Could Supplemental Income Strategies Work for Your Retirement?
Financial tools that are sheltered from swings in the markets or take advantage of rising interest rates could help see you through your golden years.
![An older couple smile at each other while holding an umbrella overhead.](https://cdn.mos.cms.futurecdn.net/DKEQhfaxSQcSz7ysc6wPPY-415-80.jpg)
Editor’s note: This is part one of a five-part series about supplemental income streams in retirement and serves as an introduction to the rest of the series. Part two is A Managed Account Offers Optimization and Tax Efficiency. Part three is Annuities Provide Peace of Mind and Lifetime Income. Part four is Three Investments That Put Your Money to Work With Less Risk. Part five is That Cash in Your Emergency Fund Doesn't Have to Be Idle.
Uncertain economic conditions, high inflation and debates about the future of Social Security have left workers and retirees alike wondering how they’ll support themselves when they no longer have a steady income from their career.
Daily headlines about adverse market forces can make this an unsettling time to think about maintaining a lifestyle or even meeting basic needs in retirement. Helpfully, there are supplemental income strategies that are less influenced by the ebbs and flows of the stock market that can provide smart and comfortable options as you approach this next stage of your life.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Before you consider those strategies, it’s imperative that you have a comprehensive financial plan that takes into account your goals, needs and objectives. We often stress to clients that the first step to creating a comfortable income stream in retirement is talking to a professional adviser and working together to build a plan to save for the lifestyle you want to live once you’re done working.
What type of income do you think you’ll need?
The basics of the plan should target what type of income you think you’ll need to cover your fixed and variable expenses. These expenses include things like food, housing and health care. They also include expenses for luxuries like travel, housing, dining out and hobbies. Depending on when you plan to retire, your plan should cover 20 to 30 years’ worth of expenses.
A financial professional can help you develop savings and investment strategies tailored to your individual goals while also identifying potential roadblocks. Still, even the best retirement plans offer only an educated guess as to what you will need to fund your lifestyle once you are done working. Inflation, an underperforming market and unexpected life events are tough to foresee and can pose a threat to your retirement lifestyle plans. As you approach retirement, you should continue to reevaluate your savings strategy and consider if you will need additional income to support your needs.
It’s important that you’re honest about your own financial reality as retirement approaches. Be willing to ask yourself tough questions like, “Did I save enough?” And if you find the answer is “no,” then be ready to adjust your plan to fit your revised reality. While righting decades of insufficient saving in a compressed timeframe may not be possible, you can work on ways to supplement or stretch what you have been able to save.
Supplemental income strategies can complement Social Security or withdrawals from a retirement account. Those strategies may include investing your nest egg into a financial instrument that is immune or sheltered from swings in the markets, or one that may better take advantage of rising interest rates due to inflation.
In this space in the coming weeks, we’ll explore four options for generating supplemental retirement income while making your money last through retirement:
- Managed accounts. A managed account can provide income in the form of dividends and interest while seeking to provide some capital appreciation that helps you stay ahead of inflation. Building a managed portfolio of stocks, bonds, alternative investments and cash can be a productive way to generate both income and growth to supplement your expenses in retirement.
- Liquidity management. Investing in liquid assets can help prevent the need to permanently exit investments for cash during a down market. Brokered CDs, U.S. Treasury securities and other short-term bonds are a good example of how clients can better manage their liquidity in retirement. These solutions can oftentimes throw off enough income to supplement your daily living expenses without having to dip into your principal.
- Guaranteed income for life. You can also consider financial products, like annuities, that provide guaranteed income for life. These products feature income solutions on an immediate or deferred basis, and in many cases, these types of products can provide income for you and your partner’s life expectancies, with provisions that adjust for inflation so you can stay ahead of rising price levels that can quickly deplete your purchasing power.
- Cash management. An often overlooked necessity when it comes to financial planning is having an emergency fund to meet those unexpected expenses. This cash should be invested in very liquid financial instruments that are easily accessible when you need them but also generate some extra cash. In this current market environment, liquid cash management products can pay a decent yield while ensuring that you’re prepared for almost any eventuality. These cash management products oftentimes include bank-sweep programs, money market mutual funds and short-term CDs.
Several factors affect benefits and risks
Each of these options carries with it benefits and risks based on your existing retirement plan, the assets you have available to invest and the timing of your need for supplemental income. A financial adviser can help evaluate these, and other options, to determine what might be right for your individual situation.
It’s impossible to predict what will happen in our lives and in the market that could impact retirement savings. But planning in advance, periodically reevaluating your plan and making adjustments as your life situation changes can put you in the best position to enjoy the retirement you worked so hard to earn.
The other articles in this series:
Part two: A Managed Account Offers Optimization and Tax Efficiency
Part three: Annuities Provide Peace of Mind and Lifetime Income
Part four: Three Investments That Put Your Money to Work With Less Risk
Part five: That Cash in Your Emergency Fund Doesn't Have to Be Idle
RELATED CONTENT
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Rich Guerrini is the President and Chief Executive Officer of PNC Investments. In his role, he is responsible for all sales, operations, risk and compliance activities for the retail investments organization. Prior to his current responsibilities, Guerrini was Executive Vice President and Managing Director of Alternative Investments for PNC Investments and was responsible for development and rollout of the PNC Investment Center and PNC’s web-based investment offering.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published