Retiring on Social Security alone is generally a bad idea. These benefits will only replace about 40% of your pre-retirement salary if you earn an average salary. And that’s assuming that benefits aren’t substantially reduced across the board.
Because Social Security is facing a financial shortfall, seniors may have to deal with reductions in benefits if lawmakers don’t find a way to funnel more revenue into the program. So it is certainly wise to make a plan to supplement these benefits.
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There are now different assets you can invest in to generate retirement income. Bonds, for example, are a reasonably good bet, as their face value doesn’t tend to fluctuate wildly and they’re contractually bound to meet a predefined interest payment schedule.
Dividend stocks are another smart choice for retirement. Companies that have been paying dividends for a long time will likely continue to do so, and it’s a great way to get your hands on more cash.
But if you really want to boost your retirement income, it’s worth considering investing in real estate. And no, that doesn’t necessarily mean buying rental homes and becoming a landlord (although that’s of course an avenue you could explore). Instead, you can provide additional retirement income by putting money into real estate investment trustsor REITs.
Why REITs make sense for retirees
REITs are companies that own and operate portfolios of properties. In the realm of REITs, there are different sectors that you can focus on, for example, Industrial REITsdata center REITs and retail REITs, to name a few.
What makes REITs a smart investment for retirees is that they are required to pay out 90% of their taxable income to shareholders as dividends. And for that reason, you’ll often find that REITs pay a higher dividend than your average stock.
Plus, if you don’t have much (or any) money 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 pay for its upkeep at a time in your life when money may be tighter?
It pays to look at REITs
Investing in REITs is not a risk-free proposition, just as there is risk in owning dividend-paying stocks and even bonds (at least to some degree). After all, the value of REITs can fluctuate with market conditions. Even if you invest your money in sold, well-established companies, your REIT shares could end up being worth less if the large pools of the market or the specific companies you buy encounter financial problems or vacancies.
But if you retire on Social Security alone, you’ll take another risk: not having enough income at your disposal to cover your expenses. So, if you want to avoid this fate, you will have to be prepared to invest some of your money. And you might as well choose an asset known to be generous in terms of dividends.
The $18,984 Social Security premium that most retirees completely overlook
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