7 Investment Tips to Supplement Social Security




Social Security is an integral part of American society. Nearly 62 million Americans will be paid more than $950 billion in benefits from the program across 2017.

But while those big-picture numbers indeed sound large, a closer look at individual benefits reveals that Social Security may not provide as much security as some think.

As of June, the average retired worker received $1,369 in benefits while the average disabled worker received $1,172 from the program. Those figures add up to less than $16,500 annually for retirees and just more than $14,000 annually for the disabled.

[See: 7 of the Best Stocks to Buy for 2018.]

Furthermore, the most recent cost of living increase to Social Security is a mere 2 percent for 2018 -- and that's after benefits only increased 0.3 percent in 2017 and weren't raised at all in 2016.

Of course, everyone's benefits are different. But chances are, Social Security checks alone will not be enough to provide for your retirement.

Here are seven other sources of income to consider to supplement those benefits.

Invest in annuities. An annuity is a kind of hybrid between investing and life insurance, where you pay money into a financial institution in exchange for a regular stream of income going forward.

In its simplest form, you pay a lump sum up front and get that money back slowly over time. A common structure would be to invest $100,000 up front in an annuity in exchange for $7,200 annually in payouts.

If you have a decent amount of savings, an annuity may be a good option instead of simply drawing down that nest egg slowly over time as you need more cash. But just keep in mind that every annuity is different -- based on your unique needs and the terms of the provider -- so make sure you read the fine print carefully.

Use a high-yield savings account. Traditional certificates of deposit or savings accounts don't offer an incredible income stream, given the persistently low interest rate environment at present. But something is better than nothing, and one-year CDs offer about 1.5 percent to 1.7 percent presently, depending on your financial institution.

Those with a bit more savings or a willingness to give up liquidity can find even better terms, too. According to finance portal Bankrate.com, "jumbo" CDs that require a $100,000 deposit and require a five-year commitment can offer as much as 2.3 percent in annual interest to grow your nest egg and help provide a source of long-term income.

Invest in bonds. Bonds have been a primary source of investment income for many years. And while like CDs there are lower yields in this asset class lately when compared with past decades, anyone looking to supplement their Social Security benefits should seriously consider bond investing as an option.

Bonds are essentially debt, where you are the lender and a government or corporation pays you back over time with interest. Lower risk borrowers like the U.S. government, which has pretty much zero chance of failure, offer lower rates. For instance right now a 10-year Treasury bond yields about 2.4 percent annually. Higher risk borrowers, such as small companies with shaky history, pay you a better interest rate to compensate for that risk. For instance, the typical high-yield corporate bond yields more than 5.5 percent at present.

Just make sure you're aware of this trade-off with risk versus return, however, because the potential of higher income is no good if your bond defaults and the borrower can't repay you anything.

Invest in dividend stocks. While higher yield bonds carry risk, these investments still are not as volatile as dividend stocks. When you buy a share of a publicly traded company your initial investment is at the whims of day-to-day market fluctuations, and you face the risk of significant volatility.

However, over the long term, the stock market always trends higher. That's evidenced by the fact that, despite a roughly 40 percent decline for the Standard & Poor's 500 index during the financial crisis of 2008, the closely-watched benchmark reclaimed its prior highs by 2013 and has pushed even higher in the intervening years.

[See: 7 Things That Can Derail Your Retirement Investing.]

So if you're patient and don't sell during the down markets, your investment should remain intact or even grow.

And of course, by not selling you will get the regular quarterly dividend payments as a form of profit-sharing with the companies you invest in. The typical stock in the S&P 500 now yields about 2.1 percent.

Invest in real estate. An alternative to traditional stocks and bonds is to invest in real estate -- particularly in properties that deliver a regular stream of income via rent checks from the tenants.

Some ambitious retirees own second homes they rent out, or even branch out into commercial real estate. This sounds glamorous, but in many markets a modest single-family home could be within reach and commercial enterprises like storage units can be surprisingly accessible to investors with the means and desire.

Others who are inclined toward downsizing anyway now that the kids are out of the house simply move into a smaller dwelling and rent out their home.

Any way you slice it, however, the idea is simple: Get a regular rent check that you can treat as a paycheck, supplementing your Social Security.

Pay off debts. Instead of focusing on increasing the money you'll be taking in each month, some retirees may be better served by worrying about trimming back some of the bills they have to pay.

Many personal finance experts recommend trying to pay off your mortgage before retiring, but at a minimum you should be sure to rid yourself of consumer debts like credit cards or car payments.

After all, if you have to budget $500 less each month for your lenders then that's $500 you don't have to worry about finding in Social Security or other income streams.

That says nothing of the money you save on interest payments, too.

Particularly if you have high-interest debt such as a 10 percent annual rate on your personal credit card, "investing" in debt reduction could yield a higher return than the previous traditional investments listed here.

Work longer to create capital. This is sometimes not a possible solution for older Americans who simply can't do the labor they used to 20 or 30 years ago. Still, it's a simple and effective fix to a shortfall in income.

Not only will working longer likely put more money in your pocket, but it also allows you to save up more money for the aforementioned income investing ideas. Particularly if you're working for an employer that offers a 401(k) program, the tax benefits and potential of matching contributions make working longer particularly attractive.

[See: 7 Ways to Invest for Income.]

Delaying retirement and working longer isn't ideal, but if the math doesn't work it may be better for your finances to simply stay at the office a few more years. Collecting a paycheck longer allows you to invest in your retirement across many fronts, and protect your retirement finances in the long run.

Jeff Reeves is currently executive editor of InvestorPlace.com. He is a stock analyst and financial commentator with almost two decades of newsroom and markets experience, contributing to The Wall Street Journal network, USA Today, CNBC, TheStreet.com, Fox Business Channel and US News. Follow him on Twitter @JeffReevesIP.

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