More Than One Way to Earn

Enjoy a long retirement with several income streams

Increasing longevity is a practical reason you may want to develop an income plan to cover your expenses. To help you enjoy a long and comfortable retirement, using many different types of income streams can help balance your need for both growth and income while providing options to help minimize taxes throughout your retirement.

Retirement Accounts

Your IRA and your employer-sponsored retirement plan, such as a 401(k), can be essential sources of retirement income. Distributions from a traditional IRA or employer-sponsored plan are taxable, and distributions from a Roth IRA or employer-sponsored plan are tax-free. So, you may want to consider allocating assets to both types of retirement accounts.

Dividend Income

Some stocks have regularly increased their dividends for years. These “dividend kings” can provide you with a source of rising income, which is essential to helping you stay ahead of inflation during your retirement years. (Companies can lower or discontinue their dividends at any time.) Because of the preferential tax treatment of dividend income, these types of stocks generally are best used in taxable (non-IRA) accounts.

Bond Income

Consider building a “ladder” of short-, intermediate- and long-term bonds. You can reinvest the proceeds of the maturing short-term bonds into new ones, issued at a potentially higher rate, while you continue to receive income from your long-term bonds, which typically pay more than shorter-term ones. Bond mutual funds and exchange-traded funds also provide interest income.

Sale or Conversion of Investment Assets

Once you reach age 70½, you will need to take required minimum distributions from your 401(k) and your traditional IRA. But, you may need to sell investments outside these accounts as well, or at least convert some investments into income-producing vehicles. Be aware of the tax consequences, however.

Social Security Benefits

Although the rules have recently changed, the best way to maximize Social Security benefits may still be to wait as long as possible before taking benefits, especially for the higher-earning spouse. You can start receiving benefits at age 62; however, benefits received before your “full” retirement age (currently age 66 or 67) will be permanently reduced. If you delay taking benefits past full retirement age, the amount you receive will increase every year until age 70.

Annuity Income

Annuities are insurance company products that may help assure a predictable lifetime income. Like creating a “personal pension,” they come in a variety of forms and can provide a guaranteed income stream for as long as you live, no matter what happens in the markets. Read the prospectus carefully to understand the objectives, risks, charges, and expenses before investing in an annuity.

Reverse Mortgage Equity

While a reverse mortgage is not suitable for everyone, for those needing to tap the equity in their homes, it can be something to think about. A reverse mortgage can either provide you with additional regular income payments or be used as a strategy during down markets when withdrawals from your portfolio may be unfavorable.

By taking full advantage of these sources of income, you can go a long way toward enjoying the retirement you have envisioned. So, plan ahead, learn all your options, and make those choices that are right for you.