How to Plan Your Investment Income in Retirement

Whether you’re 60 years old and getting ready to quit working or are 20 and wondering what financial options may be available to you in the future, it’s …

Retirement Planning

Whether you’re 60 years old and getting ready to quit working or are 20 and wondering what financial options may be available to you in the future, it’s never too early to start thinking about retirement.

Most retirement strategies revolve around accumulating wealth through a balance of investments throughout your working decades, culminating in a principal valuable enough to sustain you indefinitely.

But what happens then? Assume you’re doneworking and you have enough money to hypothetically survive indefinitely. How should you invest and balance your portfolio to ensure you have a consistent stream of income for the rest of your life?

Prioritizing Your Principal

Your first priorityneeds to be preserving your principal, preventing it from shrinking excessively due to volatile market conditions. Most financial experts insist you withdraw no more than 4 percent of your principal per year to avoid running through your savings before the end of your life, but if you want to be even safer, you should consider sticking to 3 percent (or even less).

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The bulk of your portfolio should remain distributed across a variety of investments and asset types, aiming to continue growing in excess ofwhat you take out each year. However, you’ll also want to set aside a fixed amount of your principal to guarantee yourself some safe, stable income in your retirement years. There are many options that allowyou to do this.

Term Deposits and Rotational Accounts

First, you could consider using term deposits, or certificate of deposits (CDs) on rotation to guarantee yourself a fixed interest rate. These accounts allow you to deposit a fixed amount of money with a financial institution at a guaranteed annual interest rate, often between 2 and 3 percent. This interest rate is higher than you’ll get with a traditional savings account and lower than what you might get investing in stocks,but is practically zero risk. The only catch is you’ll need to leave your money untouched for a defined term, such as 6months or 3 years. Using multiple accounts like this, on rotation, can ensure you have a constant stream of cash available to you while taking advantage of a stable, predictable interest rate.


Many retirees focus on stock-based dividends as a primary source of income. Many blue chipcompanies offer a quarterly dividend to their investors, oftenbetween 2 and 4 percent of the total share price, as a distribution of profits from that period. Retirees often hold a diversity of stocks like these indefinitely, increasing their principal by capitalizing on share price growth while using the dividend distributions as a main source of income. You could also use an index fund based around dividend-paying stocks to diversify your portfolio further.

Real Estate and REITs

If you like the idea of holding tangible assets, you could put some of your principal into rental properties. In the right neighborhood, your property will grow in value over time. In the meantime, you’ll be able to collect rent from tenants in excess ofyour ongoing expenses. This strategy can be a bit riskier, especially if you don’t have much experience in real estate. It also requires some upfront work; unless you hire a property management company, you’ll have to serve the role of landlord, which comes with many responsibilities. As a retiree, you’re likely looking for more of a hands-off approach, so you could consider generating revenue from real estate investment trusts (REITs) instead, which work similar to index funds, but backed by real estate.


There are also annuities. In an annuity, you’ll pay a lump sum to a financial institution in exchange for a set payment for the rest of your life. Depending on the type of annuity you purchase, this could be a fixed monthly amount,or a variable amount based on the performance of a specified investment asset. Annuities tend to be highly secure and predictable, especially if you opt for a fixed distribution, but they also have a much lower rate of return than other investments. Terms and payment amounts can vary wildly from bank to bank.

The Importance of Diversification

One of the most important rules you followed in building your wealth initiallywas diversifying your portfolio, and that same rule should dictate your strategy into retirement. Every investment choice has strengths and weaknesses; diversifying your strategy with multiple simultaneous approaches is a way to protect yourself from the weaknesses that could otherwise compromise your strategy. You’ll be less exposed to risk and volatility, and more likely to maintain your principal—all while stabilizing your income well into your retirement years. Choose multiple income streams, and try to keep your finances as consistent as possible.

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