In Retirement (ages 65+): Strategies and Recommendations for Long-Term, Income-Oriented Return Objectives

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Written By Mark

Mark is the co-owner of and has many years of experience in financial markets. 

Many factors influence the decision to retire, including financial and personal considerations. Congratulations on your decision to retire! 

Perhaps you’re still waiting to retire and you’re wondering, “Can I safely generate sufficient income now and in the future to maintain my current lifestyle?”

Here, we discuss this important question and others concerning finances and retirement.

Income Sources in retirement

If you’ve planned ahead for retirement, you have income options.

There are several sources from which to draw income now, e.g. a defined benefit pension, 401(k), IRA, or other retirement savings plans, Social Security distributions, dividend and interest-bearing securities, bank accounts, and other sources of cash.

First, answer the important question, “Are you ready to retire?”

Readiness assumes that you’re financially and emotionally prepared to stop working or substantially reduce the work you perform to generate employment income.

Have you saved enough to retire? How do you prepare for economic uncertainties, e.g. inflation?

In Retirement: Reliable Income?

Let’s discuss at least 10 ways to get a reliable income stream while managing financial risk in retirement:

Reliable and low-risk income sources are a top concern for many retirees.

Income-producing securities may supplement other retirement plans and Social Security distributions without your need to assume significant risks.

Fixed-income annuity plans, although popular, won’t keep pace with future inflation. Rising inflation could mean your annuity payments will get you fewer goods and services in the future.

Consider part-time work or start a business of your own in retirement.

Some semi-retired people like the idea of managing their own time and working on their own terms.

Mix or match these income-generating ideas to align with your income requirements and risk tolerance profile.

Fixed Annuities

Insurance companies provide income-producing policies called annuities.

If you’re searching for predictable and reliable income to supplement other sources of retirement income, fixed annuities are guaranteed by the insurer for a certain time period or the remainder of your life.

If you get an immediate fixed annuity plan, the insurance company begins to remunerate you almost immediately. Thereafter, you receive monthly distributions.

Keep in mind that annuity plans are complicated. There are risks associated with them, including:

Complexity – You might die before collecting enough payments to justify this investment. 

If you get a fixed annuity product, you also bear the risk of inflation.

If the fixed annuity continues to provide monthly payments into the future, inflation may erode the value of your income stream. 

It’s guaranteed income and cash flow for your life but you won’t know now what your future income stream is worth. 

Immediate variable annuities may offset some concerns because payouts from these contracts are partially aligned with an index return, e.g. S&P 500.

Note that you usually can’t get your principal investment back after your annuity payments begin.

Systematic Withdrawal from Your Investments

In comparison, an investment portfolio with a systematic withdrawal feature might satisfy your requirements.

It’s possible to arrange a systematic withdrawal plan when you retire (and use funds in a retirement plan) or a non-retirement investment account.

You determine how much money the investment firm distributes to you and how often, e.g. monthly, quarterly, or annually.

You also maintain control of the account but your funds aren’t guaranteed by the investment company, bank, mutual fund, broker-dealer, etc.

Liquidity Concerns

In retirement, you may value the liquidity of your capital. A systematic withdrawal plan implemented on your investment account is drawing from liquid financial assets. Annuities lack liquidity.

After your premium is paid to the insurance underwriter, you don’t have access to this capital. 

Fixed Income and Bonds

Bonds represent the loans or debt of a government or corporation. If you acquire bonds, the issue owes you money and usually agrees to pay regular interest on it (coupon payments).

In a diversified portfolio, the least risky bonds (e.g. U.S. Treasury, agencies of the U.S. government, and investment-grade corporations) may provide a reliable source of income in retirement. 

In decades past, investment quality bonds paid high coupon rates. For instance, in 1980, certain AAA-rated corporate bonds paid double-digit coupon rates. 

After years of historically low-interest rates, many investment quality bonds remunerate historically low coupons.

To invest wisely in fixed income, build a bond portfolio using different maturity dates (the date on which the borrower agrees to return the lender’s principal).

Discuss the pros and cons of owning bonds if this asset class appeals to you. Always evaluate the cost of owning any investment. Refer to handling portfolio changes when in retirement for more details.

Stocks and Dividends

Unlike bonds and debt ownership, stocks represent equity participation in a company. As an owner of common equity, you may receive regular dividends if the company’s management elects to issue them.

