Retiring on Social Security alone is generally a bad idea. Those benefits will only replace about 40% of your pre-retirement wages if you earn an average salary. And that assumes benefits aren’t reduced substantially down the line.
Because Social Security is facing a financial shortfall, seniors might have to deal with benefit cuts if lawmakers don’t find a way to pump more revenue into the program. So it’s definitely wise to make a plan to supplement those benefits.
Now there are different assets you can invest in to generate retirement income. Bonds, for example, are a reasonably wise bet, because their face value doesn’t tend to fluctuate wildly, and they’re contractually obligated to stick to a preset interest payment schedule.
Dividend stocks are another wise choice for retirement. Companies with a long history of paying dividends are likely to continue doing so, and that’s a great way to get your hands on more money.
But if you really want to boost your retirement income, it pays to consider investing in real estate. And no, that doesn’t have to mean buying rental homes and becoming a landlord (though that’s of course an avenue you could explore). Instead, you can set yourself up with added retirement income by putting money into real estate investment trusts, or REITs.
Why REITs make sense for retirees
REITs are companies that own and operate portfolios of properties. Within the realm of REITs, there are different sectors you can focus on — for example, industrial REITs, data center REITs, and retail REITs, to name a few.
What makes REITs a smart investment for retirees is that they’re require to pay out 90% of their taxable income to shareholders in dividend form. And because of this, you’ll often find that REITs pay a higher dividend than your average stock.
Plus, if you don’t have a lot of (or any) money in real estate, REITs are a great means of diversifying without taking on the risk that comes with owning physical property. After all, do you really want to buy an income property and bear the cost of maintaining it at a time in your life when money may be tighter?
It pays to look at REITs
Investing in REITs isn’t a risk-free proposition, just as there’s risk in owning dividend stocks and even bonds (at least to a certain degree). After all, the value of REITs can fluctuate based on market conditions. Even if you put your money into sold, well-established companies, your REIT shares could end up being worth less if the broad market tanks or the specific companies you buy run into financial problems or issues with vacancies.
But if you retire on Social Security alone, you’ll take on another risk — not having enough income at your disposal to cover your expenses. So if you want to avoid that fate, you’ll need to prepare to invest some of your money. And you might as well choose an asset that’s known to be generous on the dividend front.
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