10 Investment Options for Retirees to Generate Income

Retirement is a time when many people switch to safer investments, such as bonds, that are less likely to experience sharp or sudden declines. But this only addresses market risk. To ensure they don't run out of money, retirees need some growth-oriented investments to keep up with inflation and the rising retirement cost of living. This requires a careful balance between risk, revenue and capital preservation.

Here are 10 investment options that can help retirees generate income while keeping risk under control.

Annuities

. Annuities have developed a bad reputation for being heavy and full of small print. But their ability to provide a guaranteed source of lifelong income during retirement should not be overlooked. The key is to determine what type of annuity will best meet your retirement needs.

Bonds

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Bonds are commonplace in retirement portfolios thanks to their reliable income. While it's true that yields have been anaemic for quite some time, the fact is that bonds issued by high-quality companies and held to their maturity date will provide necessary and regular income, while reducing overall portfolio risk. A common investment strategy for retirement is to create a bond scale where you hold bonds of different maturities.

Dividend-Paying Stocks

. Since retirement can last 30 years or more, it's important to have a source of growth in your portfolio.

Stocks can provide this growth and a hedge against inflation. Look for quality companies with a history of paying regular and growing dividends, which can serve as a source of income regardless of the current stock valuation. However, keep in mind that dividends are not guaranteed. A company can stop paying its dividend or change the dividend amount at any time.

Non-Negotiated Real Estate Investment Trusts (REITs)

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REITs are an attractive option for retirees looking for income and capital appreciation. REITs are professionally managed portfolios of real estate investments that generate income from rent payments and capital gains from the sale of properties. REITs are traded on major stock exchanges, making them easy to buy and sell.

Alternative Investments

. It's important to manage volatility in a post-retirement portfolio, which means you need to have investments that react differently to market events.

Liquid alternative investments include funds involved in direct lending, private real estate, public and private credit markets, as well as reinsurance. Incorporating alternative investments is particularly important when a low-performing environment is expected in the future.

Consumer Defensive Actions

. I want customers to be as diversified as possible. However, I can lean your portfolio toward consumer-defensive actions for retired or more conservative clients.

Defensive actions generally include utility companies such as natural gas and electricity providers, healthcare providers, and companies whose products we use on a daily basis, such as toothpaste companies or food and grocery stores.

Tax-Free Interest

. I like tax-free interest for retirees for several reasons. Retirees may have other sources of taxable income, such as pensions, annuities, or rental income, whose income may lead them to a higher-than-expected income tax bracket. Retirees can also withdraw money from 401 (k) and traditional IRAs during retirement to obtain the required minimum distributions, which are taxable as ordinary income.

Having some tax-free interest can prevent a retiree's income from rising to the next highest tax bracket in retirement.

Satellites

. I like to add small amounts of other investments. I call them my “satellites”. Depending on the client's financial situation and risk tolerance, I can add real estate or small quantities of commodities, including coal, gold, corn and natural gas.

I usually use mutual funds or exchange-traded funds for diversification and relatively low cost.

Certificates of Deposit (CDs)

. Certificates of Deposit (CDs) are a robust, low-risk investment option for retirees. Basically, you give a certain amount of money to a bank. You can usually choose this amount, although some banks have minimums.

When you invest the money, you'll choose a term, usually between one month and 10 years. You can't touch the money until the deadline expires. When finished, we'll refund your money, plus interest.

Life Insurance

. Life insurance isn't meant to be an investment, but it can be a welcome additional source of income for retirees who find themselves a little short each month.

The safest policy for work is the whole life or universal life policy, which accumulates cash value according to a schedule. Policyholders can access cash reserves through an actual loan or withdrawal.

Home Equity

. It's also possible to leverage your home's equity to earn income, either by selling the home or by applying for a home equity loan or line of credit.