How to Generate Retirement Income
As you get closer to retirement, it becomes more urgent to generate cash flow. Below are some useful strategies to explore to put together the funds you need to lead a meaningful and comfortable retired life.
1. Certificates of deposit
Also known as a CD is issued by a bank and is insured by the FDIC. The longer the term of your CD, the higher the interest you will earn. Your principal is 100% safe. However, the income is not large, variable, and at times unable to keep up with inflation.
It is definitely a safe investment, but it is wisest to make it only a part of your portfolio, rather than all your portfolio.
2. Stock Dividend Income
Some stocks multiply dividends each year and some stock dividend mutual funds let you invest in a group of stocks at once. This gives your income the opportunity to rise with inflation. However, this means your principal will fluctuate as the market moves.
In tough times, your dividends may be reduced or eliminated.
3. High Yield Investments
If you can stomach high risks, high yield investments can earn you super-size yields. You can generate a high amount of initial income! But again, the principal will fluctuate and high yield investments may reduce or eliminate distributions during tough times. It is very risky, but this extra risk can add more money to your retirement account.
4. Systematic Withdrawals From a Balanced Portfolio
A balanced portfolio has stocks and bonds that can generate a reasonable amount of inflation-adjusted lifetime income.
Systematic withdrawals provide an automated way of selling a proportional amount of what is in the account each year so you can withdraw from the account to meet your retirement income needs. The principal will fluctuate but the balanced portfolio is flexible enough to withstand market volatility.
5. Immediate Annuities
This is issued by insurance companies. You will receive income for life in exchange for a lump sum deposit. The income is guaranteed, and as long as you buy an inflation-adjusted immediate annuity, your income will keep up with inflation. The only catch is it has a lower initial payout. You are guaranteed an income for your entire retirement though – even if you live to 100!