Social Security withdrawal alone is generally a bad idea. Those benefits will only replace about 40% of your pre-retirement wages if you earn an average salary. And this assumes that the benefits are not substantially reduced downwards.
Because Social Security is facing a financial shortfall, seniors may have to deal with reduced benefits if lawmakers don’t find a way to pump more revenue into the program. So it is definitely wise to make a plan to supplement those benefits.
There are now different assets you can invest in to generate retirement income. Bonds, for example, are a reasonably wise bet, because their face value doesn’t tend to fluctuate wildly, and they’re contractually obligated to stick to a preset interest payment schedule.
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Dividend stocks are another smart retirement option. Companies with a long history of paying dividends are likely to continue to do so, and this is a great way to get your hands on more money.
But if you really want to boost your retirement income, it’s worth considering investing in real estate. And no, this doesn’t have to mean buying rental properties and becoming a landlord (although that is of course an avenue you can explore). Instead, you can set yourself up with increased 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. In the field 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 are required to pay 90% of their taxable income to shareholders in the form of a dividend. And because of this, you’ll often find that REITs pay a higher dividend than your average stock.
Additionally, if you don’t have much (or any) money in real estate, REITs are a great means of diversification without taking on the risk that comes with owning physical property. After all, do you really want to buy an income property and bear the cost of maintaining it at a time in your life when money may be tighter?
It pays to look into REITs
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 depending on market conditions. Even if you put your money in well-sold and well-established companies, your REIT shares may end up being worth less if the broad market tanks or the specific companies you buy run into financial problems or vacancy issues .
But if you retire on Social Security alone, you run another risk — that you won’t have enough income at your disposal to cover your expenses. So if you want to avoid that fate, you need to prepare to invest some of your money. And you might as well choose an asset that is known to be generous on the dividend front.
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