Building up a retirement nest egg is one thing, but making it last throughout your lifetime is quite another. With a larger share of the financial responsibility for retirement shifting from employers to employees, it’s more important than ever to explore all income strategies to help determine what is most appropriate for your situation.
One thing to consider is your Social Security benefit strategy. For many, the spousal benefit is based on the primary earner’s level of income. While you might be tempted to start taking benefits as soon as possible, there may be good reasons to delay. First, the longer you wait (up until age 70, when increases cease), the higher your payout for life. Perhaps more importantly, waiting to take benefits could leave a higher benefit for your spouse should you pass away.
Remember, if you take a lower benefit early, your surviving spouse may receive that reduced amount for the rest of his or her life. A surviving spouse receives the higher benefit, whether it’s their own or their spouse’s, but the household will no longer receive both. Since Social Security represents the only guaranteed income stream for many of today’s retirees, it’s a good idea to consider ways to delay starting the benefits in order to potentially increase that income stream.
In addition to a Social Security strategy for lifetime income, the following are other financial vehicles typically used to provide long-term income and/or growth opportunity in a well-diversified financial strategy.
Bonds — While traditional bonds can provide a reliable stream of income, they come with a maturity date. At that point, an investor must decide where to reinvest the principal. One strategy is to hold a selection of bonds with varying maturity dates. Investors can also take advantage of the inherent diversification provided by bond funds by letting a professional money manager make ongoing decisions about where to reinvest assets from maturing bonds.
Dividend-Paying Stocks — Stocks with a strong history of paying dividends also offer a source of ongoing income. Here, too, investors may prefer to buy a dividend income fund to take advantage of a fund manager’s buy and sell experience. It is important for investors to understand that dividends are paid at the discretion of the board of directors and are therefore not guaranteed.
Annuities — There is a wide range of annuity options that can be tailored to a retiree’s specific needs. Many offer a fixed level of income for a specific time period or for life and can be customized with optional benefits, such as income riders that increase income payments commensurate with inflation. Please note that optional riders may not be available on all products and may have an additional cost. Fixed index annuities offer individuals the potential for interest credits based on positive changes of an external index without actual participation in the market, while still receiving certain guaranteed protections backed by the financial strength and claims-paying ability of the issuing insurance company. The amount of interest you receive from a fixed index annuity can vary, and there is a limit on how much interest you could earn.
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