Could Supplemental Income Options Work for Your Retirement?

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published 15 August 2023

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.

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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.

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.

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.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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.