When it’s time for you to retire, it’s likely you’ll need a source of income to replace your salary. And for many people, Social Security just isn’t enough. So how do you generate a reasonably stable income that will last as long as you do?
The solution may be to have several sources of retirement income, rather than just one or two. The reason for this is very simple: if your main source of income declines, or can’t keep up with inflation or healthcare costs, you might not be able to maintain your required level of spending. So having multiple sources of non-correlated retirement income may make a lot of sense.
So how do you create these different sources of income?
One way to start is by converting a portion of your retirement portfolio into cash, or a reasonable cash equivalent, to cover your short-term spending needs. These short-term liabilities — things like your regular monthly bills, unexpected healthcare costs, incidentals — these should always be matched up with short-term assets (like cash, or cash equivalents). You don’t want to be in a position where you have to sell a volatile asset, like a stock, at a loss in order to support a current income need, which could ultimately devastate your savings. So try to match your assets to your liabilities. This, by the way, is one of the key components of our Bucket Strategy.
You might also consider an annuity as another alternative source of retirement income. Yes, an annuity. The strategic use of certain annuity contracts in lieu of bonds in a portfolio, along with a certain allocation to stocks, may not only provide for current guaranteed lifetime income but also leave your heirs with an even greater legacy. And some annuity contracts can even be designed with a rising income stream to help offset future inflation.
If you’re a little more on the aggressive side, you may want to consider some alternative income investments, such as participation in passive businesses, private debt, real estate, and certain hedge funds, to name a few. Just remember that none of these come with any guarantees, so you’ll want to limit your allocation because of the added risk. This is where some input from your financial advisor can be especially helpful.
Everything we’ve mentioned here: cash or liquid equivalents, income-generating annuities, alternative investments (like cash-flowing real estate), along with your Social Security and pensions — these are all potential sources of retirement income. Deciding which one of these — if any — may be suitable for you is something you should go over with your financial advisor.
At Accardi Financial Group, we help our clients all across the country with decisions on what income options they have, and we have a strategy designed to make it happen. How can we help you the most? Just give us a call!
The information provided should not be considered specific tax, legal, or investment advice and is not specific to any individual’s personal circumstances.
Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy will be profitable for a client’s or prospective client’s portfolio, thus, investments may result in a loss of principal.
Accordingly, no client or prospective client should assume that the information presented serves as the receipt of, or a substitute for, personalized advice from Accardi Financial Group or from any other investment professional.
You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.
Insurance services offered through LPL Financial or its licensed affiliates. CA Insurance Lic. #0518721
Variable annuities are long-term investment products designed for retirement purposes. Variable annuities with guarantees are available through optional riders at additional cost. Guarantees are based on the claims-paying ability of the issuer subject to their terms and conditions. Early withdrawals may be subject to surrender penalties and, if taken prior to age 59½, may be subject to an additional 10% federal tax. Annuities are not FDIC insured. Certain terms and conditions apply, so please read insurance company materials carefully.
Before investing, carefully consider a variable annuity’s investment objectives, risks, charges, and expenses. To obtain a prospectus or summary prospectus, which contains this and other information, call your financial advisor. Read the prospectus carefully before investing. Variable annuities with guarantees are available through optional riders at additional cost.
It is important to keep in mind that investments in fixed income products are subject to liquidity (or market) risk, interest rate risk (bonds ordinarily decline in price when interest rates rise and rise in price when interest rates fall), financial (or credit) risk, inflation (or purchasing power) risk and special tax liabilities. Interest may be subject to the alternative minimum tax.
Securities and advisory services offered through LPL Financial, a registered investment advisor and member FINRA/SIPC. The investment professionals are affiliated with LPL Financial and are conducting business using the name Accardi Financial Group, a separate entity from LPL Financial.