Investing isn’t just about accumulating wealth; it’s also about creating a sustainable income stream that you can rely on for life. Benjamin Franklin said, “Money makes money. And the money that money makes, makes money.” That is all well and good, but in order to make this work, you need a smart investment plan.

Taxes and inflation 

When investing for income, consider taxes and inflation. This is because, over time, inflation reduces your purchasing power, so factor it in when calculating how much return you actually get. Plan for taxes, too… They’re not going away anytime soon.

Creating an investment plan 

Having a solid plan for drawing income out of your portfolio is essential. Don’t deplete the principal too quickly or else you won’t have enough left to last through retirement. Experts are divided on whether the 4% rule should be the gold standard, so make sure you understand the implications of withdrawing from your account. The 4% rule is a way to help people plan for retirement. It suggests that retirees should plan to withdraw 4% of their retirement savings each year in order to make their money last.

The benefits of dividend-paying stocks 

Dividend-paying stocks offer a great way to generate income from your investments as they produce cash-flow on a regular basis. This means you’ll receive payments based on how much stock you own. However, dividend-paying stocks are equities, and as such, tend to be more volatile than many other types of investments. Diversify your holdings to reduce risk.

Bonds and bond funds 

Lending money to a government or corporation through bonds/bond funds can generate income. Bond funds spread the risk across multiple entities, reducing the impact of any single default. However, they can lose money, too, especially when interest rates move up quickly. Bonds pay income on a set schedule, which is important to some investors.

How to protect your money

Generating portfolio income requires careful planning and an understanding of taxes and inflation. Diversifying across asset classes can help reduce risk and create a steady stream of income throughout retirement. With the right plan in place, you can draw money off your investments while still preserving enough principal to last through retirement. 

If you have questions about creating an effective portfolio income plan, call 02-624-2788.

Douglas Goldstein, CFP®, GFP®, is the director of Profile Investment Services, Ltd. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.

Published June 27, 2023.

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