Income-Based Financial Strategies
Research consistently shows that the No. 1 fear of older Americans is that they will run out of money before they die. Why? Because it happens, and it happens because most Americans still don’t know how to properly prepare financially for retirement. It isn’t really their fault, though, because most financial advisors and the financial media continue to focus on growth-based strategies designed to manufacture income through withdrawal plans.
But withdrawal plans are flawed because their success depends on market growth, which is a huge unknown. The market may grow most years, but it may also shrink, which means you won’t be withdrawing from gains in those years, you’ll be spending down your principal. The more you do that, the more you run the risk of facing your biggest fear: running out of money. In our experience, a better option in the years approaching and during retirement is to invest for income instead of growth.
What is the Right Retirement Income Investment Strategy?
By focusing on income-generating investments, such as bonds and bond-like instruments, you can establish a lifetime income strategy that allows you to know with a greater sense of certainty what your financial future holds.
This doesn’t mean that you cannot remain invested in the stock market once you near retirement. For those with the ability to endure some level of market risk, high dividend-paying stocks can be a viable way to enjoy the benefits of investing for income. This approach can give you a more practical way to invest in stocks as you approach or enter retirement. That’s because if you’re retired when the market experiences a downturn, the dividends you receive satisfy your income needs, and you can hold the stock and wait for it to come back, essentially giving you staying power. If you don’t need the income at the time, you can reinvest those dividends and grow your money the old-fashioned way through dollar-cost averaging.
In our experience, the only truly “safe” way to ensure you won’t outlive your money is to have a strategy that generates reliable income through interest and dividends. That’s because:
- When you live off your interest and dividends, you’re not spending any principal, so you don’t have to worry about whether the market grows or shrinks.
- You have the potential to keep growing your money more safely through strategic reinvestment.
- It makes your retirement income a “renewable resource”.
Give our office a call today to find out if an investing for income strategy is right for you.