You’ve spent years investing so you can retire on your terms. But what’s your strategy for income when your regular paychecks end?
- Cash and short-term fixed income – These provide for your near-term income needs and provide some stability, but earn little, if any, interest. Consider having about a year’s worth of retirement income needs from your portfolio in cash, as well as a ladder of short-term CDs/fixed income to provide another three to five years’ worth of income needs.
- Bonds and other fixed-income investments – These provide a fixed stream of income to help supplement near-term income and provide income over the intermediate term. We recommend considering a laddered portfolio of individual bonds or bond mutual funds to round out your fixed-income portfolio.
- Stocks and other growth investments – These can provide both growth and rising income potential to help outpace inflation and provide for your income needs years from now. Consider larger, higher-quality dividend-paying companies and those with the potential to increase their dividends over time. But don’t forget about small and midsize companies for diversification purposes and to provide growth potential down the road.
Staying the Course
Viewing your investments based on their purpose may help you better prepare for the ups and downs of the market and stick with your strategy over time. For example, if the market declines, there may be a temptation to make changes and potentially sell stocks. But your stocks are designed to provide for your long-term income. Your near-term income is already provided by your cash and short-term fixed income and/or CD ladder, so you can spend from them, providing your stocks time to recover.
With the knowledge of your long-term goals, income needs and comfort with risk, your financial advisor can help you position your portfolio to provide the income you need when you need it. This can not only help you better navigate the changing market environment during retirement, but more importantly provide you the ongoing “paycheck” you need to help you live the retirement you desire.