People often put off thinking about their retirement. But whatever age you are, the earlier you begin considering your retirement funding options, the better financially prepared you will be for when you stop working. Figure out your options now so you can enjoy your later years to the max.
Typical Retirement Income Streams
Depending on the age you retire, and how long you live, retirement can last for around 30 years. Therefore, you need to plan your income options wisely to ensure you have plenty of funds for your retirement. You can use a pension calculator to help you with retirement planning, and it will show you how much you need to put away for later in life. Most people will have a state pension and a defined pension scheme from an employer. You could also have flexible income, which is not necessarily guaranteed to last for all of your retirement years, such as savings and rental income.
Calculating How Much You Will Need
Once you know your secure and flexible income options, you need to work out how much you need to last throughout your retirement years. You will no longer have costs for things like transportation to work, but if you plan to spend more time at home, your household bills could increase. Use an online calculator to work out how long your money will last via systematic withdrawals. You can then determine if you need to consider additional retirement income streams.
Bonds
One great low-risk option is to invest in bonds. It basically involves giving loans to corporations, governments, or other bodies, which pay you interest in return. Once a bond matures, the face value is returned to you. For anyone seriously considering this option, it can make sense to purchase a bond ladder. By having a collection of bonds with different maturity dates, you can increase your retirement finances' cash flow.
Immediate Annuities
Although immediate annuities are a form of insurance rather than an investment, they can provide a steady stream of income for your retirement years. For instance, an annuity with a ten-year term gives you ten years of income. Immediate annuities are not for everyone, as they do tie up assets, but due to the fact that they pay out straight away, they can be very appealing to people who are retiring from work.
Real Estate Investment Trusts
A real estate investment trust, commonly abbreviated to REIT, is a mutual fund that aggregates real estate holdings like commercial buildings, apartments, and vacation homes. REITs are a good retirement investment option as part of a wider portfolio.
Retirement Income Funds
If you do not want the hassle of keeping tabs on your investment portfolio, retirement income funds could work for you. The mutual fund works by automatically investing your funds in a diverse portfolio of bonds and stocks to give you a monthly income. If you are used to mutual funds, you will feel comfortable utilizing retirement income funds. And you are able to access the money whenever you want.
Variable Annuity With a Lifetime Income Rider
Variable annuities are complex. But basically, your money is used for a number of investments that you select. For a fee, you have the option of adding a lifetime income rider, which insures the amount of income you can withdraw from your portfolio in the future. However, some variable annuities with riders need to earn back the fees before you can really benefit.
Dividend Income Funds
A dividend income fund is a collection of stocks that a fund manager oversees. The dividends paid out by the underlying stocks of the fund provide you with dividends. However, they can rise or fall each year. Avoid the temptation of going with dividend income funds that advertise high yields, as they typically come with added risks.
Total Return Portfolio
When you approach it right, a total return portfolio is one of the best retirement income options available. The strategy involves using a balanced and diverse mix of stock and bond funds that provide you with income for your retirement via interest, capital gains, and dividends. Your portfolio will be specifically designed to achieve a respectable long-term rate of return. Total return portfolios typically enable you to withdraw between 4% and 7% per year.
WRITTEN BY
Claire Ward