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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.
Originally published: December 31, 2024
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.
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.
While there are numerous ways to diversify your retirement income, here are a few popular options.
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.
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.
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.
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's Longevity Benefit is designed to help investors build potential income for the later years of retirement. It is not insurance, not a guaranteed product, and not FDIC insured. Learn more at savvly.com/disclosures.
This article is for informational purposes only and does not constitute financial, tax, or investment advice. Consult a qualified financial professional before making retirement planning decisions.
Disclosures
The information on this page is provided for educational purposes only and is not intended as investment, legal, or tax advice. It is designed solely to illustrate how longevity-linked investment benefits may work under certain assumptions. Actual results will vary. All illustrations, examples, and case studies are hypothetical and are intended to demonstrate potential scenarios — not to predict or guarantee actual outcomes. They do not represent the performance of any individual investor, portfolio, or account.
Key Assumptions Used in the Illustrations
Life expectancy and mortality projections are based on the most recent Social Security Administration (SSA) tables available at the time of simulation.
In the event of death or early withdrawal, hypothetical scenarios assume that investors who exit early, or their estate in the event of death, may receive 75% of the lesser of the initial investment or current market value, plus 1% for each full year the account was active. Case studies assume standardized market growth of 8% annually and do not incorporate unexpected market volatility, inflation, changes in interest rates, or changes in an investor's personal circumstances.
Simulations may assume a 3% annual early withdrawal rate prior to payout or death. All figures shown are net of fees. No forecast, projection, or hypothetical return should be relied upon as a promise or representation of future performance.
Past performance is not indicative of future results. The 8% annual market growth rate used in illustrations is a standardized assumption for modeling purposes only and does not represent the historical or expected performance of any specific investment. Note that early or voluntary withdrawals by other participants can affect fund performance and the size of distributions, and that a higher-than-expected number of participants reaching payout milestones may reduce the per-participant benefit received.
Savvly's Longevity Benefit is not a bank product, not FDIC insured, not insured by any federal government agency, not a guaranteed or insured investment, and not insurance. Investment values may decline.
Savvly's Longevity Benefit may not be suitable for all investors. Eligibility to invest is subject to qualification requirements and not all investors will be eligible. Investors should carefully consider their investment objectives, risk tolerance, time horizon, and financial situation before investing. See savvly.com/disclosures for current eligibility criteria, fees, risks, withdrawal terms, and fund assumptions.
This content is published by Savvly, Inc. Savvly has a financial interest in the products described and this content should not be interpreted as independent financial research or analysis. Investors should carefully evaluate their own circumstances and consult a qualified financial professional before making any investment decision.
