Earning Income from Your Investments: A Guide to Retirement Stability

One of the biggest questions you may face nearing retirement is how to generate and secure a stable income. This challenge is further highlighted by a study from the National Council of Aging, which found that 80% of households with older adults—or 47 million—are struggling financially today or at risk of falling into economic insecurity as they age. 

Shifting from building wealth to preserving it while generating income requires a thoughtful, strategic approach. It’s about aligning your financial plan with your goals and risk tolerance to help ensure stability in this next chapter of life. In this blog, we’ll dive into effective investment strategies for income generation, key retirement considerations, and how to navigate this pivotal phase of financial planning confidently.

Understanding Income-Generating Investments

Income-generating investments are financial assets designed to help produce regular cash flow, providing the investor with a steady income stream. They are particularly beneficial for retirees, individuals seeking passive income, or anyone looking to supplement their earnings without selling their principal assets. Income-generating investments come in various forms, with distinct features, benefits, and risks.

1. Dividend-Paying Stocks

Dividend-paying stocks allow investors to earn regular income through a share of a company’s profits, typically distributed quarterly. These payments can serve as a potential income stream for investors looking to supplement other sources of retirement income. However, dividend stocks offer more than just income—they can also help contribute to portfolio growth if the dividends are reinvested, allowing investors to benefit from compounding over time.

It’s important to note not all dividend stocks are created equal. While high-dividend yields can be attractive, they may signal potential risks. Instead of focusing solely on yield, consider companies with a proven track record of stable or growing dividend payouts. These are often well-established firms in sectors like utilities, consumer goods, or healthcare, which tend to perform consistently regardless of economic conditions.

2. Bonds and Fixed-Income Securities

Bonds and fixed-income securities are investment vehicles where an investor lends money to an entity—typically a government, municipality, or corporation—in exchange for periodic interest payments and the eventual return of the principal at maturity. These investments are a cornerstone of income generation due to their predictability and relative safety, especially when compared to equity investments.

3. Real Estate Investment Trusts (REITs)

REITs can help provide exposure to real estate without the need for property ownership. One of REITs’ most compelling features is their mandatory taxable income distribution. By law, REITs must distribute at least 90% of their taxable income to shareholders through dividends, which often results in higher yields than traditional stocks. This makes REITs an attractive option for retirees seeking consistent income.

Here’s a look at different types of REITs

• Equity REITs: Own and manage income-generating properties.
• Mortgage REITs: Invest in mortgages or mortgage-backed securities, earning income through interest payments.
• Hybrid REITs: Combine the characteristics of both equity and mortgage REITs.

REITs are a great investment tool. However, like any investment, REITs are not without risks. Market fluctuations, interest rate changes, and property market downturns can impact returns. A fiduciary can help you navigate REITs and alternative investments so they can better fit into your overall financial plan.

4. Certain Annuities

Certain annuities can offer a consistent income stream for life or a specific period. They are particularly appealing to individuals who value predictability, although it’s important to evaluate fees and terms carefully.

• Fees: Some annuities have high fees, including administrative costs, surrender charges, and commissions.
• Liquidity: Funds invested in annuities may not be easily accessible without penalties, making them less suitable for emergencies.
• Complex Terms: Understanding the fine print is essential to help avoid unexpected limitations or costs.

To help maximize the benefits of annuities, it’s essential to evaluate terms carefully and consider how they fit into a broader financial plan. Working with a fiduciary financial advisor can help ensure that you select annuities that align with your retirement goals and financial needs.

Key Considerations for Income Planning in Retirement

1. Longevity Risk

Longevity is a key consideration in retirement planning, as the risk of outliving your savings is a common concern. Ensuring your income streams last throughout your retirement is essential for financial security. To address this challenge, strategies like structured withdrawal plans or income-generating investments can help provide a reliable foundation and help mitigate the risk of running out of funds.

2. Inflation Protection

Rising costs can erode your purchasing power over time. Investments like dividend-paying stocks and Treasury Inflation-Protected Securities (TIPS) can help counter inflation.

3. Tax Efficiency

Taxes can significantly impact your investment income. Strategies like utilizing tax-advantaged accounts or focusing on tax-efficient investments like municipal bonds can help reduce your tax burden.

4. Market Volatility

Retirees often feel more vulnerable to market downturns, especially when drawing income. Employing a mix of fixed-income securities and growth-oriented assets can help weather potential market volatility.

