Generating Retirement Income

Generating Income

In retirement, most of your expenses occur on a monthly basis.  Thus, most retirees prefer their income on a monthly basis.  Income includes both interest and/or dividends, and in some cases, return of principal.  Investment vehicles that provide monthly income include mutual funds, government mortgage-backed securities, and fixed annuities.  Using these investment vehicles, you can build a portfolio that provides monthly income.  

Other income producing investments, although not monthly, include certificates of deposit, Treasury notes, and Treasury bonds.  The income from these investments helps cover day-to-day expenses.  Since the payments are made regularly, you can plan on them. 

Retirees may need growth in their portfolio to combat inflation.  As investments with growth potential increase in value, you can make withdrawals without decreasing your original principal.  The key is to have a well-rounded portfolio of both income producing investments and investments that can outperform inflation.  Diversification is a key element in managing your portfolio.

You can time certain investments by using a strategy called laddering.  Using fixed income investments with fixed maturity dates, for example Treasuries, certificates of deposit, or bonds, you divide your investable dollars into equal amounts (say five).  Then put one-fifth into instruments maturing in each of five years.  If interest rates go up when the first maturity date comes, you reinvest at the higher rate.  If rates have declined, only one-fifth of your portfolio has to be reinvested at this lower rate, while the rest continue to grow at the higher rates.  Spreading maturities in this manner should increase your yield over time, and also produces a steady flow of income.