A Retirement Investing Strategy Is All About Income

Your retirement investing strategy is all about income. Even if you don’t want or need income now, in most cases, you’ll want your investments to be able to generate income at some point.

The question is, how do you create that income?

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retirement income strategy

Fixed Income Investments

While this is the most obvious alternative, it could be the worst way to go right now. That’s because interest rates are pitifully low at the moment. If you buy bonds now you’ll be locking in very low income. To make matters worse, as rates rise, you’re going to see the value of your bonds melt away. That’s a tough thing to watch if you’re retired. There are other fixed income investments that pay much rates. One example is the social lending organization Prosper. You could potentially earn much higher rates there. But there really is no such thing as a free lunch. The risks for investors are also higher. Tread lightly.

Real Estate

Real estate prices are low and so are interest rates. That makes it an interesting time to be a real estate investor.  Of course, prices could go lower but if you are buying real estate for the long-term, this could be your chance. A nice kicker is that the rent you receive has some built-in inflation protection; you can raise rent every year if the market allows.

The downside to real estate is that you become a landlord. And this can be very time intensive and much more than just a simple weekend job. In fact it can be terrible and many people I know got out of the real estate game, even though they made a lot of money in it, simply because they couldn’t stand the headache. One way around this problem is to partner up with someone who has the time and temperament but not the money. You can possibly hire a management company too. The economics of that are a bit rough though. Usually you need a bigger property to justify the expense.

Equity Growth

The equity markets have been both wonderful and terrible over the last several years. That volatility is very likely to continue and nobody can predict what’s going to happen in the market of course. But that’s no reason to stay away from equity investing. I am a huge fan of investing in equity growth funds and using those funds to create income.

How? Simple. Just take the value of your account and withdraw 4% to 5% each year. So if you have $400,000 and you want to use the 5% number, withdraw $20,000 in the first year. If the account grows to $500,000 the next year, take out $25,000. If the account falls to $300,000, take out only $12,000.

As you can see, the income varies with the account value and that is one of the downsides to this strategy – but it’s also one of the strengths. While it may be difficult to re-adjust your life to such swings in income, it is a way to hedge for the future. As you can see, using this system, you’d withdraw less during tough markets.

That’s great because as you preserver your capital, you allow more money to stay in the game and work for you. Overtime, using a strategy like this has been the best way to grow your money and your income while providing a hedge against inflation.

Bottom Line

If you are looking for the perfect retirement income investment it doesn’t exist. There are pros and cons to each approach. In order to have a successful retirement, you are going to have to make a plan and probably invest in ways that are out of your comfort zone. My suggestion is to start building your retirement portfolio ASAP. Don’t wait until you retire. Retired people have a lot less tolerance for risk – especially if they are not experienced. If you start building your portfolio of growth stocks and real estate now by the time you retire you will have had years of experience with good and bad periods. That will make it easier to weather the inevitable storms that lie ahead.

What are you doing for retirement income with your investments? If you are already retired, did you shift your portfolio significantly after you retired or not? Why or why not?

The preceding was an article from Neal Frankle. He is a Certified Financial Planner in Los Angeles and he is the owner of Wealth Pilgrim. He is also a huge fan of Bible Money Matters!

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Last Edited: 10th February 2014

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  1. Nick says

    I also have only been in the full time work force for a few years or so, but I don’t see myself ever ‘retiring’. I will definitely leave my current career at some point, but I always want to be doing some kind of work. Also, I refuse to collect social security, I believe relying on government assistance is immoral.

      • Nick says

        That’s correct. I pay taxes my entire working career and see little from that, so it’s just any other tax to me. Card carrying members of the amish church are exempt from social security for religious reasons. At some point I want to petition under this same argument.

  2. Nick says

    For example, Ida May Fuller paid $22.54 into social security, and withdrew $22,888.92 over her life, all legally. There are plenty of cases of this. Theft is theft, whether through the government and ‘legal’ venues or otherwise. It’s immoral in my view.

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