For many retirees, a Social Security check is all they have to live on during their retirement years. But if you’ve already accumulated a great deal of retirement savings or you earn income from other sources, you might not need your Social Security to fund your retirement lifestyle.
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That doesn’t mean you can’t still use it to build more wealth for either yourself or your descendants, though. According to the Social Security Administration, the average monthly Social Security check is $1,710 — a significant sum if you’re looking to invest or build passive income.
Regardless of why you might want to do this, it never hurts to know your options. Experts say these are some of the best ways to use your Social Security check to earn passive income.
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Dividend-Paying Stocks
Investing all or a portion of your Social Security check in dividend-paying stocks or mutual funds can be a great way to earn a bit of extra money.
“You should seek out companies with a history of consistent dividends,” said Joel V. Russo, LUTCF, retirement advisor, founder and principal at NJ Retirement Planning, LLC.
By choosing these types of investments, you can build up to a regular passive income stream. If you’re not sure where to start looking, speak with a financial advisor or investment professional to see what they suggest based on your financial goals and risk tolerance.
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Real Estate
You can also build passive income through real estate. This could be a good option if you can invest your entire Social Security check or even supplement it with other retirement income you have. Just make sure you don’t invest more than you can comfortably afford to lose.
One popular option among retirees is real estate investment trusts (REITs). REITs are companies that own a portfolio of properties. By purchasing shares of a REIT, you can benefit from the returns those properties earn.
“They allow you to invest in property without actually buying any,” said Diana Howard, the financial analyst at CouponBirds. “You can start with as little as $100. However, REIT prices can change with the market, so there’s some risk involved. To reduce risk, buy REIT funds instead of shares in a single REIT.”
Another option is to purchase commercial or residential properties and rent them out to businesses or individuals. To make this an even more passive income stream, you can work with a property management company that handles rent collection, property maintenance, tenant screening, leasing documents, and more.
Peer-to-Peer Lending
Peer-to-peer (P2P) lending platforms connect you with individuals who need a loan. As an individual investor on one of these platforms, you can set your own interest rates, eligibility criteria, and terms. Once matched with the right borrower, you can then earn money on interest as they pay back what they borrowed.
P2P lending may offer a higher return on investment than traditional loans. But it does come with some risk since there are no guarantees that the borrower will repay the full amount as scheduled.
Fixed-income Assets
Fixed-income investments are another way to build passive income using your Social Security check. These types of assets generally provide regular interest payments or dividends to investors. Returns on investment and risk levels depend on the asset type.
There are many types of fixed-income assets, including:
Short-term treasury bills: These usually mature within a year or so.
Treasury notes: Treasury notes usually mature within two to 10 years, making them a good long-term investment option — especially for newer retirees. You can buy them in increments of $100. They pay a fixed interest rate every six months until their maturity date. If you don’t mind a longer investment period, you could instead purchase treasury bonds.
Certificates of deposit (CDs): When you purchase a CD, you’re committing to leaving your money in that account until the predetermined maturity date. This can take several months or years, depending on the CD you choose. In exchange, you’ll receive a fixed amount of interest based on the CD’s interest rate.
Treasury securities: Treasury Inflation-Protected Securities (TIPS) come in 5-, 10-, and 30-year terms. You can purchase them in $100 increments up to $10 million. TIPS are designed to protect you against inflation. You typically earn a fixed interest rate every six months until your TIPS matures.
Another option is to invest in corporate bonds — especially if you’re recently retired or are looking to build generational wealth.
“Purchase long-dated corporate bonds with a reasonably high credit quality profile,” suggested Matt Willer, a seasoned private asset investments expert and the current managing director and partner at Phoenix Capital Group Holdings, LLC.
Willer suggested corporate bonds for two reasons.
“First, you will be securing your position in the bonds while rates are high and therefore you can lock in attractive yield long term,” he said. “Secondly, the principal value of bonds move inversely to interest rates, so when rates start to come down, the principal value of bonds will increase.”
By using this investment strategy, you can benefit from capital appreciation and long-term yield.
Business Ownership
Depending on when you retire, you might want to consider using your newfound freedom and Social Security check to start a business. It can take time for a new venture to earn you money, but stick with it and you can create a steady stream of passive income.
If you’re not sure where to start, consider your current skills, expertise, and interests. Take some time to determine which ones could be turned into a thriving business.
Almost anything can be turned into a business — with proper planning, motivation, and dedicated time. You could start a consulting business, a blog that earns money through affiliate marketing, or a tutoring or coaching business. Or you could put your creativity to good use and set up an Etsy shop.
And if that sounds like too much work, consider investing in an established business. Just be sure to evaluate its potential revenues and the required commitment involved beforehand.
Single-Payment Immediate Annuity (SPIA)
Like other annuities, SPIAs are a type of financial product you can get through an insurance company. Once you purchase one, the company will pay out a fixed amount of money over time — sometimes for life. The exact payout depends on factors like the current interest rate and your age.
The downside to SPIAs is that payments stop as soon as you die, meaning it’s possible to lose out on your investment. They also rarely allow you to have a beneficiary, so they’re not an effective way to build generational wealth. They can, however, serve as a solid option if you want to earn passive income.
As with any investment, do your research before putting your Social Security check into any particular asset class or investment opportunity. If possible, diversify your investments to reduce risk and maximize how much passive income you can earn.
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This article originally appeared on GOBankingRates.com: 6 Ways To Make Passive Income From Your Social Security Check