5. Diversification

Relying too heavily on one type of investment can expose you to undue risk. Diversification helps spread risk across asset classes and helps balance growth and income generation. For example, a diversified portfolio might include:

• Dividend-paying stocks for growth and income.
• Bonds for stability and predictable interest payments.
• REITs to capture real estate income potential.

Balancing these assets can help mitigate market fluctuations while providing consistent income.

Building a Retirement Income Strategy 

A well-structured income strategy aligns your financial portfolio with your goals, time horizon, and risk tolerance. Here’s how you can approach it.

Step 1: Evaluate Your Expenses

Understanding your expenses is the foundation of any retirement income plan. Begin by categorizing your expenses into two main types:

• Fixed Expenses: Necessities like housing, utilities, insurance, healthcare, and groceries. These costs are consistent and must be covered by reliable income sources.
• Discretionary Expenses: These include non-essential but important spending like travel, hobbies, dining out, and gifts. These can fluctuate based on your lifestyle and budget.

Step 2: Estimate Retirement Income Sources

Factor in income from all guaranteed and potential sources available in retirement. Identify the gap between your income needs and guaranteed sources. These might include:

• Social Security: Calculate your benefits based on your age and work history. Delaying benefits beyond your full retirement age can increase monthly payouts.
• Pensions: If applicable, confirm your pension payout structure and any survivor benefits.
• Other Guaranteed Income: Include annuities or income from rental properties.

Once you have tallied these sources, compare them to your budget. This step will help identify any income gaps that need to be addressed through investments or other financial strategies. Understanding the shortfall provides a clear goal for how much supplemental income your portfolio must generate.

Step 3: Create an Income Floor

An income floor is a baseline amount required to cover your essential expenses. To establish this floor, focus on stable income-generating investments such as:

• Bonds: Invest in high-quality government or corporate bonds with predictable interest payments.
• Annuities: Consider fixed annuities that provide guaranteed income for a specified period.
• Certificates of Deposit (CDs): These offer secure, interest-based income for conservative investors.

The goal is to help ensure your basic needs are met regardless of market conditions, providing peace of mind and reducing reliance on higher-risk investments for essential expenses.

Step 4: Incorporate Growth Investments

While income stability is a priority, inflation can erode the purchasing power of your money over time. To counter this, maintain a portion of your portfolio in growth-oriented assets, such as:

• Equities (Stocks): Invest in dividend-paying or growth stocks to attract capital appreciation.
• Exchange-traded funds (ETFs) and Mutual Funds: These can provide diversification and exposure to sectors likely to grow with the economy.
• Real Estate Investment Trusts (REITs): REITs offer growth potential through appreciation and regular dividend income.

Growth investments help your portfolio stay ahead of inflation, helping you maintain your standard of living throughout retirement. Balancing these with income-generating assets is essential to manage risk while achieving long-term growth.

Step 5: Review and Adjust Regularly

Retirement income planning is not static. Your financial needs, market conditions, and the broader economic environment will evolve. Partnering with a fiduciary advisor to regularly review your retirement income plan helps confirm it aligns with your broader financial goals.

How Agemy Financial Strategies Can Help 

With a commitment to trust, transparency, and personalized care, Agemy Financial Strategies is here to help you navigate the complexities of retirement income planning. We help investors navigate the complexities of generating stable income during retirement. Here’s how we can support your journey:

• Tailored Income Strategies: We develop customized plans based on your unique financial goals and risk tolerance, helping you create a balanced income generation and wealth preservation approach. 
• Proactive Portfolio Management: We conduct regular portfolio reviews to help optimize your investment performance and adjust strategies based on market trends and changing priorities.
• Tax-Efficient Planning: Our fiduciaries explore and implement various tax strategies to help optimize your income and minimize tax impact.
• Risk Management: Your portfolio is continuously assessed and adjusted to align with your comfort level and long-term financial objectives.

Retirement is not the time to set your investments on autopilot. With our award-winning fiduciaries, you’ll have the tools and support to help make informed decisions and secure your financial future.

Final Thoughts

Earning income from investments is a cornerstone of retirement stability. You can enjoy a more financially secure and fulfilling retirement by leveraging diverse income-generating assets, managing risks effectively, and creating a personalized strategy. Agemy Financial Strategies is here to guide you every step of the way.

Contact us today to explore how we can help tailor your retirement plan to your unique financial landscape.

Disclaimer: This content is for educational purposes only and should not be construed as specific investment advice. Please consult the qualified financial professionals at Agemy Financial Strategies before making investment decisions.