Five Ways to Generate a Steady Retirement Income

Posted on August 24th, 2021
retirement income

Retirement is the time to relax after a lifetime of working. When you retire, you will need to generate a steady income to maintain your lifestyle without depending on others. You might have done everything right to save for retirement — you started early, maximized your 401(k) plan, and avoided cashing out your retirement plan. 

But, how do you envision a steady income without having to go to work during your retirement years? This might seem challenging at first. But it’s still possible — if you develop a robust strategy based on your current financial status. 

To make sure you don’t outlive your savings, here are five retirement income strategies you can use to create the cash flow you’ll need. 

1. Buy Immediate Annuities 

If you want to supplement your retirement savings for the rest of your life, immediate annuities can be your best bet.

An immediate annuity is a type of investment that converts your current savings into future payments. In other words, it is a contract between you and the insurance company, where you get a guaranteed income in exchange for a lump-sum deposit — even if you live past 100. However, you can also opt for an immediate annuity plan that promises to provide income for a limited period — say, 10 or 20 years. 

As the name suggests, immediate annuities start paying out as soon as you make the initial investment. Plus, it is unpredictable and isn’t affected by declining interest rates or stock prices. This makes it an attractive option for people already in retirement. 

The amount of income is ascertained by the insurer based on various factors, such as your age, current interest rates, and how long the payments are to continue. Plus, the plan offers you the flexibility to choose how often you want to be paid. While the monthly mode is the most common, you can select quarterly or yearly payment options also. 

Immediate annuity differs from a deferred annuity, in which you invest a sum of money and receive a regular income at some future date. Some insurers also provide immediate variable annuities, where you deposit a certain amount, and what you get is based on the underlying portfolio’s performance. 

In a nutshell, an immediate annuity is a desirable option for retirement investors — but it isn’t for everyone. 

There’s a high fee to watch out for. Plus, payments end with your death, and the insurance company can keep the rest of the funds. This means you might not live long enough to get your money’s worth, while the investor who lives longer may come out ahead. And, your heirs may or may not get the remaining amount — based on the options you choose. 

Furthermore, once you get into an immediate annuity plan, there’s no turning back. Your principal is locked in forever, and it’s difficult or expensive to get out of the situation. 

2. Build a Bond Ladder 

Another valuable tool for providing security in retirement is the bond ladder.

A bond is a kind of loan you give to the government, municipalities, and corporations in return for regular interest. When assembled in a portfolio, these can be an excellent and predictable source of retirement income and ensure steady cash flows throughout the year. 

A bond ladder is basically a strategy that involves purchasing several smaller bonds with varying maturity dates rather than one large bond with a single maturity date. The idea is to minimize the risks involved and increase liquidity. Plus, with numerous bond issues, credit risk is spread across the portfolio and is diversified. 

To build a bond ladder, you purchase several bonds in your account with staggered maturities. The decision of what kind of ladder to construct depends on your risk tolerance, time period, income needs, and investable assets. 

For example, suppose you want to invest $50,000 in bonds. Using this approach, you can buy five different bonds with a face value of $10,000 each. Or ten different bonds, each with a face value of $5,000. Here, each bond will have a different maturity date — one bond may mature in six months, another in a year, while others may take five to ten years. 

Remember: The greater the number of bonds, the more diversified your portfolio will be. So even if one fails, the rest will keep your portfolio secured. 

3. High Dividend-Paying Stocks 

When planning for retirement, choosing a mix between stocks and bonds can be a crucial investment option. While stocks offer the opportunity to grow your wealth over time, bonds provide security — even though they have lower returns than stocks on average.

If you are looking for something that provides high returns but at a lower risk, dividend-paying stocks can be a perfect choice. Companies pay dividends to their shareholders as a reward for putting your money into their business. These usually come in the form of cash payments and are paid either monthly, quarterly, or yearly. 

Dividend stocks boast relatively high returns and are a viable alternative to low-interest bonds. However, they still have similar risk factors as other stocks and are subject to significant losses — if a company gets into financial trouble. However, fortunately, companies that issue dividend stocks are less likely to engage in high-risk ventures. 

Thus, before investing, be sure to make your strategy according to the amount of risk you can tolerate. Focus on the quality, price, and the returns the dividend stock is expected to generate. After all, it’s not a great idea to expose yourself to losses in your retirement years. 

Furthermore, dividend stocks are designed to preserve principal amounts and provide reliable retirement income over the long term. But, since they are high-risk investments than bonds, we recommend you incorporate them as a part of your diversified portfolio. And also, opt for large companies with a long history of paying dividends. 

Many companies that provide dividends also offer Dividend Reinvestment Plans (DRIP) to investors. This program gives shareholders the option of reinvesting the dividends into additional shares of the same stock. After your retirement, you can terminate this plan and take the dividend payouts as retirement income. This way, you will already have a stable stream of revenue at the ready. 

