What Is Supplemental Retirement Income?


Supplemental retirement income is the amount of income a retiree earns on top of the income he receives from Social Security and pension payments. Depending on a person’s preferences and resources, there are several different ways to obtain supplemental retirement income.

How Much Is Needed?

Understanding how much supplemental income a retiree needs is largely based on his basic living expenses. At a minimum, a tally of the monthly costs relating to food, housing, transportation and medical care should be listed. That total needs to be compared to all of the retiree’s current sources of income, such as Social Security payments, pensions and any investment income. If total basic living expenses are higher than total income, then the retiree should consider some form of supplemental retirement income.

Is it Necessary?

Supplemental retirement income is not necessary, but it does allow many retirees to sleep better at night due to the security it provides. By knowing that all of his basic living expenses are covered, the retiree doesn’t have to worry about not being able to live comfortably throughout his golden years.


A single premium immediate annuity is the most common way to fill the gap between monthly living expenses and monthly income. By giving a lump sum payment to an insurance company the retiree will receive a monthly income stream for as long as he lives. In some cases it will even provide a survivor benefit to his partner or adjust upwards with inflation.


One of the problems with an annuity is that it reduces a retiree’s access to the lump sum of money he gave to the insurance company. If an emergency comes up where he needs quick access to a large sum of money, the insurance company will charge him a lot of financial fees and penalties. As a result, some retirees look to bonds and U.S. Treasury Inflation Protected Securities (TIPS) to accomplish nearly the same thing as an annuity. While the retiree will have easy access to his money, he will be exposed to interest rate risk that can lead to fluctuations in his monthly income. Of course, structuring a bond ladder correctly will help to alleviate some of the volatility.

Part-Time Job

While annuities and bonds are an easy way to create a stream of supplemental retirement income, not every retiree has the resources to take advantage of those two options. For them, re-entering the workforce and taking on a part-time job is their only option. A retiree doesn’t necessarily have to work full-time; he just needs to pick up enough hours to meet his shortfall in living expenses.

Living Within Your Means

No matter which way a retiree decides to go about it, whether by buying an annuity, investing in bonds, taking a part-time job or simply cutting back on living expenses, the important thing for every retiree is to live within his means. By making a realistic budget and sticking to it, the retiree will have a much better chance of having his money last as long as he does.

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