Part of planning for a secure retirement is crafting a reliable income stream that can support your lifestyle once you stop working. There are a variety of investment options that can help you grow your savings and generate income throughout retirement. Each choice offers specific benefits, risks, costs and limitations. The key is to find the right mix of investments that align with your risk tolerance, time horizon and retirement goals. A financial advisor can also help you create a stable and diversified income plan, which can help you maintain financial security during retirement.
The Importance of Building Retirement Income
Building a steady retirement income can help you maintain your financial independence once you leave the workforce. Without a reliable income stream, you may find yourself relying too heavily on Social Security, which is often not enough to cover all living expenses.
Having diverse income sources is also important. Collecting income from an array of investments can boost both security and flexibility, allowing you to cover unexpected expenses and enjoy your retirement years without financial stress.
Durability is another concern. A well-planned retirement income strategy reduces the chance you will outlive your savings. As people are living longer, today’s plans generally aim to generate income for 20 years or more.
Don’t forget inflation. Increasing prices can eat into the value of your savings over time. You can safeguard against this by investing in assets that could grow or provide income that keeps pace with rising costs.
4 Investment Options to Help You Build Your Retirement Income
The investing world offers several choices that you may want to include in your portfolio. Here are four to consider:
1. Stocks
Stocks, also referred to as equities, offer the opportunity for higher returns compared to more conservative investments. Dividend-paying stocks, in particular, can provide a steady income stream while also allowing for capital appreciation. However, stocks can be volatile, so it’s important to balance stock investments with other, more stable assets, especially as you near retirement.
2. Bonds
Bonds are fixed-income securities that pay interest over time, making them a popular choice for retirees seeking stable income. Bonds are generally less volatile than stocks, but they offer lower returns. Government bonds, corporate bonds and municipal bonds are common options that provide regular interest payments, which can serve as a reliable source of income in retirement. A well-diversified bond portfolio can help reduce risk while providing a predictable income stream.
3. Annuities
Annuities are insurance products that provide guaranteed income for life or a specific period. They may be suitable for retirees who want to ensure they won’t outlive their savings. Annuities come in various forms, including fixed, variable and indexed, and offer different levels of income and risk. While annuities can provide peace of mind, they can also come with higher fees and less flexibility compared to other investment options.
4. Real Estate
Investing in real estate, whether through rental properties or real estate investment trusts (REITs), can generate passive income throughout retirement. Rental properties offer a steady stream of income from tenants, while REITs allow you to invest in real estate without the responsibilities of property management. Real estate can also provide capital appreciation over time. However, the income generated from real estate investments can be affected by market conditions, and managing properties can be time-consuming.
Other Tips for a Comfortable Retirement
In addition to choosing investment options, there are several other strategies you can implement to ensure a comfortable retirement. Here are five to keep in mind:
- Start investing early: The sooner you begin saving and investing for retirement, the more time your money has to grow. Compounding returns can significantly boost your savings over time, making early investing one of the most powerful strategies for building retirement income.
- Contribute to a 401(k) with employer match: If your employer offers a 401(k) match, take full advantage of it. Employer contributions are essentially free money that can grow tax-deferred, helping to increase your retirement savings faster.
- Diversify your investments: A diversified portfolio that includes a mix of stocks, bonds, real estate and other assets can help reduce risk and provide multiple streams of income. Diversification ensures that if one investment underperforms, others may offset the losses.
- Delay Social Security: Waiting to claim Social Security benefits until age 70 can increase your monthly benefit amount. If you have other sources of income and can afford to delay, this strategy can provide higher income throughout retirement.
- Keep an eye on inflation: As you plan your retirement income, consider investments that can outpace inflation, such as stocks and real estate. Inflation can erode the purchasing power of your savings over time, so it’s important to invest in assets that grow or adjust with inflation.
Bottom Line
Building a reliable retirement income requires careful planning and a mix of diverse investment options. Whether you invest in stocks, bonds, annuities or real estate, the combination will depend on your financial goals, risk tolerance and time horizon. In addition to smart investing, taking steps like contributing to a 401(k), delaying Social Security and starting early can help secure a more comfortable retirement. By considering these factors, you can create a retirement income plan that ensures financial stability and peace of mind throughout your retirement years.
Tips for Investments
- A financial advisor can help you create an investment plan for your needs and goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s CD calculator considers deposit size, term length, interest rate and compounding period to tell you how much your certificate of deposit can earn.
Photo credit: ©iStock.com/zamrznutitonovi, ©iStock.com/dragana991, ©iStock.com/Szepy