Life does not end after retirement and neither do the expenses that are necessary to lead a comfortable and stable life. Which is why all of us have some kind of retirement plan that will eventually help us live our old-age days without the worry of finances at least.

While saving for the post retirement life is not hard, investing that saved money somewhere that guarantees returns with a reasonable level of risk is a tricky business. Many people struggle to shift from the saving mindset to the spending mindset. Which is why they could use some help in deciding where to invest their money responsibly.

Some people ask their peers and do what they do, while others seek help from professional retirement income advisors like Income store. If you are either of the two types of people and are thinking about your retirement income, we suggest that you familiarize yourself with a few popular retirement income strategies first. And even before doing that consider the following factors before making an investment:

• Growth Potential: It is important that your investment considers the inflation and has some growth potential. But at the same time you must make sure that the risk you are exposing your savings to is worth it.
• Guaranteed Monthly Paycheck: You are not working anymore but the investment you make should be able to cover your monthly expenses. Certain insurance products like Certificates of deposit or fixed and variable annuities can provide a guaranteed income stream. But they also may lack flexibility in terms of withdrawal penalties etc.
• Flexibility: It is always a great feeling to have control over your money and have flexibility. But that may mean that you won’t have a fixed or guaranteed stream of income.
• Principal Preservation: If your principal amount in an investment is preserved you have the assurance of having that recovered even when you don’t get much return. But you also need to keep in mind the fact that the investment that preserve your principal amount don’t yield much.

Retirement Income Strategies

There are many ways in which you can invest your retirement funds or maximize them. Here are the most popular 4 of the retirement income strategies.

1.     Dividends or Interest

This type of investment is for you if you don’t rely solely on one source of income, in this case which is your portfolio. This is because investing in a portfolio may limit you in terms of flexibility of drawing the principal amount invested. This type of portfolio typically includes bonds, dividend-paying stocks and bond funds etc.

Let’s consider some benefits and drawbacks of relying on a portfolio for your retirement income.

Benefits

• Most secured form of investment especially if you are investing your funds in US Government bonds or FDIC-insured CDs.
• When the funds invested in CDs or bonds reach maturity, you receive the entire principal that you had invested initially back.

Drawbacks

• Investing in US government bonds or CDs makes it hard to project future income as the interest rates can change and cannot be projected with accuracy.
• If you make limited investments in stocks, it can expose you to inflation risk.
• Similarly a heavy investment in stocks and securities can also expose you to a high market risk.

2.     Investment Portfolio

If you take on the investment portfolio strategy, your investments are managed for a total return. Which means that your income will be comprised of withdrawals from your investment earnings as well as the principal amount too.

Here are some benefits and drawbacks of this type of retirement income strategy.

Benefits

• Income is generated depending on how the assets are allocated.
• May provide growth opportunities.
• You can make automated withdrawals which makes the whole process very convenient.
• It offers more flexibility in terms of easy access to your savings.

Drawbacks

• You have to play a more active role in managing an investment portfolio.
• Because of regular withdrawals, savings may not last till the end of your lifetime.

3.     Investment Portfolio and Guarantees

If you adopt the investment portfolio and guarantees strategy, you will get to have the secured income flow and the flexibility of an investment portfolio. You can put some of your funds in an annuity which keeps a steady source of income flowing and the rest of the funds in an investment portfolio like guarantees to enjoy the flexibility of having access to the principal amount.

Here are some benefits and drawbacks of choosing investment portfolio plus guarantees as your retirement income strategy.

Benefits

• The income from the annuity can cover your regular expenses with a steady flow.
• The risk of outliving your retirement money is mitigated.
• You have the choice of either a fixed income annuity or a variable annuity.
• As a portion of your income is guaranteed, you can invest the rest of your retirement funds into something that offers more growth opportunities.

Drawbacks

• You lose control over some portion of your funds.
• The expenses associated with an annuity are often higher than other types of investments.
• The income earned from an annuity may not be enough which can lead to withdrawal of funds.

4.     Short-Term Bridge Strategy

This type of strategy works for you if you are looking for some extra income before you retire. You may plan on having an active post-retirement lifestyle or may not be receiving Social Security, to help bridge the gap you can make a short-term investment.

Here are some benefits and drawbacks of investing your funds in a short-term bridge strategy.

Benefits

• You can generate income for a short and fixed time period.
• The return may be enough to cover inflation.

Drawbacks

• The funds invested may be exposed to market risk.
• The return generated from the invested funds may not be enough to cover the gap between your expenses and your retirement money. Which means the effort won’t be worth it.

Before you invest your money anywhere, consider all options, your investment objectives, risks, charges and expenses. The best way to go is to consult a professional after you have done your research.