If you're an average wage earner, you can expect your monthly Social Security benefits to replace around 40% of your pre-retirement earnings. So if you were to retire on Social Security alone, you'd basically be looking at a 60% pay cut.
Even if you're a frugal person by nature, that may not be doable -- or desirable. After all, retirement is supposed to be a fulfilling period of life. But how are you supposed to enjoy yourself when you're worried about money all the time and don't have any spare cash to do the things you've always dreamed of?
That's why a much better bet is to not plan to retire on Social Security alone, but rather, find ways to supplement those benefits. Here are a few options in that regard.
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1. Work part-time
Some people think of retirement as a period of life when work is out of the question. But that line of thinking might end up hurting you.
Not only can a part-time job in retirement do a lot of good things for you financially, but it can also be a social lifeline. Retirement can be a surprisingly difficult period of life because many seniors tend to feel bored and isolated. Having a job to report to on a part-time basis could improve your outlook and add structure to your schedule. That's something you might crave.
Also, the money might come in handy. Plus, you never know what additional perks you might be eligible for as part of your job. Working at a bakery, for example, could mean getting to take home leftovers at the end of the day to share with your grandchildren.
2. Rent out part of your home
Many seniors have a lot of equity tied up in their homes. Borrowing against that equity carries some risk, though, so there may be a better way to use your home to supplement your Social Security income.
If you're willing to deal with a tenant, you can rent out your basement or garage for extra cash. It's an option worth considering if you have ample space and have an area of your home that's separate from your main living quarters.
If you rent out a portion of your home, you might also be able to work out an arrangement where your tenant does some maintenance in exchange for reduced rent. As you age, you might struggle to do certain tasks yourself, so that sort of arrangement might be mutually beneficial.
3. Invest in assets that pay you continuously
Investing your money in the right assets ahead of retirement could set you up with a nice income stream later in life. If you load up on dividend stocks, for example, you can generally look forward to quarterly payments that serve as a nice addition to the money you get from Social Security (though it's worth noting that companies can stop paying dividends at any time).
Another option worth looking at is municipal bonds. The interest you receive from municipal bonds is always tax-exempt at the federal level. And if you buy bonds issued by your state of residence, you can avoid state and local taxes on that income, as well.
Social Security might provide you with the bulk of your retirement income, but living solely on those benefits isn't ideal. So it pays to do what you can to supplement those benefits, even if it means making some changes to the way you thought your retirement would go.
