Finding secure sources of retirement income is no easy task. About 42% of retired households get half or more of their income from Social Security alone. Retirees have to face the reality that the money they have saved needs to last for decades.
Retirement relies on reliable income streams for stability. Without a regular income, retirees need other sources of funds to cover bills, hobbies, and other expenses. While investment returns play a role, it’s steady income that forms the bedrock of a secure retirement lifestyle.
This means retirees must turn to other options to generate the money they need to cover expenses and maintain their desired quality of life. Yet, many want to cut risk as they seek that income—they want stability and predictability above all else.
A recent study shows up to 61% of retirees in the US are worried they will run out of assets before they die. Thus, retirees also seek trustworthy tactics that address this risk.
Luckily there are diverse, low-risk sources of income available that can tackle this issue . Today, we’ll explore five strategies that will help you generate continuous cash flow while minimizing the risks of money loss.
1. Invest in Dividend Stocks
Dividend paying stocks represent one of the most simple ways to generate reliable retirement income. After all, nothing beats the simplicity of actual cash payments hitting your account on a quarterly basis.
And if you’re not sure about which ones to choose, we’ve hand-picked the top 5 best dividend stocks to invest in Singapore for 2023 here to make your life a little easier.
Look for stocks with a proven track record of not paying dividends but increasing them over time. Companies with at least 10 to 20 consecutive years of dividend growth show a solid commitment to returning cash to shareholders.
Bankrate has published a report on top S&P 500 companies that were able to maintain steady dividend growth over the last few years, which can help you identify some gems worth investing in.
Also, focus on places that have maintained their dividend payout ratios over time, which indicates they can cover the dividends from earnings. Yet, anything above 55% should start to raise eyebrows.
Make dividend stocks part of a diversified portfolio to reduce concentration risk. Large, stable companies in defensive sectors like consumer staples tend to provide the best dividend income. These mature firms depend on steady recurring revenue, favoring consistency over hyper-growth.
This strategy provides a baseline of yield you can rely on, with the potential for gradual increases that outpace inflation over time. Yet it remains a lower risk approach due to prioritizing companies solid enough to sustain and grow their dividends for decades.
2. Certificates of Deposit
CDs offer a risk-free way to generate steady retirement income. After all, these banking products are FDIC insured for up to $250,000 per depositor per bank, meaning your principal is guaranteed.
When you open a CD, the interest rate is fixed for the term of the account—ranging from 3 months to 5 years. This means you know exactly what return you will earn over that time; no guesswork is required.
Laddering CDs with varying maturity lengths provides a systematic way to generate income on a scheduled basis. As shorter-term CDs mature, reinvest the proceeds into new CDs with a longer term.
Consider splitting total CD investments among many banks to maximize FDIC insurance coverage. Having funds spread across institutions helps mitigate risk in the unlikely event of an individual bank failure.
3. Rental Real Estate
While stocks remain risky, owning rental properties has many benefits that make them a better option for a steady stream of retirement income when done right. You should look for areas with job and population growth as well as a limited supply of rental options.
Buying rental properties with cash flow in mind is key. Well-located properties in high-demand areas have the potential for higher yields.
Outsourcing property management can also remove a significant headache, especially for retirees not wanting to field calls from tenants. Professional property managers typically charge 8% to 12% of rental income but can more than earn their fee through efficient operations and quick response times.
4. REITs (Real Estate Investment Trusts)
Real estate investment trusts allow retirees to gain exposure to the income potential of real estate assets without the hassle of being a landlord. You can check here to know more about REITs and why experts recommend this particular investment vehicle for retirees over many others. REITs invest in a variety of property types, from apartment complexes to data centers to healthcare facilities.
REITs are required to pay out at least 90% of income as dividends, providing a built-in income stream for shareholders. In fact, REIT dividend yields recently averaged around 3.54%, and this is higher than yields for many bonds and savings products.
REIT dividends also tend to increase over time as rents rise and properties appreciate in value. The NAREIT REIT index has delivered a total return of 11.9% annually on average till 2021 since its inception in 1972.
REIT share prices can be volatile depending on market conditions. High-quality REITs provide stable, growing income streams while balancing risk and returns .
5. Bond Ladders
Bond ladders provide retirees with a straightforward way to generate predictable retirement income while minimizing interest rate risk. A bond ladder means staggering the maturity dates of individual bonds held in a portfolio.
As shorter-term bonds mature and the principal is returned, those proceeds can be reinvested into new longer-term bonds.
For example, you could invest in a mix of 3, 5, 7, and 10-year bonds. As a 3-year bond pays off, those funds could be put into a new 5-year bond. This “stair-step” approach results in predictable income as bonds mature at set intervals.
While the yield on 10-year Treasury notes stood at around 2.94%, Moody’s AAA-rated corporate bonds currently average about 4.50%. Although the numbers remain low by historical standards, they are still higher than many savings accounts.
Secure Your Retirement Income With Low-Risk Diversity
Considering retirement income security so vital to a comfortable later life, it pays to invest in many low-risk options that complement each other within a strategy. Each source we’ve discussed here offers benefits including guaranteed income to tax advantages.
Despite specific sources, retirees need to maintain an income buffer whenever possible and a cash cushion as a precaution. Maintaining reserves as a supplement can offer flexibility in case of any interruptions to income streams.
However, you’ll need a reliable platform with reasonable fee, a wide range of investment options, easy-to-understand user interface, and excellent track record to invest in a diverse spectrum of portfolios. You can check here to know more about the best investment platforms and their unique features to choose wisely.
And if you’re a Singaporean, and wondering whether you’ll be able to enjoy your retirement life in Singapore with enough financial backup to maintain your lifestyle, we have some good news for you—check out what our experts have to say here.
Or if you’re a beginner investor and want to know the nitty gritty of stock market investing, we’ve got you covered here.