How to make more retirement income beyond Social Security

Social Security is a guaranteed income source that can help you pay for expenses in retirement. The percentage of your income that this benefit will replace depends on how much you made while you were working.

But for the average wage earner, it will replace about 40% of their pre-retirement income. The type of life you live after you've stopped working will greatly depend on how much you can replace the other 60%.

If you made $80,000 while working, and Social Security replaced 40% of that income, you would get $32,000 in annual payments. Living the exact same lifestyle and not changing anything would require an additional $48,000 from other income sources. Here are three ways you can make up for this gap.

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Reduce expenses by 20%

On average it's recommended that you live off of about 80% of your working income. Reducing your $80,000 salary by 20% would be equal to a $16,000 cut in expenses. And if you could accomplish this, the amount of income that you needed to replace would be $32,000 instead of $48,000.

A good portion of the income that you need could be reduced when you consider that your salary did not include taxes, and in retirement taxes could be significantly less. You also probably budgeted for saving with your salary and probably won't be socking away as much once you've retired.

After accounting for the portion of your income that automatically gets cut with taxes and savings, you may not need any additional changes. But if you do, paying off liabilities like your mortgage or a car note before retiring could help. If you have variable expenses like dining out and subscription services that make up a big portion of your discretionary expenses, scaling back could help you get to your goal.

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Save for the other 40%

You may be fortunate and have another guaranteed income source like a pension. But if you're like the majority of Americans, you'll be responsible for making up this deficit with your retirement savings. Studies have shown that taking no more than 4% each year from your retirement accounts is a good way of maintaining your assets in retirement. Generating $32,000 by taking a 4% withdrawal rate would require an $800,000 balance.

You could save $801,114 in 30 years if you could contribute $6,300 each year and earn 8.2% on average. From 1926 to 2020, you could've earned this much by investing in a portfolio of 40% stocks and 60% bonds. If you had more of an appetite for risk, you could decrease your contributions to $4,600 if you could earn 9.8% on average over the same time span and grow your accounts to $800,000. You could've done this with a portfolio that consisted of 80% stocks and 20% bonds.

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Working could replace what's left

It's possible that you save as much as you can and grow your accounts considerably but still can't reach the amount of money that you planned on saving. If you wind up in this situation, you can make up the remaining portion by working.

For instance, if you saved $500,000, you could take 4% off of this figure and get $20,000 in income. If you couldn't further reduce your expenses or didn't want to, you could work just enough to come up with the extra $12,000 each year. If you made $80,000 a year working full-time, working part-time in retirement should be enough for your lowered income needs.

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If you earned an average income while you were working, Social Security will replace almost half of your working income after you've retired -- but it won't replace all of it. If you were a high-wage earner, it will cover even less. Finding ways to supplement this income is vital for a comfortable retirement. And making a plan for how you will do it will help you best accomplish this goal.