Investment Income — Generating Income Beyond Social Security (and Pensions)
Guaranteed investment income
To provide some amount of certainty to your income strategy, consider putting a portion of your money into investments guaranteed by:
- The U.S. government — Such as U.S. Treasury securities
- Insurance companies — Such as annuities.
Typically investments that are guaranteed, result in lower returns compared to other investment options. While they may make a suitable foundation for a retirement income strategy, they should be balanced with higher return/higher risk options for more income flexibility and to fight the effects of inflation.
Predictable investment income
An effective retirement income strategy combines multiple types of income.
Bond interest is quite predictable. Bond interest payments would stop only if the bond issuer became a bad credit risk and defaulted on its promise to pay. A strategy called bond laddering, in which bonds of different maturities are combined in a portfolio, can help manage inflation risk and help to ensure a steadier income stream.
Variable investment income
Variable income can be created from a broadly diversified portfolio that includes a combination of investment types. This strategy will spread out your investment risk by investing in everything from relatively safe, low-risk investments (cash) to higher-risk, growth-oriented investments (stocks).
From your diversified portfolio, you can initiate withdrawals anytime after age 59½ as needed. Or, you can elect to establish a systematic withdrawal plan that liquidates a certain percentage of your portfolio on a regular basis. It's important to keep in mind the resulting income from the systematic withdrawal may vary based on the underlying value of your investments.
Diversify to customize your approach
Work with your financial professional to combine all of these approaches into an income strategy that will meet your needs and last your lifetime. Together, you can monitor your strategy and make adjustments to manage risk as you head into retirement.
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Investments are not guaranteed and are subject to investment risk including the possible loss of principal. The investment return and principal value of the security will fluctuate so that when redeemed, may be worth more or less than the original investment.
The value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. For all bonds there is a risk that the issuer will default. High-yield bonds generally are more susceptible to the risk of default than higher rated bonds.
IRAs and other qualified plans already provide tax-deferral like that provided by an annuity. Additional features and benefits, such as contract guarantees, death benefits and the ability to receive a lifetime income are contained within the annuity for a cost. Please be sure the features other than tax deferral and costs of the annuity are right for you when considering the purchase of the annuity for IRAs or other qualified plans.
Guarantees, such as guaranteed income benefits, associated with annuities are subject to the claims-paying ability of the issuer.
Subject to state availability, not all products are available in every state.
Variable annuities are long-term investments designed for retirement purposes. A 10% federal penalty may apply for withdrawals prior to age 59½. Money distributed from the annuity will be taxed as ordinary income in the year the money is received. Variable annuity subaccounts fluctuate with market conditions, and when surrendered, the principal may be worth more or less than the original amount invested. An annuity is not necessary for the plan’s favorable tax treatment, but offers other features which may be valuable to you. Annuities are subject to additional fees and expenses to which other tax-qualified funding vehicles may not be subject.
Investing in stocks is subject to market risk, including the possible loss of principal.