Experts Warn Not to Live on Social Security — 5 Retirement Income Sources They Advise
Since 2000, Social Security benefits have lost 36% of their purchasing power, according to a 2023 study by The Senior Citizens League.
Learn More: Social Security: How Long You Can Live Outside the US Without Losing Benefits
Find Out: One Smart Way To Grow Your Retirement Savings in 2024
Nor is there any reason to believe benefits will miraculously improve. The Congressional Budget Office calculates that the Social Security Old-Age and Survivors Insurance (OASI) trust fund will become insolvent by 2033.
In short, you need to pay for the bulk of your own retirement. And the further you are from retirement, the less you can count on today’s benefit levels.
Classic Retirement: Gradually Sell Off Assets
For the last half century or so, the retirement model was simple: You saved up a nest egg over a forty-plus year career, then gradually spent it down in retirement and hoped not to run out of money before you shuffle off this mortal coil.
Read Next: 7 Bills You Never Have To Pay When You Retire
Investors stuck with traditional paper assets: stocks and bonds. Many followed oversimplified rules of thumb, like the Rule of 100 (subtract your age from 100, and put that percentage of your portfolio in stocks).
To avoid running out of money, many followed the 4% Rule as another simplistic rule of thumb. Withdraw 4% of your nest egg in your first year of retirement, then adjust upward for inflation each year, and your nest egg “should” last at least 30 years.
But what if you don’t like the idea of spending down your nest egg?
Options for “Forever Income”
As someone who hopes to reach financial independence in his 40s, I have no intention of selling off my nest egg over time. I want to generate streams of income that keep flowing indefinitely.
Passive income beyond the standard bond interest is a retirement staple.
While hardly an exhaustive list, here are some ideas to generate ongoing income.
Dividends from Stocks & REITs
You don’t have to sell off your stock holdings to generate income. At least, not if you invest in dividend-paying stocks.
Some stocks pay hearty dividends of 3-8% or even more. Real estate investment trusts (REITs) sometimes pay even more, rising into the double digits at times. You don’t need to worry about “safe withdrawal rates” or selling off your portfolio if you can live off dividend income alone.
Just don’t expect electric growth from these high-yield stocks.
Annuities
Annuities pay a fixed annual income — usually for the rest of your life. Think of annuities as an insurance policy against running out of money before you die, rather than an investment paying a strong return. You buy an insurance contract and that insurance pays you income in your dotage.
Rental Income
As a former landlord, I know firsthand that rental income isn’t nearly as passive as gurus would have you believe.
Even so, some properties lend themselves to predictable, hands-off cash flow, if managed professionally. That cash flow can help fund your retirement, protect against inflation and diversify your portfolio. Should the stock market crash, your dividends could drop, but your rental income will likely keep flowing.
Distribution Income
You don’t have to buy rental properties to collect cash flow from real estate.
Instead, consider investing passively in real estate syndications or funds. These are simply group investments, where you invest as a silent partner in a professional real estate investor’s property or fund of properties.
In some cases, the syndicator refinances the property and returns your initial investment. You keep your ownership share in the original property and keep collecting cash flow, but you can reinvest your money elsewhere which will further compound your returns.
Notes & Other Interest
Alternatively, you can invest in debt that pays a fixed interest rate. For example, I sometimes invest with other real estate investors, lending them a note secured by real property.
You don’t have to know real estate investors personally to do this. To invest small amounts, try Groundfloor. If you’re ready to invest more, look into private debt funds. I’ve worked with a few fund operators who offer these, such as Chris Seveney of 7e Investments and Marco Santarelli of Norada Capital.
Final Thoughts
Even at its inception in the 1930s, Social Security was never intended to pay for all retirees’ expenses. The SSA itself acknowledges that benefits only typically replace about 40% of retiree’s income.
Plan for your future and don’t count too much on a system already scheduled to reach insolvency in less than a decade.
More From GOBankingRates
How Much Does the Average Middle-Class Person Have in Savings?
5 Reasons You Should Consider an Annuity For Your Retirement Savings
This article originally appeared on GOBankingRates.com: Experts Warn Not to Live on Social Security — 5 Retirement Income Sources They Advise
