Types of Retirement Income Strategies
Investment in Stocks
For people approaching retirement or already retired, you’ll need to develop retirement investment strategies that cover your need to safeguard your lifestyle and have the potential to make significant gains in invested assets enough to earn you an income throughout your life.
Stocks are a representation of the part ownership for a corporation through equity investment. It entitles the investor to a share of a part of the corporation’s annual earnings and assets. Shareholders with the common stock have voting rights but do not guarantee dividend payments from the corporation’s yearly profit. Preferred stocks, on the other hand, have no voting rights but give the shareholder a guarantee to receive a dividend payment.
While in the past, shareholders were awarded a certificate for paper stocks known as security to verify the shares owned by each shareholder, today’s share ownership is mostly recorded electronically where the brokerage firm holds the shares.
Like many other investors, you may be hesitant to invest in the stock market due to stock market crashes. This is understandable since you may not have the option to go back to work to make up any losses your investment in the stock market may incur. However, investments in stocks give the investor the chance to significantly increase the value of their equity investments for a potentially long period after retirement that could last for more than 25 years.
Historically, capital will grow, increasing the dividends paid by a company gradually each year. Increased dividends provide the shareholders with a means of income. Most companies also pay dividends that have a lower tax rate than income earned from interest.
Given the principal value’s fluctuates as the market moves, companies may reduce or eliminate dividends during tough financial years. It is recommended that you understand how stocks yield dividends before investing in stocks.
How does options trading generate income?
One crucial way to achieve a stable retirement income is to use strategies that over time ensure you earn a low-risk, stable and predictable income instead of investing in get-rich-quick schemes with enormous risks. Options trading is an excellent way to boost the income of your portfolio.
Using the time delay feature, options trading offers an alternative source of income from stock holdings without taking on additional high risks involved in the stock market. In options trading, the major risk drawn by the most conservative strategies is having to sell the stock early when they move higher than expected. Other options trading strategies provide investors with ways of hedging their portfolios by setting price floors to secure them against decline. This is a strategy that can be attractive for retirement investors who are keen on reducing the risk factor.
There are many different ways to generate an income using stock options, but they all take advantage of a feature known as time decay. The basic idea is that an investor sells or writes an out-of-the-money option with no intrinsic value – only time value – and generates an income as that time value decays throughout the option’s life. These positions are usually hedged using long stock positions or other options to limit their downside potential.
Unlike stocks and bonds, options have a predictable level of risk and reward. Below are two of the most popular options trading income strategies:
If trading stock options interest you, below you will find some links to a couple of different education platforms which you may find helpful.
Prosper Trading Academy https://www.prospertrading.com/
Profits Run https://www.profitsrun.com/
Money Morning https://moneymorning.com/
Precious Metals
What Is a Precious Metal IRA?
A precious metal IRA is a specially designed form of self-directed individual retirement account (IRA). Through self-directed IRAs, you are allowed to invest in a wide variety of unconventional assets beyond the usual options available in a traditional IRA. These assets include precious metals, real estate, art, etc.
Precious metals appeal to investors who do not want to invest in the stock market. Although some investors consider it a safe-haven investment, precious metals such as gold, silver, and palladium due to their lucrative returns for any retirement account. Although they are also subject to their own forms of volatility, precious metals can be excellent long-term investment choices.
Due to existing regulations, most regular individual retirement accounts (IRAs) do not permit you to hold precious physical metals. As metals are barred from plans such as the 401k retirement plan, investors can still use special precious metal IRAs to invest their retirement savings in gold, palladium, silver, platinum, etc.
Purchasing precious metals through IRAs are an excellent way of increasing your retirement income as well as diversifying your portfolio. Our finance experts recommend that you invest conservatively in precious metals should you choose to do so. Ideally, the amount you invest should not exceed 5-10% of your retirement savings for several reasons.
Well planned portfolios by trustworthy financial experts are diversified to avoid taking on unnecessary risks by having all your savings on one asset or asset type. Although historically, metals such as gold hold their value over the long term, compared to other assets such as stocks, metals lag in performance. Finally, while metals are considered safe havens, they are also volatile and will rise in value while markets struggle but fall in value when stock markets recover.
The IRS standards for investing in precious metal IRAs require that:
- Gold you invest in must be at least 99.5% pure
- Silver you invest in must be at least 99.9% pure
- Platinum you invest in must be at least 99.95% pure
- Palladium you invest in must be at least 99.95% pure
Please be careful; always read the fine print!
How Investment Strategies Could Affect Your Retirement Income
Investment strategies are one of the ways through which a retiree can increase their retirement income. These strategies allow you to create a long-lasting regular stream of income to help you foot your bills. Investment strategies supplement the income from other regular and variable sources of retirement income.
Regular sources of retirement income include:
- Social Security
- Pension
- Annuity
Benefits of regular sources of retirement income
- Payments from regular sources are promised for a lifetime.
- Income is not subject to market swings, therefore making it regular and predictable.
- With inflation, Social Security payments increase, preventing your spending power from diminishing.
Risks of regular sources of retirement income
- You lose control of money is invested in an annuity.
- Annuity insurance guarantees require payment of extra fees.
- Does not have a pool of savings that you can withdraw for emergencies or bequeath heirs.
- Do not offer the opportunity to capitalize on market growth.
- The claim-paying ability of an outside entity influence the payments.
Variable sources of retirement income include:
- Taxable savings account
- Lumpsum pension payments
- Savings such as Employer retirement plan account
IRAs
Benefits of variable sources of income
- Provide spending flexibility by allowing emergency withdrawals.
- Depending on the investment type and the capital market’s performance, variable income has the potential to grow.
- Assets can be transferred as gifts or inheritance.
Risks associated with variable income
- Spending discipline is required when withdrawing income to avoid running out of money.
- Money invested in bonds or stock markets is subject to market swings.
- Severe declines in the market declines may have adverse effects on your savings.
- Over time, money invested in cash-like instruments, like money market funds, Certificate of Deposits and bank savings accounts, may suffer from diminishing purchasing power.
There is no single right investment strategy; therefore, a retiree needs to stay flexible by ensuring that they adjust their investment approach over time depending on their life changes and the performance of their investment.
Also, you may be interested in a strategy which would allow you to make additional money during retirement, check out this link.