Social Security Is Not Enough: How To Set Up Alternative Retirement Income

Social Security provides a significant number of retirement benefits, the biggest being a growing income stream you can’t outlive. So you won’t face the danger of running out of money in your golden years when you aren’t working for a living. The downside: For all but the most frugal Americans, Social Security alone simply won’t be enough to retire on comfortably.

The Social Security Administration says the program should replace about 43 percent of your pre-retirement income for medium earners. In short, you’ll need more income to maintain your standard of living. That’s why it’s vital to set up alternative income streams for retirement — here’s how.

Social Security won’t be enough

According to a recent Bankrate Social Security Survey, more than half (53 percent) of Americans who haven’t retired yet say they expect to rely on Social Security benefits to pay their necessary expenses once they retire.

However, the same survey found that 73 percent of Americans are concerned that promised Social Security benefits won’t be paid to them upon retirement age.

That concern is rooted in a potential Social Security funding shortfall on the horizon. The 2024 Social Security and Medicare Board of Trustees report projects that without legislative action, the program won’t be able to pay full benefits by 2035, potentially reducing payouts to 83 percent of promised amounts.

With about 68 million Americans depending on Social Security, securing its future is essential. However, there’s no simple fix — various solutions have been proposed but members of Congress have yet to take any meaningful action on the issue.

Despite such warnings, many Americans are woefully under prepared for retirement. Even if your future benefits are unaffected, your monthly Social Security check likely won’t be enough to cover your expenses in retirement.

With the average Social Security check of $1,976 in January 2025, retirees have to pay Medicare premiums as well as other living expenses. It’s a tough road, even if you’re able to avoid taxes on your benefit.

“Social Security was never set up to fully fund someone’s retirement — it was just set up to hedge the risk of a retirement shortfall,” says Eric Bond, president of Bond Wealth Management in Long Beach. “For many Americans, Social Security is the only guaranteed income stream they’ll have in retirement. This means it’s more crucial than ever before to have multiple streams of income in retirement.”

Certainly, workers can try to maximize their Social Security benefits through smart planning.

“Many people can benefit from waiting until 70 to collect Social Security since it is the only government-guaranteed, inflation-protected income source,” says David Schneider, CFP, president of Schneider Wealth Strategies in the New York City area.

Schneider points to the fact that filing for benefits early can hurt your monthly payout, while waiting to claim after full retirement age can boost your benefit 8 percent a year. The upshot: If you claim at age 62, you can earn a check that’s just 70 percent of your full retirement benefit, while if you wait, you can boost your payout to about 124 percent of your full benefit.

But even with a maximum Social Security benefit, retirees will still need alternative income. Here are five accounts to set up retirement income and five investments to build that income.

5 accounts for retirement income

Retirement savers have five key accounts for building income, often with tax advantages to help build wealth faster, though you may have access to other top retirement plans.

5 ways to set up alternative income streams

Inside the account types above — with the exception of the annuity, which itself is an income stream — you can invest in securities that can produce income for you. You have two main strategies here.

• Current income now: If you need the highest current income today — if you’re a retiree now, for example — you can invest in income-paying securities such as bonds, bond ETFs and preferred stocks. In exchange for more yield today, you’ll be sacrificing growth later, but it can be worth the trade-off if you’re really under pressure for income.
• Growing income for later: If you can afford to wait for income, you can potentially grow your wealth even more. This approach works well with dividend-paying stocks and S&P 500 funds, where yields are lower today but should grow over time. This approach likely leads to more total wealth for you.

But it’s critical that you understand how taxes affect these strategies. Whenever you receive income such as dividends or interest, you’ll owe tax on that income unless it’s received inside a tax-advantaged account. On the other hand, if you focus on income for later, you may be able to grow your wealth without having to pay taxes on much of your gains, even in a taxable account.

“It’s crucial that you talk with your tax preparer along with your financial professional as you determine your retirement income plan to ensure you have an eye on the tax implications of your various income streams,” says Bond.

Here are five key securities for setting up your alternative income stream.

Bottom line

Retirement savers need to establish alternative income streams because they can’t only rely on Social Security to maintain their standard of living. Those who start early — ideally as soon as they begin working — will have the best chance to build a powerful income stream that can sustain them through their golden years.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.