How to Generate Retirement Income: Here’s What You Need to Do
You need not wait until a specific date to start planning for retirement. The sooner you start, the better. The goal of any retirement plan is not to outlive your savings, so it makes more sense to start immediately you begin earning an income.
Some people wait until they are close to retirement before they start saving, while few others realise during the funeral planning services, that their loved one had no savings plan at all. Both situations are unfortunate for the individual and their family. Ignorance is one of the main reasons people fall into this financial snag. Here are a few ways to prevent retirement pitfalls by generating income.
- Start immediately.
As most people would agree, to start something worthwhile is the hardest. Thus, most people back out from a great vision or desire due to anticipating the challenge they are to face. Others would simply put it off until they lose interest. If you want to start earning even before you retire, you have to start working on your vision and goal immediately.
- Save a part of your income
The old-fashioned savings method is still a reliable way to build a nest egg for retirement. The general rule of thumb is 50/30/20. You use 50% to pay for necessities such as rent, utilities and groceries. The 30% is for discretionary expenses, that overdue vacation or the occasional spa treatment, and 20% goes into your savings. Remember to transfer the money into your ‘savings’ account immediately you receive income, otherwise you might spend it.
- Invest in laddered bonds
A bond is an investment with a future maturity date. Bonds are a safe way to invest and save money because you are guaranteed the principal and accumulated interests in the future. There are different types of bonds; from the safe government bonds (understandably lower interests) to the higher yielding corporate bonds- which are not as secure as the former. A well-structured laddered bond can help you rise towards retirement.
- Certificate of deposit (CD)
A Certificate of Deposit is an investment issued by a bank. You can decide to fix a depot into your bank for a specified term (30, 60 or 90 days), at an agreed interest rate. The bank issues you a certificate of deposit (CD). You may decide to keep rolling over and put away the interest into your next egg. The advantage of this is a safe principal. Your interest is subject to changes in inflation.
- Stock dividend income
This is may also be called Dividend Aristocrats, and they tend to increase dividends annually. Some stock divided mutual funds allow you invest in a set of stocks at once. Companies tend to increase their dividend, albeit gradually, but it serves a reliable source of income.
- Buy an immediate annuity
With an annuity plan, you can pay an insurer a lump sum and get a monthly income after retirement. Or, you could make monthly premium payments which accumulate towards your retirement date. There are annuity plans with built-in inflation increases and another which pays the total sum to a spouse upon the death of their partner. Both types of annuity cost more, but it’s worth the extra amount.
As far as retirement savings go, the key is to start early. Later life planning is important and you don’t want your family to be caught out by your lack of life insurance or funeral plan. Always work with a trusted financial expert to ensure you make the right decisions.