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7 Ways To Drive Income For Life From Your Investment Portfolio Thumbnail

7 Ways To Drive Income For Life From Your Investment Portfolio

It’s important to develop an income strategy for life despite a number of risks to your portfolio, to ensure you have enough to cover your expenses throughout your retirement.

You’ve worked hard throughout your life to build your investment portfolio. You’ve presumably learned about asset allocation, tax deferral, and investment fees. But driving income from your investment portfolio is an entirely different thing.

It’s important to consider, your investment portfolio isn’t our only source of income in retirement. You also have Social Security. You might be lucky enough to have a pension. You might own a small business and/or work part-time.

But for most people, the income you can drive from your portfolio (of tax-deferred and taxable accounts) is an essential component of your retirement paycheck.

Below is a listing of seven in-depth articles about generating and protecting your retirement income. Please click on the title link to be taken to each article.


1) Dividend Income Strategy

Owning dividend-paying stocks is an effective strategy to generate income in retirement. The dividend income should be derived from a diversified array of stocks in various sectors and market capitalizations. Also, by owning shares in the companies, capital gains from stock price appreciation can also be used as in income source.

By combining both capital gains and quarterly dividend payments, it’s possible that the dividend income strategy can provide enough income to pay your need-based expenses without touching your principal balance.

2) Bond Ladder Income Strategy

A bond ladder matches a series of bonds to the income stream you need to pay your expenses in retirement. The ladder is purchased in advance and configured, so a bond matures in each year to be cashed out and used for need expenses such as electricity and food.

A bond ladder can also bridge the gap in the years when you have no income such as the period leading up to collecting Social Security benefits. There are many options available to you for creating the rungs or maturity dates of your bond ladder where you match an income stream to your financial needs in retirement.

3) Real Estate Rental Income

Owning rental properties as an income source in retirement can offer you a steady stream of income and diversify your portfolio by reducing your exposure to stocks and bonds. Whether you buy a property outright or invest in a Real Estate Investment Trust or REIT, you can get paid a higher rate of return than current Treasury yields.

Of course, owning property is not without risk. However, rental income allows you to provide for your expenses in retirement while diversifying your investments. Also, owning rental properties reduces your overall risk to the financial markets. This is why one in ten retirees own rental properties. With rental income, you create a stable cash flow that lasts throughout your golden years.

4) Safe Withdrawal Rate

A safe withdrawal rate helps you determine the amount of annual income that you can spend without running out of money in retirement. One of the chief benefits of the safe withdrawal rate is its ability to allow you to stay invested in turbulent markets while maintaining a stable income stream each year. Although it’s not a substitute for an income plan, establishing a safe withdrawal rate can aid you in determining how much you can withdraw without depleting your savings.

5) Flexible Withdrawal Rate Strategies

Since your retirement could last for 35 years or more and with so much uncertainty in the financial markets, how do you know if your withdrawal rate won’t deplete your retirement savings?

What do you do if the financial markets perform poorly, how do you adjust your rate of withdrawal?  On the other hand, what if the markets perform well for a few years, do you withdraw more money?

There’s good news. There are flexible variations of the safe withdrawal rate strategy. These flexible strategies are designed to help your money last longer with safer withdrawal rates. There are also strategies designed to pay yourself a bonus when the market performs well.

6) Sequence Of Returns Risk

If you were one of the unlucky ones who retired just before the 2008 financial crisis, whether you realize it or not, you know all too well what sequence of returns risk can do to your portfolio.

Sequence risk as it’s often called is the risk your portfolio suffers a loss in the early years of retirement while you’re simultaneously withdrawing money for income. Sequence risk is important because suffering an investment loss earlier on in retirement increases the risk of depleting your savings than if you had suffered the loss years later.

With examples of how sequence risk can negatively impact your investment portfolio, we’ll delve into various income strategies and best practices designed to help you beat sequence risk and avoid becoming one of the unlucky ones.

7) Inflation Risk

When you’re in retirement, you stand to lose the most from rising prices since you’re not receiving pay raises or promotions as you did when working. Your income is fixed and based mostly on how your investment portfolio performs.

As a result, inflation which measures price increases of goods and services erodes your rate of return on your investments since it offsets your gains. Although inflation has been relatively low for last fifteen years or so, it’s important to factor in its damaging impact over time. Inflation also impacts some investments more negatively than others.

By creating a balanced, diversified portfolio of investments that perform well in an inflationary environment, you can beat inflation and enjoy a healthy income stream throughout your retirement.

Plan For The Long Term

When it comes to retirement planning, we’re taught to plan for the long term. Over many years, the markets should perform well on average delivering a stable rate of return. However, there are risks that if materialize can derail your retirement.

It’s important to develop an income strategy for life that recognizes these risks and provides you a stable income throughout retirement. Of course, there is no one size fits all income strategy for retirement. And the risks to any strategy need to be assessed. This is why it’s important to speak with an advisor to assess the factors in deciding if these income strategies are right for you.