Finding decent retirement income these days can be a real chore. Interest rates are down, Social Security’s on the ropes, and medical and other retirement costs are going up much faster than regular inflation.
While bonds are considered conservative investments, retirees should consider the risk that if (or when) rates go up, the bonds will go down in value.
Many retirees look to income-paying stocks to help fund retirement. Dividend yields of 5% and more are not that hard to find, and such stocks offer the opportunity for appreciation gains in addition to steady income. Both individual stocks as well as ETFs and mutual funds focusing on dividend stocks can be used.
Besides traditional stocks, other investments such as a real estate investment trusts (REITs) and Master Limited Partnerships (MLPs) can be considered. Such vehicles are interests in companies that typically own and rent out large real estate projects like hospitals or apartments (REITs) or infrastructure like oil and gas pipelines (MLPs). Cash flow can be very strong, and is often tax-advantaged.
Some retirees like owning and managing their own residential or commercial rentals. This is really a part-time job, but can offer non-material rewards as well as good income and appreciation potential.
Finally, annuities must be mentioned. While this is a very complicated and dangerous area – there are many expensive and even abusive annuities with hard to spot commissions and other costs – for some people, annuities can be a smart part of a retirement income plan. Still, wise consumers will take the time to study and learn how to tell the few “good deal” annuities from the many overpriced products, to avoid getting stuck with a poor choice that can be very expensive to get out of.