you use to go out to dinner, put $0.25 into a savings account,” he said.
Overall, education and humility can help you not fall into the trap of living beyond your means, DeLuca noted. Doing so will help you not run up debt and be able to avoid living only on Social Security in retirement.
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