Relying solely on Social Security in retirement can leave you in a precarious financial situation. With the average monthly pension being around $1,900, many retirees struggle to make ends meet.
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GOBankingRates spoke with financial experts to find strategies for building a more solid retirement income beyond Social Security. Here are seven ways to avoid having to live solely on Social Security in retirement.
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Focus on income-generating investments
Steve Selengut, owner, founder and CEO of The Retirement Income Coach, emphasized the importance of income-focused investing. “Most monthly statements include a ‘projected annual income table.’ This tells you the hard truth that income is well below the 4% that advisors cite as the typical withdrawal rate from retirement assets,” he said.
Selengut said there are “hundreds of securities, both stocks and dividend-paying securities, both individual and mutual funds, that yield well over 4%.” He is convinced that people need to invest there to make real money.
He recommends reviewing the portfolio regularly to make sure you aren’t missing out on any gains. “Look in the ‘unrealized gains and losses’ column in account statements or online. If you have old positions, you’ll likely find several that have significant unrealized gains (in positions that caused the portfolio to become poorly diversified),” he said.
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Maximize your retirement savings contributions
It’s also important to make sure you’re maximizing all of your retirement savings contributions. This will help you put as much money to work as possible.
Dutch Mendenhall, author and founder of RADD Companies, recommends contributing to 401(k) and IRA plans, taking advantage of tax benefits (such as Roth accounts), and making late contributions (after age 50).
Matt Willer, managing director of capital markets and partner at Phoenix Capital Group, also stressed the importance of your contributions. “Open an IRA as early as possible and make it a habit to make monthly contributions, even if it’s just $50 a month. Increase the amount as much as you can until you reach the maximum annually,” he said.
Investing in real estate
Mendenhall suggests several real estate strategies that can also help you increase your retirement income.
Examples include purchasing income-producing properties, “house hacking” (renting out additional units and rooms) to help with mortgage payments, and using your equity wisely – think reinvesting your equity and making value-enhancing renovations.
Create multiple sources of income
Diversifying your income sources can not only lead to more income, but also provide financial stability. Mendenhall recommends dividend-paying stocks, side hustles and royalties from intellectual property as some options.
These types of investments can increase your income. For example, according to Hartford Funds, “dividends have played a significant role in the returns investors have earned over the past few decades.”
Manage your portfolio wisely
Of course, your money and investments must also be managed wisely. “No position should ever be more than 5% of the total investment portfolio. Take the profits and invest the capital in higher-yielding securities,” Selengut said.
It’s also important to consider your risk. “Throw out speculative investments from all portfolios: These are the ones you bought on a tip and never achieved anything. They’re not producing returns and may be well below what you paid for them. Bite the bullet and say goodbye,” he said.
Carefully evaluating your holdings is key to portfolio management. “In today’s environment, you should be able to safely earn more than 8%,” he added. “Avoid securities that are not ‘liquid’ — something you can’t buy or sell at any time during the trading day — and look for funds that pay monthly or quarterly distributions.”
Get professional advice
Advice from an expert can be invaluable. Selengut recommends attending a coaching session, having a portfolio reviewed, or attending a private question-and-answer session with an experienced income coach.
“Find someone who can show you how to generate income from their own portfolio using stock markets and securities for return purposes,” he said.
Live within your means
Anthony DeLuca, CFP and expert for RetireGuide.com, said it’s all about making do with what you have. “So many people get caught up in the mentality of trying to keep up with the neighbors that they go into debt,” he said. “They use credit cards like they’re ATMs and drown in credit card debt with 20% interest.”
This is especially true for younger generations, DeLuca noted. “The Millennial generation has surpassed the Baby Boomers as the largest demographic, with an estimated 72.7 million. This generation covers the years 1981 to 1996. The vast majority of these Americans grew up with social media. Because of this, this extreme need to be relevant has arisen,” he said.
Willer offered practical advice to avoid falling into this trap. “Don’t get into credit card debt and pay off your credit cards in full. For every dollar you spend on dinner, put $0.25 into a savings account,” he said.
Overall, education and modesty can help you avoid falling into the trap of living beyond your means, DeLuca noted. That way, you can avoid debt and avoid having to live solely on Social Security in retirement.
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This article originally appeared on GOBankingRates.com: 7 Ways to Avoid Having to Live on Social Security in Retirement
