You’ve made investments, and your reasons for doing so can basically break down into two key groups: growth and income. If you’re looking for growth, your primary investments need to be in stocks or mutual funds that have the potential for capital appreciation. But, if you also want to get income from your investments, you’ve got some choices to make.
You can, of course, invest in fixed-income vehicles such as bonds, which typically offer regular interest payments. Also, as long as the bond is held until maturity, the principal amount is returned, provided the issuer doesn’t default. You can mitigate this risk greatly by purchasing only those bonds that have received the highest grades from independent rating agencies.
Beyond bonds, you can also get income by investing in stocks that have a history of paying cash dividends. In the short term, most common stocks typically offer lower income potential than bonds or CDs. But, many high-quality stocks have consistently increased their dividends. That means you have the potential for rising income.
That’s not to say you should abandon your bonds in favor of dividend-paying stocks. No matter how high their quality, they can still carry more risk—at least in terms of potential loss of principal—than high-quality bonds. So, when you're investing for income, you will likely want to choose a mix of bonds and dividend-paying stocks that best fits your individual risk tolerance and long-term goals.
Income Strategies During Retirement
While it’s important at any age to know how to get income from your investments, it’s particularly important to make the right choices during your retirement years. At this point in your life, you’ll need to look beyond the issue of “bonds vs. stocks” and consider a new question: Which sources of retirement income should you tap first?
To answer this question, you’ll have to take a look at the source of your retirement. You can probably anticipate drawing from three main sources: 1) tax-deferred accounts such as your traditional IRA and your 401(k) or other employer-sponsored plan; 2) taxable savings and investments; and 3) Social Security benefits.
The exact formula you choose for taking income from these three separate pools depends on your individual needs and circumstances. Often, however, it is a good idea to spend down your taxable savings and investments before you touch your tax-deferred plans. Since taking money from your tax-deferred accounts can trigger income taxes, you may want to put that off until you are required to start taking withdrawals at age 70½.
How About Social Security?
When should you start taking social security payments? Again, there’s no one right answer for everyone; you’ll have to weigh a variety of factors including your other sources of income, your age at retirement, and your expected life span. Keep in mind that although you can start taking Social Security as early as age 62, your monthly checks will be larger if you wait until your “full retirement age” which can be anywhere from 65 to 67. For every year past your retirement age that you delay collecting benefits, you’ll get “bonus” payments which can be substantial. Once you reach 70, you’ll have earned the largest monthly payment you’re going to get.
A qualified financial advisor can help you determine the appropriate strategies for drawing on your investment income and retirement plans. Maintaining a sufficient level of income is essential to your long-term financial well being, so you’ll want to make all the right moves.
For more information:Edward Jones Financial Advisor
Laurence Rothstein
770-205-1579
5285 Lake Pointe Center Drive, Suite A
Cumming, GA 30041
