Tips on tapping into various sources of retirement income
To enjoy a long and comfortable retirement, you may need to balance multiple types of income streams in your retirement portfolio. This could help you achieve the most advantageous mix of investment growth, income and tax control that’s appropriate to your risk tolerance, income horizon and goals. These retirement income streams can come from the following types of investments below.
Retirement accounts Your 401(k) or IRA can be used as a source of retirement income once you reach age 59 ½ and begin to take withdrawals.1
Dividend-paying stocks Some mature companies return a portion of their profits each year to holders of their stock in the form of dividend payments.2 The stocks in the S&P 500 historically have generated an average yield of 4.3%, although it’s currently (as of August 2017) closer to 2.0% .3
Bonds These are “IOUs” issued by a government agency or a corporation, and generally pay you back your principal and a fixed rate of interest over a specific time period.
Social Security benefits Social Security benefits generally replace about 40% of an average wage earner’s income after retirement.4
Annuities5 Issued by an insurance company, an annuity converts a single lump sum of money into a regular stream of income payments, either with a fixed or variable rate of interest, for a predetermined amount of time.
As with any investment strategy, it’s important to plan, and learn about your options. Working with a financial planner or advisor can also be a useful way to plan for retirement income once you stop receiving a regular paycheck.
¹Withdrawals from a qualified plan are subject to ordinary income taxes and a 10% federal tax penalty if taken prior to age 59½.
²Dividends are not guaranteed.
³Sources: Standard & Poor’s, as of August 1, 2017, and Robert J. Shiller, Irrational Exuberance (New York: Broadway Business Books, 2009).
4Understanding the Benefits 2017, www.ssa.gov.
5Annuities are long-term, tax-deferred vehicles designed for retirement. There are costs and limitations associated with this product and guarantees are based on the claims paying ability of the underlying insurance company.
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