Retirement Planning: Passive Income for Retirement
One of the issues that comes up in terms of retirement planning is how much money you need in investments to live comfortable off the interest — or at least live comfortably while the principal remains mostly intact throughout the rest of your life. Often, multiple “passive” income streams are needed in order to achieve this goal. At the very least, a balanced portfolio can help you get a good mix of less risky and risky investments to maximize your earnings while preserving more of your principal.
My Money Blog offers an interesting look at some different investing strategies for your investment portfolio that can help you earn passive income for retirement:
Bonds and CDs
These are considered the least risky of investments. Consequently, they also have the lowest returns. Government bonds (both federal Treasury bonds and municipal bonds) can offer reasonable yields, however, and CD laddering can be one way to get regular income from cash investments.
60/40 allocation
This is an investment strategy that combines riskier stocks (60% of your investment portfolio) with less risky bonds (the other 40%). According to theory, this will allow you the ability to withdraw 4% of your investment portfolio every year. This will only marginally reduce your principal, as the returns should be high enough most years to cover most of the withdrawal. However, there is a warning:
However, your portfolio will experience wilder swings, and this rigid method is very sensitive to the returns in the first years of retirement. If you have a bad decade upfront, your chance of going broke rises quickly.
Mutual funds
There are mutual funds out there designed to help you attain regular income. They include some stocks, but focus a great deal on bonds as well. The idea is to create an income stream.
In a related category, there are managed payout mutual funds that adjust their allocation depending on how you are spending your money.
Stock dividends
Dividend paying stocks can also be helpful. These are stocks that regularly pay out per share. In some cases, yields are high enough that you can live off the dividends. However, in times like these dividends decrease, so becoming dependent on them can be risky in and of itself.
Income annuity
This is a very interesting income stream. However, it is likely that you will lose your principal. But if you are more interested in a regular monthly income, this might work out for you. Here is what My Money Blog says about the income annuity:
With a simple version of an immediate annuity, you hand over a lump-sum upfront in return for fixed income payments for life. Of course, if you die early then you don’t get your lump sum back. However, you could live until 110. It’s almost like life insurance in reverse. A special risk here is that your insurance company must stay solvent the entire time, so you must check credit ratings.
Whatever you choose — or if you go with a combination — it is important to make sure that you are doing the right thing for you and your situation. And remember to start saving and investing for retirement right now: You can’t live off your investment portfolio in retirement if you don’t have one.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
Tags: stock investing, mutual funds, investing blog, retirement planning,
passive income, investments, income annuity
