How to Find the Best Retirement Income Investment

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Contributor, Benzinga
February 24, 2023

When you retire and officially leave your job, it can be nerve-wracking to figure out how you’re going to replace that income and cover all your expenses. Many strategies and savings accounts help you generate retirement income to sustain your lifestyle without receiving that work income. 

If you’re nearing retirement, you may wonder what the best retirement income investment is and how you’ll turn your savings into income. There are many factors to consider when choosing retirement investments, including retirement age, savings amount and risk tolerance. 

What is Retirement Income?

Retirement income is the income you receive after you have stopped bringing home a regular paycheck. It typically comes from two main sources: withdrawals from your retirement savings account and Social Security benefits. Depending on your situation, you may receive other streams of income, including real estate or pensions. Your retirement income will be used to cover your bills such as rent, groceries, medical expenses and travel funds. That’s why it’s crucial to ensure your retirement income is enough to sustain you and your lifestyle for the entirety of your retirement.

Choosing the Best Retirement Income Investments

Part of creating a retirement income that will allow you to live your desired lifestyle is choosing the best retirement income investments for your needs and situation.

Consider Your Risk Tolerance

In a retirement savings account, you typically won’t be choosing your investments by yourself, unless you have a self-directed IRA. In many cases, such as in a 401(k), you’ll have an advisor who helps choose investments based on your risk tolerance. When you’re younger and still have years to retire, the best retirement investments will typically be higher-risk investments such as stocks, mutual funds and exchange-traded funds (ETFs). It’s okay if you lose a little money in the short term to see long-term growth.

However, as you approach retirement, your risk tolerance will probably narrow. Your portfolio will shift to safer investments that may result in smaller returns but will ensure that you don’t lose money if the market experiences a downturn. The best retirement income investment may be a low-risk, low-reward investment that will preserve your savings and provide steady returns.

Can You Count on Income from Investment Returns?

Many people wonder if you can rely on returns on your investments as retirement income. It is possible, but it’ll require a hefty amount in your retirement savings account. On average, retirement savings accounts such as 401(k)s can see a 5%-8% return, and this amount is not guaranteed in an investment that carries risk. So, if you needed $50,000 a year in retirement income, you would have to have at least $1,000,000 in your retirement savings account because

$1,000,000 x 0.05 = $50,000

Having $1,000,000 saved in your retirement account by retirement is ideal and recommended, but it may not be feasible for everyone. It’s okay to not be able to rely on returns only for retirement income. There are other ways to create a sustainable and comfortable income during retirement. 

5 Ways to Make Your Retirement Income Last

Having a reliable retirement income is the key to a successful retirement. Here are a few ways you can increase your annual income during retirement and ensure it lasts.

Raise Your Retirement Age

It’s natural to want to retire as soon as possible. Technically, you can begin taking withdrawals from your retirement account as early as age 59 ½. But it may be in your best interest to delay your retirement age. Every year that you continue to contribute and let your savings grow will make a huge difference in your retirement income. Delaying your retirement age from 65 to 67 or 68 may even be the difference between not having enough saved and living comfortably. Even if you want to stop working full-time, having part-time income to rely on instead of solely on your savings can make a world of difference. 

Delay Social Security Benefits

You can begin to take Social Security benefits at age 62, but you won’t be receiving the maximum amount possible. Every year that you delay taking benefits, the more your benefits will increase until age 70. 

If you can hold off taking Social Security until full retirement age, which varies based on the year you were born, you will receive more monthly than if you started taking benefits at 62. 

Review Your Expenses

Another way to ensure your retirement income lasts longer is to review your expenses. Are you able to downsize to a house or apartment with a lower rent or mortgage payment? Do you still need two cars? Are you going to move to a state with lower taxes? Considering your expenses and how you may be able to lower them in retirement can help ensure you have enough income to remain comfortable.

Make Higher Contributions

If you’re still a few years away from retirement, you may want to look into raising your contributions. Even increasing your contribution by a percent or two per paycheck can help your retirement savings account grow to where you need it to be. The more you can contribute now, the better off you’ll be when it’s time to turn your savings into income. 

Talk With a Retirement Planner

Retirement planning and figuring out how to generate retirement income are stressful. You don’t have to do it alone. By using a retirement savings platform that provides you with a personal retirement plan, you can get guidance on the best retirement income investments, how much you need to be contributing and how much you can withdraw annually in income. They can also give you guidance on Social Security benefits and lifestyle questions. If you’re struggling with retirement planning, find a platform that will give you access to a retirement planner right at your fingertips. Since not all retirement planners are alike, asking the right questions will help you find the right advisor for you.

Achieve Your Desired Lifestyle With Better Retirement Income

Retirement is the time to relax, travel and spend time with family and friends. Don’t spend it stressed about your income. By planning ahead of time and talking to a retirement planner, you can have the peace of mind that you are prepared for anything, including monthly bills or sudden expenses. With the help of your planner, you’ll find ways to create income that works for you without sacrificing your lifestyle and comfort. Find a retirement platform that works for you and plan for some of your life's best years. 

Frequently Asked Questions

Q

How much do I need to retire?

A

You should have a retirement income of about 75-80% of your annual income at retirement age.

Q

What is the average retirement income?

A
Q

Can I retire at 61 with $500,00?

A

You can, but you may not have as large a retirement income as you’d like. It may be beneficial to push off retirement for a few years or work part-time to let your retirement savings grow more.