Retirement Income Choices: Planning Ahead

22 July 2016
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If you are concerned about having enough income in your retirement, then it is important to plan ahead. Depending upon how much time you have until retirement you have different options available to you. If you are not planning on retiring for twenty years, then you have a lot of flexibility in determining how you will generate that income. If you are much closer to retiring, on the other hand, you will need to choose a narrower selection of options. Here are 4 great ways to generate income in retirement, along with some timeframe considerations for each.

Rental Income

A great way to have steady income is to own a rental property. While some people might want to invest in multi-unit homes, you don't have to go that big. You can purchase a two-family home and live in one section and rent out the other. Or you can purchase a cottage and rent it out for vacationers.

This is not something you should decide to do at the last minute, when retirement is right around the corner. Being a landlord can have a steep learning curve, so you should consider this if you're not planning on retiring for quite some time. You will need to figure out if you are going to handle the property yourself (rent collection, repairs, etc…) or if you will use a property management company. However, if this turns out to be something you enjoy, then it is an awesome way to get relatively passive income in retirement.

Blue Chip Stocks

Blue chips stocks (such as Coca Cola, IBM, Johnson&Johnson) are huge, stable companies. If you develop a portfolio of blue chips that also issue a good dividend, then you will have a nice income stream in retirement. This is something you want to do early on as well. It helps to build up your portfolio over time. You should look for the Dividend Aristocrats. This is a list of companies that are known for increasing their dividends over time and being very stable. You should try and diversify, because even though these companies are considered very safe, you should always spread your investment in equities over several different companies.

Bonds

Bonds are a good choice for someone who is getting ready for retirement and doesn't want to handle the swings of the stock market. Even big blue chip stocks can have swings that can upset your lifestyle. Also, a company might end up cutting back on a dividend, which will force you to re-calibrate your lifestyle. So bonds become a very attractive option. A bond is not a share in a company. Think of it as a loan. You buy a bond, and receive a premium. This is the "interest" on the loan that the borrower pays. You can find large "basket" bonds that are made up of many different individual bonds so that if one borrower ends up defaulting you won't be hurt too much.

Annuities

If you are really close to retirement, and don't want to risk stocks or bonds, then annuities are the way to go. These are financial instruments that you purchase with a lump sum of money. The issuer than calculates your expected life expectancy and you receive a guaranteed amount of money every month based off of that number. If you happen to "outlive" the initial investment you will still receive the money. The issuers are able to do this because there are people who pass before they receive their entire initial payment, so it balances out.

So if you are ready to retire, and want an ultra-secure source of income, an annuity is the perfect solution.