Retiring on Social Security alone is generally a bad idea. Those benefits will only replace about 40% of your pre-retirement wages if you earn an average wage. And that’s assuming profits aren’t substantially reduced down the line.
With Social Security facing a financial shortfall, seniors may have to deal with benefit cuts if lawmakers can’t find a way to infuse more revenue into the program. Therefore, it is definitely wise to make a plan to supplement those benefits.
Now there are different assets you can invest in to generate retirement income. Bonds, for example, are a reasonably safe bet, because their face value does not tend to fluctuate wildly and they are contractually bound to meet a pre-set interest payment schedule.
People are also reading…
Dividend stocks are another wise choice for retirement. Companies with a long history of paying dividends are likely to continue to do so, and that’s a great way to make more money.
But if you really want to increase your retirement income, investing in real estate is worth considering. And no, that doesn’t have to mean buying rental properties and becoming a homeowner (although that’s certainly an avenue you can explore). Instead, you can set yourself up for added retirement income by putting money into real estate investment trusts or REITs.
Why REITs Make Sense for Retirees
REITs are companies that own and operate portfolios of properties. Within the realm of REITs, there are different sectors you can focus on, for example industrial REITs, data center REITs, and retail REITs to name a few.
What makes REITs a smart investment for retirees is that they must pay 90% of their taxable income to shareholders in the form of dividends. And because of that, you’ll often find that REITs pay a higher dividend than your average stock.
Also, if you don’t have much (or any) cash in real estate, REITs are a great way to diversify without taking on the risk of owning physical property. After all, do you really want to buy an income property and take on the cost of maintaining it at a time in your life when money may be tighter?
REITs are worth looking at
Investing in REITs is not a risk-free proposition, just as there is risk in owning dividend stocks and even bonds (at least to some extent). After all, the value of REITs can fluctuate based on market conditions. Even if you invest your money in well-established, sold companies, your REIT shares could end up having less value if the broad market tanks or the specific companies you buy have financial problems or vacancy issues.
But if you retire on Social Security alone, you run another risk: not having enough income available to cover your expenses. So if you want to avoid that fate, you’ll need to prepare to invest some of your money. And you can also choose an asset that is known to be generous on the dividend front.
The $18,984 Social Security bonus that most retirees overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: One simple trick could pay you up to $18,984 more…every year! Once you learn how to maximize your Social Security benefits, we think you can confidently retire with the peace of mind we seek. Click here to find out how to learn more about these strategies.
The Motley Fool has a disclosure policy.