Dividends are typically paid each quarter in the form of cash paid to shareholders. Realize that not every public company remunerates dividends and, even regular dividend-paying companies can stop them if the company’s financial condition declines.

Retirees also bear the market risk when owning equities. If equity values sell-off, any gain received from dividends is erased.  

For this reason, owning equities for income in retirement involves some consideration of your risk tolerance profile. Choose large and stable companies with an established track record of paying dividends.

When an equity is paying higher than market dividends, proceed with caution. It could mean that the company has yet to be announced financial troubles.

Life Insurance

Life insurance isn’t traditionally intended to be an investment. However, it may be an income source for retirees.

However, if you invested in universal life or whole life policies and have accumulated cash value over the policy schedule, you may draw the cash reserves by withdrawal or as a loan.

Remember, though, that taking money from the insurance policy before death reduces its death benefit, dollar for dollar. If you can’t repay the loan to your policy, your heirs may be required to use the death benefit to repay the loan.

Home Equity

If you own a home, it may be beneficial to withdraw some equity for income, e.g. in a home equity loan. Alternatively, you may decide to sell the property and use the capital in retirement. 

Other ways to access home equity include (1) home equity credit lines and (2) reverse mortgages.

Use home equity with care, however. Don’t overly rely on your residence’s value to create retirement income. Real estate values can decline and, in a seller’s market, your home equity can be reduced or wiped out.

As your life insurance policies, use home equity funds as a backup to other sources of retirement income.

In Retirement: Income-Producing Real Estate

In retirement, it’s especially desirable to receive rental payment checks or mortgage payments (if you’re acting as the holder of a property owner’s mortgage loan).

Unfortunately, it’s undesirable if your renter or property owner falls behind in making payments. 

Short-term vacation rentals offered through home-share sites like Airbnb and VRBO can help you generate extra cash on your home or rental properties. 

As the landlord, you’re responsible for upkeep, maintenance, and property tax costs in these transactions. 

Real Estate Investment Trusts

Real estate may belong in your investment portfolio but, if you want to forego mortgage and landlord obligations, equity REIT investments may make sense for you.

Equity real estate investment trusts manage, acquire, and sell real estate properties, e.g. apartment complexes and commercial real estate.

You can acquire REITs through a security exchange or via mutual funds. Either way provides you, the retiree, with greater liquidity in your real estate investments. REITs may also pay monthly or quarterly dividend payments.

As an asset class, real estate diversifies the retiree’s stock and bond holdings. Of course, REITs (like all real estate) are subject to value fluctuations.

The investor bears potential market and capital risk. Like other equity investments, REIT investments may be volatile. 

Savings Accounts and Certificates of Deposit

If you’re risk-averse, FDIC-insured bank and savings accounts protect your principal and interest. Investing in savings accounts and certificates of deposit (CDs) aren’t competitive with most other financial products.

In our current historically low-interest-rate environment, these investments remunerate two percent or less. However, in a rising interest rate environment, these products help retirees maintain liquidity and safety.

In Retirement: Part-Time Work

Even if you’ve got all the bases covered regarding sufficient income streams in retirement, you may like working. Staying active and current can be fun. You can work part-time or accept short-term assignments in the “gig economy.”

If you need extra income, it’s part-time work is ideal. If you have the expertise or marketable hobbies, it’s possible to make more income when you want to work. The only “cost” of part-time employment in retirement is your time.

Some retirees like meeting new people, learning new skills, and adding capital to their reserves in this way.

Sell Collectibles

If you collected valuable art, jewelry, furniture, or antiques during the course of your career, consider selling your collectibles now. This isn’t specifically about “downsizing” in retirement. It’s about adding liquidity to your financial resources now.

In Retirement investment strategies: bottom Line

When you retire, it’s possible to stop working and cease investment activities and do exactly what you want to do. If you love working, you don’t have to stop in retirement.

If you’ve always wanted to write a novel and your income needs are covered, it’s also possible to pursue new profit-making opportunities.

However, because you decide to leave a job to access more personal freedom doesn’t mean you must stop investing.

You’ve enjoyed rewards as a long-term investor and keeping some capital in a growth-oriented mode is possible if your retirement income requirements are met.

Importantly, the retirement income choices recapped here can be used to suit your income requirements and risk tolerance profile. Identifying the right mix of income-producing strategies and financial products isn’t a simple task.

Consult with an experienced retirement income advisor to evaluate your retirement strategies.

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