Social Security has long been the backbone of American retirement, and many working Americans look forward to the day when they can sit back and enjoy collecting a Social Security check. But Social Security was never intended to fund 100% of retirement costs, and it may fund much less in the future.
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The most recent report from the Social Security Trustees indicates that the Social Security Trust Fund will be exhausted by 2033, meaning a reduction in future benefits is likely unless lawmakers take steps to prevent it. Either way, enjoying a fully funded retirement usually requires additional sources of income. Here are some of the best options.
Your personal nest egg
The best option when it comes to supplementing Social Security income is to have your own nest egg for retirement. If you worked for a larger company in your life, you probably had access to a 401(k), 403(b), or 457 plan. If you’ve worked alone, you may have contributed to an IRA or maybe even a solo 401(k) plan. Either way, with diligent saving you can usually build a nest over time that is higher than the amount you get from Social Security. If you’re still a long way from retirement, use this time to maximize your contributions to these types of tax-advantaged plans so you don’t have to rely on Social Security.
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In recent decades, most companies have moved from traditional retirement plans to 401(k) plans and the like. However, if you started your working career long ago, or if you work for an old-fashioned company that still has a pension, you may be eligible for payments for a lifetime after you retire. If you work in the police, fire service, or other government job, such as a government job, you are more likely to receive a traditional pension. Some of these pensions can be quite lucrative. For example, if you served in the military for 20 years, you are likely eligible for a pension worth as much as 2.5% of your highest 36 months base salary.
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Passive income is a great way to supplement your Social Security payments, and rental income is one of the most commonly used options. There are many options when it comes to generating rental income. Perhaps the easiest thing to do is rent out a room in your own home that you no longer need or use. Other options include buying a short-term rental unit in a resort area, or a long-term rental unit in an area with a shortage of working-class housing.
Part-time jobs are often seen as a way for employees to supplement their income, but they can also be used by retirees as a supplement to Social Security. Side gigs don’t have to be a drag, though. When you’re retired, you can use the skills and talents you’ve acquired during your career and turn that knowledge into something profitable. For example, teaching classes, in person or online, is a way to get paid for talking about something you know and love. You can also turn your talents into something marketable, whether you are an artist, an interior designer or a woodworker. A lot of people probably want to learn something you have to offer, so find out what you like best and see if there’s a market for it.
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Downsizing may not seem like a way to generate retirement income, but it may be. Imagine having a 3,000-square-foot house, but living all alone. By selling that house and moving into an 800-square-foot apartment or smaller house, you’re probably pocketing hundreds of thousands of dollars. With a careful investment, that can give a significant boost to your retirement income when taken monthly.
An annuity is by definition a way to supplement your retirement income. “Annuizing” an investment means converting it from a pool of capital into a stream of income that will last a lifetime. If you die prematurely, the insurance company keeps the remainder of the benefits. But if you outlive your expected life, the insurance company is responsible for continuing to pay you for the rest of your life. This way you can never outlive your income, making an annuity a good option for those who want to guarantee a lifetime payment to increase Social Security.
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to move house
Moving does not in itself generate additional income, but it can have a similar effect. By moving to the right place, you can permanently reduce your expenses across the board, from your housing costs to utilities, food, entertainment and transportation. The amount you save adds up to an additional income stream because you can now keep the money you would otherwise have spent monthly. For some retirees relocating, this can add up to an “increase” of thousands of dollars a month.
Marital Social Security
If you don’t qualify for Social Security yourself, or if your benefit is low, you may be able to increase it by claiming Spouse Social Security instead. If you are married, you are entitled to a benefit equal to 50% of your spouse’s benefit, if this is more than you are eligible for alone. This allowance also applies if you are divorced, as long as you were married for at least 10 years in the first instance.
If you’re into entertainment or performing arts, among other things, you may be able to set up a royalty stream for yourself when you retire. A royalty is an ongoing payment for the use of your assets or body of work. For example, if you’re acting in a movie, you can continue to receive payments every time that movie is shown on television or streaming services. If you publish a book, you may receive a royalty payment for each book sold. Royalties aren’t always predictable, but they can be a good supplement to Social Security benefits if you come from the arts and entertainment field.
A reverse mortgage isn’t for everyone, but for some retirees, it’s a great way to generate income after retirement. A reverse mortgage is essentially a way to tap into the equity in your home, either as a lump sum or as a series of monthly payments. The money you take out is a mortgage on your home that you must repay in full after your death with the remaining equity in your home. There are some pitfalls to reverse mortgages, including their costs, but for some seniors over the age of 62 — which is an eligibility requirement — they can serve as a good addition to Social Security.
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This article originally appeared on GOBankingRates.com: Social Security Alternatives That Will Bring Retirement Income