Potential cuts to Social Security benefits understandably concerns many retirees. Social Security often comprises a significant portion of income for its near 58 million recipients, according to the Social Security Administration (SSA). A reported insolvency in seven years may create growing unease for those depending on monthly benefits.
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Dual-earning couples may see an $18,100 annual reduction in benefits, according to the Committee for a Responsible Federal Budget (CRFB). Amounts can vary depending on specific circumstances. Taking prudent action now can help provide income to offset any loss in benefits.
Before considering any backup income source, retirees should consult with a trusted financial advisor to create a plan.
Retirement Accounts
IRAs and 401(k) accounts are popular retirement planning tools for many Americans. Roughly 54% of Americans had such accounts in 2022, according to Congress.gov. Wisely tapping these accounts can be a good way to complement a reduction in benefits.
“If you have 401(k)s, IRAs or other retirement accounts, it is time to make a plan to access them if your Social Security benefits get squeezed. The challenge is to set up a withdrawal and tax plan that maximizes the income you can get from your retirement accounts across the rest of your life,” said Jay Zigmont, PhD, certified financial planner (CFP) and founder at Childfree Trust.
Speaking with an advisor can help seniors create a withdrawal plan.
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An Annuity
Annuities often get a bad rap, thanks to fees and other potential charges. While not for everyone, an annuity can be a good fit for some retirees. Fixed annuities commonly have reduced points of entry, making them easier for seniors to purchase.
“One of the most reliable ways to create backup income in retirement is through fixed indexed annuities with guaranteed income riders,” noted Matt Eilers, CEO and Founder of Medalist Wealth Management. “These income sources grow based on the performance of a stock index, like the S&P 500, but the principal is protected against market volatility, and the income riders guarantee a predictable income payment through retirement.”
A Part-Time Job
Having a part-time job in retirement may not be desirable, but it can be a good way to supplement Social Security payments. Retirees can earn up to $62,160, as of 2025, before benefits are reduced, according to the SSA.
Working a side gig may be attractive, but Zigmont advises seniors to look elsewhere for work.
“While gig work, like driving for Uber, may be popular, it is unpredictable and comes with other costs. Part-time jobs are probably the best bet, as you don’t need the benefits,” said Zigmont.
Dividend-Paying Stocks
Investing in dividend-paying stocks has long been a way for retirees to earn income. Americans can house such investments in both retirement and non-retirement accounts. Holding them in the latter can provide cash flow, and lower-income retirees may face 0% federal tax on them, if they’re classified as qualified dividends, according to Fidelity.
This strategy poses some risk of placing you in a higher tax bracket and potentially losing the tax deferral benefits found in retirement accounts. Speak with an advisor to identify if this is an option for you.
Use Your Home
For many Americans, their home is their most valuable asset. If you can downsize, it can free up cash. For example, if your current home is paid off and worth $350,000, and you move to a $200,000 home, that’s $150,000 in cash you can claim, before fees tied to selling the house. Such an amount could offset a reduction in benefits.
A reverse mortgage is another possibility, but it may not be worth the risks and fees associated with such an action.
A reduction in Social Security benefits can cause grave concern for many seniors. Pairing the right backup income source with reduced spending can help mitigate the financial impact.
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This article originally appeared on GOBankingRates.com: Social Security’s Future: 5 Backup Income Sources Every Retiree Should Consider
