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Income-Generating Investments That Build Wealth During Retirement

Income-Generating Investments for Retirement

Over the past two decades, the US has been through several massive crises that put millions of households and businesses into the gutter. Many years have passed since the Dot-com bubble, the Real Estate Market Bubble, and the Global Financial Crisis.

Yet, the memories of their aftermath have remained remarkable. These are only some unfortunate events that led to bankruptcies and macroeconomic weakness. And even a year before the pandemic, 25% of Americans, mainly retirees, struggled to recover from the Great Recession.

The global economy was severely impacted when the pandemic limited business operations and led to billions of cash burns. It led to skyrocketing job losses and business shutdowns, with 9.4 million SMEs closing in 2020.

Unemployment in the US rose to 16.9 million. It was especially painful for those forced to leave their jobs as employers could not sustain businesses. Again, those in their golden years were most threatened as unemployment meant they had to use up their savings.  And they only had limited time and resources to recover from their bankruptcy.

Even so, the US economy rebounded in the next two years as restrictions eased and businesses reopened with increased capacity. In turn, the labor market and the aggregate demand stabilized. At the end of 2022, the GDP per capita rebounded to $62,867, exceeding pre-pandemic levels by 4%. This was despite the accelerating inflation and continued interest rate hikes.

Today, the US economy is weaker than its 2021 levels but much more stable than in 2022. Inflationary pressures have eased as the actual rate decelerated to 3.2%. Even better, the Fed has paused rate hikes and hinted at the possibility of a rate cut in the second half of 2024.

Indeed, the efforts of the policymakers have paid off. Nevertheless, retirees must stay guarded as holiday spending may stimulate inflation this month.

And after all the events that have transpired, the labor market structure has transformed. There has been a notable increase in underemployment as more people accepted part-time jobs. But what’s noticeable is that the retirement age has risen along with prices as more retirees delay their retirement.  In a survey, 59% lack confidence in their capacity to cover healthcare costs as they age.

Inflation remains the primary reason, especially in the healthcare sector. Retirees worry about depleting their funds and investments in the long run. While longer life expectancies can be an excellent public health indicator, it can be problematic for retirement portfolios.

To that end, they must ensure prudent portfolio allocation for at least twenty years. Given this, people are racing to find ways to build and multiply their wealth before retirement.

This is crucial to those in retirement years as they must stretch their retirement fund amidst higher prices. Thankfully, there are many effective ways to do so.

They can still enjoy retirement with proper financial market knowledge and guidance from financial advisors. In this article, we’ll explore how retirees can diversify their portfolios. We will also examine ways to assess risks and opportunities to maximize investment income.

Retirement Demographics in the US

Retirement and expected retirement age have been a hot topic in the past three years. In the US, the average retirement age has remained the same. Yet, there has been talk of increasing the Social Security retirement age to 70.

More interestingly, Americans are expecting to retire later than they actually do. Over the years, both the actual and expected retirement years have increased. Their gap has even widened from four years in the early 2000s to six years after the height of the pandemic.

Before the Great Recession, the actual retirement age ranged between 59 to 60. But in the aftermath, it rose to 60-61. It has further increased to 61-62 since the pandemic, showing decreasing confidence among retirees.

Even more noticeable is that the percentage of adults retiring in every age group has declined. In 2002-2007 and 2016-2022, the percentage of retired adults decreased by at least 5%. And even though early retirement remains a popular concept today, retirement percentages among younger adults decreased by at least 1%.

It is also essential to note that the number of years Americans spend in retirement has risen substantially in the last fifty years. During the 1970s, American men had an average of 12.8 retirement years. Meanwhile, women lived 16.6 years on average, data from OECD shows.

These figures rose to 18.6 years and 21.3 years, respectively, during the pandemic.

The same can be observed in other countries. Among the 38 member states of the OECD, men had 12 retirement years on average, while women had 16 retirement years. By 2020, the average retirement length for men and women increased to 19.5 years and 23.8 years, respectively.

However, the expected retirement years in the US have decreased. The average retirement length peaked in 2012 for men and in 2005 for women. This can be attributed to several factors, such as weak macroeconomic indicators and the need to recover from various crises.