4. Invest in Real Estate 

This might not be the first thing that comes to mind, but investing in real estate is a lucrative investment with tons of potential to provide you with sufficient funds during your retirement period. You can earn income in the form of rent and appreciation — when you sell a property at a profit. Plus, it’s an excellent way to diversify your investment portfolio, reduce risks, and maximize returns.

With so much potential, it’s only natural you will want to tap into this investment option. However, the trouble is that many new investors don’t know the ins and outs of real estate investing. 

But, don’t fret. 

We have come up with three common ways to make money in real estate, which are as follows: 

Purchase a Property and Rent It Out

Rental income can be a crucial income source — especially if you are short of funds.

Do you remember the fable about a goose who laid golden eggs every day? Investing in real estate properties is just like that. Each property that you own is like a golden egg-laying goose. However, instead of golden eggs, you get a steady rental income every month. 

Well, this might not be a “get rich quick” scheme. But if you look after your goose (properties) properly, you can become wealthy over time. 

Renting out a property comes with several drawbacks too. Managing a property can be stressful and time-consuming. Not only do you need to take care of the property but also deal with your tenant’s ability not to pay rent on time. And don’t forget the high upfront cost required to buy the property. 

Flipping Houses 

Flipping, also called wholesale real estate investing, is the process of purchasing a property, not with an intention to use it but to sell it for financial gain. In short, you buy low and sell high. 

This may look easy — buy a house, make some improvements, and put it back on the market at a higher price. But like any other business, you need knowledge, planning, patience, and skills, unless you want to end up failing. Plus, it will require a lot of time and money — sometimes even more than you ever imagined. 

With flipping, you always run at a risk of not selling your property at the price that will turn a profit.

Not being able to sell at a critical moment can be a major drawback as you may not have enough cash to pay mortgages on properties in the long term. However, if done right, flipping can prove to be an attractive source for ongoing retirement income. 

Equity Real Estate Investment Trusts (REITs) 

If you don’t want to be a landlord or mortgage holder, consider investing in Equity Real Estate Investment Trusts (REITs). REIT is a company that owns, buys, sells, and manages income-producing properties, such as malls and apartment buildings.

Ideally, such companies are required to pay at least 90% of profits as dividends to shareholders. 

With such a high dividend value, REIT is an ideal option for retirement investors looking for regular income. And if you don’t need the regular income, you can reinvest those dividends to grow your investment further. 

However, REITs can be varied and complex too. While some are traded on securities exchanges, others aren’t traded publicly. Non-traded REITs aren’t easily sold and thus can be highly risky. So, if you’re a new investor, we advise you to only go for publicly-traded REITs. 

In a nutshell, like all investment decisions, real estate is a good option if you educate yourself, polish your skills, have patience, and go about it the right way. Think about how much time you have, how much of your funds you can invest, and whether you want to deal with household issues directly or invest in non-physical real estate properties, like REITs. 

5. Invest in Cryptocurrency

Okay, crypto might be a shocking entry in this steady income list due to its volatile price swings. But, cryptocurrencies, like Bitcoin, Ethereum, and others, are becoming a crucial part of the financial environment, including retirement funds. Despite being speculative and lacking any intermediary support, these coins are gaining popularity faster than ever before.

If you tend to invest in cryptocurrencies for supplementing your retirement income, you need to find some of the best bitcoin exchanges — that are reliable and come with low monthly fees. Next, create an account with your shortlisted exchange, where you’ll have to get your identity verified by submitting a few documents.

After that, deposit the amount you’ll need via wire transfer or debit/credit card, and finally, make your first purchase. While you can purchase some cryptocurrencies with U.S. dollars, others require you to pay bitcoin or other cryptocurrency. 

Cryptocurrencies may have a lot of hype and may go up in value, but many investors don’t see them as real investments. The reason being that they generate no cash flow. If you want to profit, someone has to pay more for the currency than you did.

This is why some financial firms now offer the option of investing in cryptocurrencies through Individual Retirement Accounts (IRAs). A Bitcoin IRA, also known as a self-directed IRA, allows you to invest in and include bitcoins and other digital currencies within your investment portfolio — leading to diversification. And the investors’ beliefs that cryptocurrencies will continue to grow in the future makes it an excellent investment vehicle in retirement. 

The Bottom Line 

Your expenses don’t end with your retirement. There are few ways retirees earn income, such as 401(k) or 403(b) retirement savings accounts, P2P investments, social security payments, pensions, and so on. But, most of these have become the thing of the past — especially in the private sector. 

Now that you have understood all these methods, you should be ready to use these to generate income during your retirement years. And, the best thing is that you can mix and match them to suit your income needs and risk tolerance. 

Remember: Regardless of the option(s) you select to generate a steady retirement income — make sure to plan diligently and invest conscientiously. Your careful planning will help so that you don’t have to settle with losses during your retirement period. 

Lucy Manole

Lucy Manole

Lucy Manole is a creative content writer and strategist at Marketing Digest. She specializes in writing about a wide range of areas about online business, personal finance, investment, and career. When she is not writing or editing, she spends time reading books, cooking and listening to music.

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More