How to Create a Retirement Income Stream

Creating a reliable and adequate income stream from investments is one of the main goals of retirement planning. Learning how to do this involves assessing current finances and other retirement income sources, such as Social Security, and then choosing investments that can provide income that is consistent, sufficient and will last throughout the retirement years. If you want professional guidance in preparing for this stage in your life, consider reaching out to a financial advisor .

What Is a Retirement Income Stream?

A retirement income stream is a regular flow of funds that comes from different sources. These can include Social Security, pensions and other types of retirement income.

Retirees typically use this extra money to pay for basic living expenses, healthcare and lifestyle activities like travel or hobbies, among other financial obligations.

With an investment strategy in place to generate steady income, you will be better prepared for market downturns, medical events and unexpected expenses.

Investment Options for a Retirement Income Stream

When it comes to creating sustainable retirement income, there are many investment options. Here are four general ones to consider:

• Total return investment approach : The total return investment approach aims to balance income, capital appreciation and risk management to generate a steady income stream. This strategy typically employs a diversified portfolio of stocks, bonds and other assets, built with the goal of achieving long-term growth and periodically selling investments to generate income. The total return approach provides for flexibility in managing withdrawals and adjusting the portfolio based on market conditions. It is a popular choice for many retirees seeking both income and growth.
• Diversified bond portfolio : Bonds provide regular interest payments,making them a favorite retiree income source. A diversified bond portfolio often includes a mix of government, municipal and corporate bonds with varying maturities and credit qualities. This diversification helps balance risk and return while ensuring a stable income stream. Bonds are generally considered lower-risk investments, making them appealing to conservative retirees. This stability has a trade-off, however, which appears in typically lower returns compared to equities.
• Income-producing equities: Investing in income-producing equities, such as dividend-paying stocks , can offer both regular income and the potential for capital appreciation. Companies that consistently pay dividends tend to be financially stable and generate reliable profits, making them a solid choice for retirees seeking income. Dividend income can help offset inflation and provide a growing income stream over time. However, equities come with higher volatility compared to bonds, so this strategy may be more suitable for retirees with a higher risk tolerance.
• Income annuities : Income annuities can provide a guaranteed income stream for life, which makes them appealing to many retirees. To purchase an income annuity, you can make a single lump-sum or series of payments to an insurance company. In return, you receive regular income payments. There are many types of annuities, including immediate annuities, which start payments right away, and deferred annuities, which begin at a later date. While annuity income can offer retirees peace of mind, factors such as inflation and fees are also important considerations.

How to Find the Right Strategy for You

When determining an income strategy for your retirement, you will need to assess your specific financial situation, personal goals and risk tolerance .

The process begins by reviewing expected expenses, including both essential costs and discretionary spending in retirement. Preparing a retirement budget will help you figure out how much income is needed and for how long.

If you prefer stability and lower risk , you might decide on a strategy that is focused on bonds and income annuities. But, if you’re comfortable with some level of risk, add income-producing equities or a total return approach might be a better fit.

You should also consider diversifying your income sources, as well as combining different strategies. This will help you create a more balanced portfolio that is capable of withstanding market fluctuations and providing a reliable income stream.

Bottom Line

Creating an income stream can help you ensure your financial security during retirement. Doing so involves carefully selecting and diversifying your investments, keeping in mind your risk tolerance and goals. Whether you use bonds, equities, annuities or a combination of strategies, a well-planned retirement income stream can help you maintain a comfortable lifestyle and give you peace of mind.

Retirement Planning Tips

• A financial advisor can help you create a personalized retirement plan based on your goals and needs. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• Timing can make or break your retirement plan. Consider these things when figuring out what age you should retire .

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