For many, the first stop in planning for retirement is social security. Over 92% of adults in the U.S. over the age of 65 list social security as a source of income. While this is a logical place to start, questions about social security's reliability need to be answered. That's why diversifying your post-retirement income streams is critical to your future. 

Why you can't rely on social security

To start, let’s have an honest conversation about social security. At the very least, you should be aware of two important realities. 

First, Social Security faces a funding shortfall in the next 10 years. While this sounds alarming, many expect Congress to step in and address it.

That said, the second reality could be even more significant. With rising costs, including medical care, many seniors are finding that their social security income isn’t stretching far enough. According to the Center on Budget and Policy Priorities, “Future retirees already face lower benefits, relative to their past earnings, than current retirees because of a rising Social Security retirement age and escalating Medicare premiums.”

Let's explore how people planning for retirement can prepare for this.

Why do diverse income streams matter?

A timeless piece of advice for navigating these realities is the classic saying: “Don’t put all your eggs in one basket.” In other words, instead of hoping there are no issues with social security shortfalls and the amount you receive is enough to cover your expenses, plan to have other streams of income set up for retirement. The official term for this is diversification. 

Common ways to diversify your retirement income

While there are numerous ways to diversify your retirement income, here are a few popular options.

Passive income from property investments

While many would argue there are no true passive income sources, investing in property may be one of the closest examples. Many seniors purchase homes and use them as long-term or short-term vacation rentals, like Airbnb or Vrbo.

Traditional investments

A method that is quite popular when planning for retirement is investing in traditional investments like stocks and bonds. Prospective retirees looking to use this as a source of income should be cautious when choosing risk-averse investments. 

Another option is investing in a mutual fund to help investors better manage risk. If you have significant time before your planned retirement date, target date funds tend to be a favorite of investors and may be worth exploring.

Hobbies can be profitable

Is there something you make, bake, or create that others might be interested in? Many seniors have found that they can turn their hobby into a business by selling their goods and services to friends, family, and even others at places like local farmer’s markets. This can be as small as a side hustle or as big as a full-on business.

Personal pension plans are a unique option worth considering

An additional option you may not know of is a personal pension plan. These plans can provide an additional income stream that isn’t tied to your employer or workplace. You'll make regular contributions into your account like a regular employer-provided pension plan. That money will be invested on your behalf. When you retire, you'll receive your pension payouts with many of the same tax benefits as a traditional retirement investment account.

Savvly can be your first step

If you want to learn more about how personal pension plans can work for you, we encourage you to check out Savvly. Savvly is the world’s first market-driven pension designed to give you easy and affordable financial security for life – at a fraction of the cost of an annuity. 

If you’d like to find out more, we encourage you to share your email below so we can send you some information.

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