Investment Income

Investment Income — Generating Income Beyond Social Security (and Pensions)

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As you get closer to retirement, you’ll want to evaluate your investments to determine how best to supplement your income beyond Social Security and any pension payments you may be entitled to. Investments can provide three different types of income — guaranteed, predictable and variable.

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

A common form of predictable investment income is interest payments from bonds. You can buy bonds directly or invest in bond mutual funds.

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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