Retirement income streams come in different shapes and sizes, but the fact is, no matter where or when you are planning on taking your retirement, the one guarantee is that you will still need some retirement income to carry you through your golden years.
For many of us, Social Security will be one of the best retirement income streams, as it’s reliable, predictable, and indexed to inflation.
For a fortunate few (mostly public-sector employees), pensions are also a valuable income stream in retirement. However, they’re becoming harder and harder to find in the private sector.
The main drawback of both of those income streams is that, once you’re approaching retirement, there’s little you can do to increase either.
With Social Security, you can delay retirement and draw more income that way, but your maximum income has a ceiling and is indexed to your entire work history (your highest-earning 35 years).
By that same token, there’s little you can do to secure a pension as you approach the end of your working years.
In other words, both of those income streams are determined by a lifetime’s worth of choices.
So, what can you do?
After all, in retirement, there’s nothing worse than finding yourself struggling to scrape together enough cash to pay the bills.
Nobody wants to pick up a job on the weekends during their twilight years.
Fortunately, you still have a lot of control over your retirement income via how you choose to invest. You may not be able to go back in time and find a pension, but you can readily change the composition of your investments to maximize your retirement earnings.
With appropriate planning and the use of the best retirement income streams, you can set yourself up with regular income that can ease concerns about running out of money in the future.
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3 Investments with the Best Retirement Income Streams
When you think about generating income in retirement, your primary interest will be in dependability. There is no use putting your money into an income-generating investment if you don’t know whether it will come through for you each month.
The second criterion for a solid income stream is longevity. If a financial instrument will provide you with quality returns for a year or two, it is simply not something to entertain for your retirement years. It won’t even be around that long.
Here is our list of some of the best income sources to take advantage of in the distribution phase of your retirement.
1. Stocks with a high dividend yield
While there are no guarantees in the world of investing, many conservative investors favor strong companies that pay consistently high dividends.
Dividends are paid out by companies as cash and you can treat it as cash, the same as you would with a paycheck. You will often have the option of automatically reinvesting these dividend payments or taking them as income. In your retirement years, you would be taking them as your income. It will be important to understand how often each company pays out dividends because it can vary from company to company, although many pay their dividends quarterly. Many investors like to stagger dividend investments using a dividend calendar to replicate the periodic income that a regular paycheck would provide.
Dividend Aristocrats are a good place to begin your search if reliable and growing dividend payments are part of your retirement income strategy.
2. Real Estate (however you like) may offer reliable income
Real estate investing has been a cornerstone of wealth accumulation for years, and it can be a source of income in retirement. That doesn’t mean you have to manage a rental property; both active and passive real estate investing are potential retirement income streams.
For active investing, you can purchase and hold property to use as a rental space. The downside to this is maintaining the property and dealing with tenants. It’s also important to make sure that you own in a location that will be easy to rent. Purchasing a house in a rural area far away from everything can be a challenge to rent out.
If you have no interest in actively working with the property or tenants, you can also consider Real Estate Investment Trusts (REITs). Shares of REITs can be purchased just like stocks and offer regular distributions. It’s important to pay close attention to the type of REIT you’re investing in, as the underlying investments can vary from cell towers to commercial real estate to data centers, and everything in between.
3. Annuities (the right way)
Investors frequently look side-eyed at annuities as a product of advisors and insurance companies hoping to earn large incomes from retiring clients looking for regular payouts. There are certainly some annuities that earn insurance companies more than investors, but that can also come down to a lack of understanding of the vehicle itself.
There are many different kinds of annuities, including variable, fixed, and indexed annuities, and each has its own way of operating. If you’re new to Annuities, FINRA has compiled a six-part education series that can help you learn the basics before you start investing.
Even with the best retirement income streams, you should try and avoid a set-it-and-forget-it mentality. You need to pay attention to the strength of the investment over time (whether that means the desirability of a rental location or the power of a company to pay dividends) and make adjustments as needed.
With any luck, you won’t need to make any adjustments over the life of your investment, but it is always better to stay aware and never have to make a move than to ignore it and miss out on your chance to protect your money.
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*This post is periodically updated to reflect market conditions.
