Did you know that retirement savings is just half of what you have to do to prepare for your latter years? Believe it or not, this is true. The other major and important item of consideration is how you are going to generate income from your retirement savings. Most retirement periods last up to twenty or more years and so the money that you may have accumulated in your investment accounts might not be sufficient, especially due to inflation. As a retiree, you have to ensure that your money is growing and generating income that you can use to live off. Without the appropriate finance, you may be forced to take a closer look at your lifestyle and make changes.
Access to Income
For a lot of retirees, there are two primary means of accessing income; one is from the regular monthly income that you receive and can count on such as social security benefits, annuity or pension. Secondly, there are discretionary funds that the retiree has accumulated over the years and can draw from. Examples of these discretionary funds are savings account, employer-sponsored 401K savings or IRA. The latter types of discretionary funds provide retirees with a way to generate income.
What about Stocks?
If you have invested in stocks from your 401K or IRA, you can use that to collect dividends. However, you have to invest in the type of stocks that pay dividends. A financial specialist will be able to guide you to the right stock picks. You can choose to receive dividends on an annual basis or quarterly basis. Of course, the stock yield will be different for each pick since stock dividends are determined by the different companies.
High and Low Yield
If you have a high yield stock, it is more risky, and lower paying dividends carry less risk and more stability. It probably is best to have both in your stock portfolio in order to balance the risks. You have another option of lower risk and that is investing in equity income funds, which are similar in nature to mutual funds, especially since you are investing in the company’s share that pay out the dividend. From this, you will receive a decent yield and therefore, consistent money to live off.
What about Bonds?
Like stocks, bonds are a great way to generate income for retirees, even in a market where the rates are increasing. Why are bonds so attractive to retired investors? The reason is that bonds offer interest payments to the investor, in addition to specific payouts as the bond becomes mature. Yes, the yield may be lower, but the generated income is stable and reliable. However, it is best to avoid bonds with long duration periods since the investment environment is controlled by the Federal Reserve and the continued rise in interest rates may hurt you. You should instead, invest in various different bonds for a cushion against increasing interest rates. If you are not interested in purchasing individual bonds, then you could consider bond funds. A professional financial specialist will be able to direct you wisely in your choices.