Many would-be retirees choose to extend their working years or come out from retirement to work again. It has entailed them to maximize their working years, thus shortening their expected retirement years.

In 2022, inflation spiked to 9.1%, the highest rate in nearly forty years. And even if it has already decelerated and stabilized, its cumulative effects have burdened many Americans. At the start of the year, 41% of Americans stopped putting money into retirement vehicles amid interest rate hikes.

It was driven by inflation as the rising costs of essential goods comprised a more significant portion of disposable income. The remaining amount either goes into non-discretionary spending or is used to repay borrowings.

Moreover, 44% of retirees in the US chose to unretire. Meanwhile, almost two-thirds of American pre-retirees are considering or have decided to delay their retirement. Inflation remained the primary reason for this, but surprisingly, 40% of pre-retirees said it was not just about the money. Some cited intellectual stimulation and a sense of purpose as their primary motivation.

Best Investment Options for Retirement Income

The average life expectancy of an American is roughly 85 years. One out of three 65-year-old Americans lives past age 90, and one out of seven will live up to 95.

As such, people must ensure their retirement savings will last at least 30 years. It may be a lot of pressure to put on traditional retirement accounts. Even so, it will be wise to avoid getting broke during retirement years.

Sadly, many Americans remain heavily dependent on Social Security retirement benefits. But these can only cover about 40% of pre-retirement earnings. It’s no wonder many retirees choose to unretire or seek part-time jobs. So, people must supplement their benefits with other income streams, such as savings and investments.

Here are the four best investment options to generate retirement income, ranked according to risk aversion.

Equities or stocks

People often engage in stock trading to generate value appreciation in their portfolios. But some investors, especially those holding a long position, rely on dividend payouts. Publicly traded companies may lead to massive earnings when their prices increase.

They can be risky, though, as their volatility remains high, especially during macroeconomic uncertainties. Even so, their long-term price change has been substantial despite several crises the market has gone through.

For example, the S&P 500 index (SPX) peaked at about $1500 in 2007. When the Great Recession struck the US, its value dropped to $700. But it has increased and rebounded over the past decade as the US economy recovered.

At $4570, it was already more than twice its pre-GFC price. The same applies to the NASDAQ Composite (IXIC), which peaked at $2800 before plunging to $1300. After the economic recovery, its value has skyrocketed in the following years.

It is $14,180 today, about five times as much as before the GFC. The sixteen-year price trend gives an average annual return of 7.5% for SPX and 11.8% for IXIC.

The good thing about the US stocks is that despite the downturns they have been through, they kept returning and bouncing back. They have even exceeded the value before the market bubble burst.

Stocks are great for long-term investments as their value appreciates over time. And now, they are poised to surge again. Yet, the stock market surge may concern the Fed as it coincides with spending splurge this holiday season. This may lead to another inflation uptick, so the Fed keeps its hawkish stance.

As for dividends, these are distributed quarterly, semi-annually, or annually. These depend on the financial reporting pattern or frequency of the company. They can be in the form of cash or additional stocks. Sometimes, companies pay special dividends, especially when net income is unusually high or during M&As.

If this is your primary focus, check for stocks with excellent reputations for dividend payments. Dividend Aristocrats or dividend champions are the most reliable since they have been paying and increasing dividends for over 25 consecutive years.

REITs are also great choices for high dividend yields. Meaning you generate high dividends relative to its price. Most importantly, REITs have a weak correlation with stock price indices. So, REITs are relatively stable even if the stock market goes into a downturn.

But of course, retirees must remember they have limited time and resources. The stock market offers high payouts, but these come with massive risks. Another crash may come, and it’s riskier when retirees reach their eighties as their time to regain their capital becomes more limited.

Balanced funds

A balanced fund is a diverse mix of stocks and bonds. Returns may be lower than equities, but risks are more manageable. Earning opportunities are also higher than bonds.

That being said, balance funds have more flexibility to optimize the risks and rewards of an investment. Even better, the total return investment approach can be applied here. This provides income through dividends, interest, and capital gains.


Fixed-income instruments, often called bonds, are much less competitive than equities and balanced funds. Yet, these are the least volatile and the safest among the three.

