How can you increase your retirement income and avoid risk? Many people simply put their money in the bank. But the good news is that there are other options for reducing risk and generating more retirement income.
While banks present a lower risk than the markets, bank deposits historically have low yields. This is very significant in retirement because you’ll need income from your investments to replace your paycheck. Your bank savings may not grow if interest rates are low, and may even lose value over time due to inflation.
These two income-producing investments, while riskier than bank deposits, may be appropriate for some investors:
Bonds – A bond is a loan to a government or company over a set time period. When the bond matures, you get back your original sum (the principal). Meanwhile, until maturity, you receive regular interest payments. Even though bonds are lower risk than stocks, they are not risk free. During a bond’s lifetime, market volatility can cause its value to go up or down, and there is the risk of default.
You don’t have to invest in individual bonds – a bond fund gives you the opportunity to diversify. These funds are managed for you, and you can also receive a monthly payment instead of the semi-annual payments received from individual bonds. Be sure to read the prospectus before investing in a bond fund so that you understand the risks and expenses.
Dividend-paying stocks – Individual stocks may pay dividends, as well as REITs (real estate investment trusts), ETFs (Exchange Traded Funds), and mutual funds. While the dividend rate isn’t guaranteed (that is up to the board of directors to decide), dividend-producing investments generate income on a regular basis. (Don’t forget that the investment does carry risk of loss of principal.)
Consult with a financial professional
If you need to increase your retirement income, consider if one of the above strategies might work for you. For more information about increasing your retirement income, watch the 9-minute video here: Profile-Financial.com/increase-income
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published April 24, 2017. Updated August 2022