An increasing proportion of retirees are employed in their golden years. Some choose to do so because it keeps them busy and involved, while others require additional revenue. But if you don’t want to work after retirement, other methods exist to augment your Social Security and retirement assets.
Here are two ways to generate a steady income from your assets.
Owning dividend stocks
Dividends are payments that a stock provides every quarter. However, some stocks distribute dividends monthly. They are a method of rewarding investors and are typically issued by older, more established firms that are frequently value stocks and have a longer track record of profitability and greater liquidity than newer companies or growth stocks.
A significant indicator to consider when evaluating dividend stocks is the yield, which is the annual dividend payout as a proportion of the share price. The greater the yield, the better, so long as it is not excessive and unsustainable.
Currently, a respectable return is often between 3 and 6 percent. Anything greater might indicate that the corporation is paying out too much and will not be able to continue doing so.
There are exceptions, however, since certain investment types, such as real estate investment trusts (REITs), are obligated to pay out a greater proportion of their revenues as dividends because they get tax incentives. In general, a payout ratio — the proportion of earnings allocated to dividends — between 25% and 50% is acceptable.
Suppose you invested a portion of your retirement funds in dividend-paying equities, for instance. The Walgreens Boots Alliance company. Walgreens offers a 4.76 percent yield and a 38 percent payout ratio and has grown its dividend annually for the past 47 years. Current quarterly dividends are $0.48 per share at a price of about $40.
If you purchased 1,250 shares at $40 a share for a total investment of $50,000, you would receive a quarterly income of $600. And you would still receive the return on long-term capital that the stock generates.
Using a bond ladder
Bond laddering and dividend investing are complementary strategies. Bond laddering involves purchasing bonds with varying maturities over some time. If constructed appropriately, it can yield monthly money.
Suppose you have $60,000 to invest upon retirement. You may invest $10,000 in six different bonds with various maturities, ranging from one year to six years in the future. As bonds normally pay interest semiannually or twice a year, you may structure your ladder to get a coupon payment every month.
Different maturities are implemented to mitigate part of the interest rate risk. If you purchased six bonds with maturities of six years, you would be locked into the same yield. With rolling maturities, however, once the one-year bond matures, you can reinvest the initial cash in a new bond at the end of the ladder.
Thus, if interest rates increased throughout that period, you would receive a larger yield. If interest rates fell, you would receive a smaller return, but the yields on the other bonds would increase. Additionally, remember that the longer the maturity, the greater the yield.
Constructing a bond ladder with the appropriate fixed-income assets may be tricky, so it’s generally better to consult a financial advisor.
Whether or not you choose to work in retirement will ultimately depend on how effectively you have saved and invested over the years. You may need to continue working if your funds are insufficient for a comfortable retirement.
You might also minimize your expenditures by reducing your house, profiting from the difference, or relocating to a cheaper region or nation. However, these two investing options are straightforward ways to put your retirement funds to work.