This is because it is deeply tied to interest rate changes. So, if the Fed raises short-term interest rates, bond prices decrease. But their yields increase as well. For instance, the five-year T-bills had 1.37% yields at the start of 2022. But after massive interest rate hikes, yields nearly tripled to 3.74%.

Moreover, bond issuers and value are the most dependable. Bonds indicate the date of maturity and the offered yield after a specific period. You can invest directly in municipal bonds, US Treasury bonds, and corporate bonds.

Government-issued securities, especially the Treasury Inflation-Linked Securities or TIPS, are the best option during periods of elevated prices. These are more inflation-resistant and, thus, can hedge valuation risks.

Short-term bonds, such as 30-, 90-, and 180-day, are also enticing to buy during sustained inflation. Sustained inflation means higher interest rates, leading to higher bond yields.

However, bonds also have several downfalls, such as taxes on ordinary income. Also, investors may realize lower principal if they decide to sell it instead of waiting for maturity. Lastly, generating income in the long run can be challenging, especially for five- and ten-year bonds.


Annuities are the most secure investment option on the list. This is a contract between a policyholder and an insurance company. The latter pays a specific amount either all at once or divided into fixed periods as regular monthly or quarterly income payments.

As such, it sets a guaranteed income stream for a certain period. The payout is distributed to beneficiaries in typical life insurance after the policyholder’s death. Meanwhile, annuities act as regular monthly income for as long as the policyholder lives.

Policyholders pay a specified amount to the company, knowing that payout distribution will take place either immediately or at a later date. So, while the money remains under management, it can accrue on a tax-deferred basis.

It can also increase exponentially, depending on the type of investment. An expert, such as a financial advisor, can determine the best kind of annuity for your needs and risk aversion type.

However, annuities have several drawbacks. Liquidity is limited since payouts come on a fixed basis. Withdrawals before age 59 ½ may lead to a 10% tax penalty. Lastly, risks are present if highly-rated insurance companies do not underwrite annuities.

[Related: 5 Ways for Business Leaders to Invest in Themselves During Retirement]

How To Create a Sustainable Income Stream

These are the steps to create a sustainable income stream for your retirement.

First step

Determine the annual cash flow needed from the retirement portfolio. Retirees and pre-retirees must estimate and track their yearly or monthly expenses, such as food, clothing, utilities, medicine, and healthcare. You will deduct from the total amount the income generated from constant sources, such as pensions and guaranteed income. The deficit, if any, may be covered by the investment portfolio.

Second step

Estimate the number of years the cash flow should stay accessible, including emergency funds. That way, pre-retirees and retirees can ensure sufficient funds even in their eighties and nineties.

Additionally, it will be easier to track cash flow with a money-tracking app.

Third step

Create a buffer fund to close the gap between short-term needs and long-term growth investments. Note that the long-term sustainability of the retirement portfolio may be negatively affected by selling or disposing of growth-oriented assets on short-term notice.

Fourth step

Invest the remaining amount in growth-oriented investments. Ideally, these should be long-term investments, primarily equities.

Again,  equities are great investments since they have the highest returns in the long run. Of course, the composition or diversification may vary depending on the total portfolio size and the duration of income allocated to investments.

The Bottom Line

Preparing for your retirement can take a lifetime as market conditions vary drastically. However, ensuring liquidity and adequacy in retirement years can be more challenging. Even so, pre-retirees and retirees can maintain sufficient funds and build wealth with prudent portfolio diversification. Retirement income may increase or cover retirement longer than anticipated.

Featured Image Credit: Photo by Andrea Piacquadio; Pexels

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CEO of SearchEye and Financial Author at Due
Chris Porteous is a growth marketer, helping freelancers and small businesses become financially independent. Previous to this, Chris worked at prestigious financial institutions including: Goldman Sachs, UBS Securities, Garrison Hill Capital Management and DBRS. He is a frequent contributor and has been featured in publications, including: Entrepreneur, Forbes, Inc, Zerohedge, Lifehack, and more. Fun fact, his previous company Our Paper Life (that was acquired), built the largest cardboard beach in the world.

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