By planning in advance, you can have a much more comfortable retirement than you’d get from an early Social Security benefit alone.
As of June 2023, the typical American retiree gets around $1,837 per month from Social Security. While that’s enough to keep a person slightly above the federal poverty level, it’s probably not enough for living comfortably except in the lowest-cost areas of the country.
If your plan for retirement is to rely on Social Security alone, you’ll probably want to look at additional ways to make money to cover the lifestyle gaps that Social Security won’t. These three sources of retirement income can go a long way toward covering the gap.
No. 1: Work a personally fulfilling job
You may be ready to leave the rat race, but it doesn’t mean you need to stop working altogether. If there are charitable causes that you support, look into whether they could use your expertise and would be willing to pay for your time and knowledge. You probably won’t get paid as much as you did in your career-focused job, but every bit helps.
In addition to the money you’ll earn, you’ll keep a sense of accomplishment and community. Plus, it’s a good distraction from the very real 24 hours you have in your otherwise free day.
If going all the way from high-pressure career mode to non-profit doesn’t seem like a good fit, you can also consider cutting back to part-time work or shifting to a supporting role. After all, the goal at this point is to have money coming in to help cover your costs, not to climb the career ladder.
No. 2: Laddered Bonds
As awesome as stocks can be to build wealth, relying on them to directly cover your costs in retirement can be quite nerve-wracking. As 2022 reminded us, the market doesn’t always go up. If you’re forced to sell stocks when they’re down to cover your costs, you could wind up depleting your nest egg faster than you’d like.
On the other hand, bonds claim a higher priority on a company’s finances if the business is liquidated than stocks do, so if a company can pay its bond, it will very likely do so. That makes bonds — particularly investment-grade ones — more suitable than stocks for providing cash for retirement.
The key thing to realize about bonds is that, as long as the company pays them as agreed, they mature. When that happens, the bonds convert to cash. By buying a ladder of high-quality bonds that mature on a regular basis, you can get an infusion of cash with each maturity, while also collecting the interest those bonds pay along the way.
While bonds are a higher priority than stocks, they’re only as good as the company behind them. So if you’re using bonds this way, stick with investment-grade ones, diversify the companies on your ladder, and keep an emergency fund, just in case.
No. 3: Delay that Social Security check
Although the typical Social Security payment is around $1,837 per month, the most common age to collect is age 62, which is the earliest possible age to collect. That results in a drastically reduced benefit vs. waiting until either your full retirement age or age 70 (which is the age where benefits max out ).
If you were born in 1960 or later — which includes all people currently under age 62 — your benefit will be cut by a staggering 30% each month if you collect starting on your 62nd birthday. On the flip side, by waiting to age 70, your benefit will be boosted by 24% each month from whatever your base benefit would be.
Putting that in perspective, say your full retirement benefit would be $2,000 per month. If you claim it at age 62, you would only receive $1,400 per month, while if you wait to claim at age 70, you’d get $2,480 per month. That’s over a $1,000 difference every single month, just from waiting to collect.
When you also add in the fact that Social Security benefits are inflation adjusted, it makes even more sense to wait to collect. After all, that inflation adjustment is based on the value of your actual benefit, and the higher that value, the bigger the dollar amount you’ll get from that adjustment.
Get your plan in place now
No matter which of these retirement income sources you choose to add to your plan, they all work best when you build that plan in advance. So make today the day you start putting the foundation in place to boost your retirement income beyond the minimal amount an early Social Security check will provide. Once you have your plan in place and see the benefits from it in action, you’ll be glad you did.
