Keeping Pace with Inflation and Expenses in Retirement
Whether preparing for or investing during retirement, your primary goal should be to have enough income to maintain a comfortable lifestyle. To keep pace with expenses and inflation, most investors will need two types of income in retirement: reliable income and rising income.
No one knows what will happen to the economy or stock market in the short term. But if history is a guide, investors who maintain an appropriate asset allocation and diversification strategy and focus on holding investments that offer the potential to generate reliable income and rising income have more potential to achieve their long-term financial goals.
Reliable Income
In addition to government benefits and any pension income, you can create a reliable income stream by owning immediate annuities and guaranteed minimum withdrawal benefit (GMWB) plans. Owning a variety of fixed-income investments can also provide you with reliable income. This piece of your portfolio can be combined with a money market account or GIC, so money can be reinvested at different times and at different rates.
If you are using fixed-income investments as a source of reliable income, you’ll want to combine short-term and long-term income investments. Although it may seem that investments with higher yields would provide better income, in many cases they add too much risk and are best avoided.
Rising Income
While some pensions and annuities can be designed to provide lifetime income with the potential for increasing payments, most investors need other strategies to help their income grow over time. The main reason is inflation, which is one of the biggest risks for long-term investors.
If inflation averages 3% annually, the cost of everything doubles every 20 years. In other words, 20 years from now, it would take about $100,000 a year to afford a lifestyle that costs $50,000 today.
Stocks with a history of paying and increasing dividends, and an expectation to continue this pattern, offer rising income. You can own these stocks individually or in mutual funds that invest in these companies. When buying individual stocks or equity mutual funds, we generally recommend those that offer the potential for growing dividends rather than those with the highest yield, since higher yield often means higher risk
Schedule an appointment today to review your investments and discuss your goals with your Edward Jones advisor.
Diversification does not guarantee a profit or protect against loss. Insurance and annuities are offered by Edward Jones Insurance Agency (except in Quebec). In Quebec, insurance and annuities are offered by Edward Jones Insurance Agency (Quebec) Inc. Dividends may be increased, decreased or eliminated at any point without notice.
