- Personal Finance»
- Income & Making Money
To retire you need income.
Every successful person needs income to retire. The time to acquire those multiple sources of income are while you are working. Income investors who develop multiple sources of retirement income during their working years have the best chance of attaining significant retirement income without having to work and without having to worry. Let's look at some examples of these potential retirement income sources and which are for you.
Multiple Sources of Retirement Income
Nothing is better than being able to turn on several spigots of income once you quit working for a living. Never forget that current life expectancy means you will live one third of your life retired. As income needs come up over time, you will be very happy that you cultivated multiple sources of retirement income. You do not need to turn them all on at once. As the cost of living increases or your desire to take that world cruise looks possible or some unexpected financial need comes up, you can go to your reservoir of income spigots and turn them on as needed. Listed below are some of the sources of which I write.
- Government pension such as social security
- Government pension such as military pay
- Government pension from serving in the Congress
- Company pension(s) or 401K or 403B
- Taxable IRA
- Roth IRA
- Pension and profit sharing plan
- Personal savings
- Uncle Henry's Trust
- Lottery winnings
- Continued employment
I had more than one client who seemed very talented at using their working years to create retirement income from many of the sources listed above. For instance, one of my clients had a government job for twenty years that provides a very nice pension. This job came after he spent 20 years in the military which provided another pension. He worked part time in the private sector and that gave him a chance to contribute to social security. When his government job was done, he taught at a college and was eligible for another modest pension. Continuing to work in the private sector provided even more retirement savings. On top of all of this he and his wife saved their extra income and invested it. Folks that is at least six sources of retirement income.
Clearly this was a can do family. It is a true story and you can see that you too can plan to create multiple sources of retirement income.
How should you create retirement income?
Now we get to the point of this Hub. Starting early is very helpful. Thinking ahead is even more important. Living within your means so that you can save is the most important. Yet, in order to succeed you should learn how to invest.
Learn how to invest?
Not everyone is cut out to serve in the military. Not every company provides pension benefits. Some folks just do not have the time to work two jobs. Few of use win the lottery or have a rich uncle. But each of us can save. Three big rules to follow!
- Contribute all you can to Roth and Traditional IRA's; 401K's; pension and profit sharing, health savings accounts, etc. Each of these is tax advantaged and those benefits will add up at retirement time.
- Save some additional money every single year and learn how to invest it.
- Pay off your principal residence and maintain a debt free life as early as possible
Here are a few guidelines for how to invest once you have some money in personal savings and/or qualified retirements plans like an IRA.
Large lump sum income producers like those who receive big bonuses or big commissions often times use annuities to fund retirement options. These have tax advantages that are enticing yet they provide you with little control over the investment. Sometimes that is what you want. You will need an investment professional to help you with your choices. Brokers like Schwab have that expertise in house.
Producers with large taxable income and few options to use tax advantages options like IRA's (an independent contractor) should learn about tax free municipal bonds. A well laddered and diversified municipal bond portfolio should be part, but not all of this type of investor's income stream. Buy a bond every six months and you will see this can work out well.
Savers who also have the skills to renovate and maintain property should consider directly owned rental property income. Others could join partnerships that invest in groups of these properties, but you give up a great deal of control and can suffer mightily at the hands of a poor general partner. Better to do it yourself or not enter into this type of income stream.
The rest of us need to use stocks and bonds. I am not a fan of mutual funds, especially bond funds. ETF's are the investment touted most recently, yet I have not found that ETF's or mutual funds deliver the consistent income I need as a retiree.
Learn how to invest in companies whose stock is traded on the NYSE or Nasdaq. Buy companies that pay you income. Companies pay you income through dividends. Some companies also issue debt in the form of corporate bonds and these should be a part of your investments.
Buy the stock of companies that pay at least one to two times what you can get in a government bond. Today (July, 2013) you want no less than three percent and four percent would be better. Make sure the company earns more than it pays out and you are likely to continue to get income over time. Moreover, the company should have a history of increasing your income over time because your expenses will increase over time. Finally, make sure the stock you buy is backed by a solid company. I use D/E ratio (debt to equity ratio) but other measures exist.
If you can learn how to use covered call options on dividend stocks you can boost your income from this sources.
Multiple retirement income sources allow you to quit working and to not worry.
One common element to all successful retirees is the ability to successfully invest some of your savings in income investments. I believe that most investors can learn how to use dividend stocks and municipal and corporate bonds to create income from their savings and their IRA's.
Owning stock in companies that pay dividends should be a part of every income investor's portfolio. Owning corporate bonds will provide diversity and learning to sell covered calls on your stocks will boost your income even more.