5 Investment Strategies That Can Give You a Paycheck in Retirement

One of the hardest parts of retirement can be the transition from earning a paycheck to having to manage a retirement portfolio. Indeed, 61% of U.S. adults 50 and older worry that they won’t have enough money in retirement, according to an AARP survey. Even if you feel like you have plenty of money saved for retirement, it can be hard to feel secure when withdrawing from your retirement assets every month — or whatever cycle you choose. 

For those who prefer the regularity of a paycheck, however, there are ways to structure your investments to generate more consistent income, though perhaps at the cost of higher potential returns. 

“As with most investments that are considered ‘safe,’ these investments have lower potential yield in exchange for a lower likelihood of investment losses. For example, a downside-protected ETF often also has an upside cap. If the market drops 5% you’ll be protected, but if the market gains significantly, you may only be able to participate in a percentage of those gains,” said Jared Elson, CEO of Authentikos Advisory.

Not all income-generating strategies provide guaranteed returns, but in general, the following five investment strategies could provide more of that paycheck-type of cash flow that retirees might be seeking.

Annuities

Annuities are generally insurance contracts that can transform your retirement savings into steady income, often for the rest of your life. The specifics depend on the type of annuity and the contract terms, but these are often used by retirees looking for more security, albeit with perhaps less upside and control over their retirement portfolios.

“It’s not a bad time to be looking at annuities,” Elson said. “The income generated from them is higher than it has been in the last 20 years in terms of return on the dollar.”

That said, make sure you know what you’re getting into before handing over a lifetime of savings to an insurer.

“Not all annuities are created equal. Some annuities have fees associated with them that, when taken as a whole, makes the investment considerably less attractive. Make sure you understand all the parameters of an annuity, or any other investment you’re considering,” Elson explained.

Dividend-Paying Stocks

Stocks might seem too risky to some retirees, but that can be a matter of perspective and the specific stocks you invest in. With stocks that have a history of paying consistent dividends, for instance, you might feel more comfortable using dividend payments for retirement spending rather than selling shares. 

Stocks can differ in terms of when they pay dividends, so you might construct a portfolio with stocks on different dividend cycles to help you gain more frequent cash flow.

“Dividend-paying stocks are nice because you can receive income along with the potential for that stock to appreciate. However, be cautious about not being overexposed to a single company; make sure your portfolio is diversified,” Elson said.

Treasurys

U.S. Treasury securities can be either short-term or long-term fixed-income assets. They are often considered one of the safest investments in terms of credit risk, as they are backed by the federal government. The type of Treasury and the term affect when you would receive interest from these assets, but in general, Treasurys can provide a consistent stream of income that could be particularly relevant now.

“For the first time in a long time, U.S. Treasurys are potentially attractive to investors because of the current interest rate environment. They are largely considered risk-free and have reached their highest point in about 20 years,” Elson said.

Income-Generating Bonds

Aside from Treasurys, there are many types of fixed-income assets that can potentially provide stable income, such as municipal bonds and corporate bonds. These do have varying levels of credit risk, and the timing of when bonds pay interest depends on the specific instrument. However, the current environment could make different types of bonds appealing.

“Over the past few years, the bond market has suffered because of rising interest rates making old, lower-rate bonds less attractive. However, now that interest rates have stabilized, bonds that pay income are once again attractive,” Elson explained.

Less Common Fund Structures

Lastly, certain types of investment funds have been emerging that attempt to provide more stability. These might not always provide yields at the same frequency as your current paychecks, but you might like investing in a fund that aims to provide more security and consistency than, say, a traditional mutual fund or exchange-traded fund (ETF).

For example, Elson pointed out how some ETFs trade options to generate income for shareholders. And there are some newer ETFs that use options to offer downside protection, albeit perhaps with a fixed cap on how much you can earn from that investment.

Still, you might like to know what that fund will return in a given year if all goes according to plan so that you can prepare your finances accordingly, as you would with a paycheck.

Keep Diversification in Mind

While you might be focused on replacing your paycheck in retirement, you want to avoid getting sucked in by something that falsely promises security. And no matter what you decide, you should still be mindful of investment best practices, like diversification. 

“Above all, keep in mind that investing for a steady income isn’t about choosing just one thing. You need a basket of investments for diversity. Each of these investments are different, with varying risk levels. It’s important to consider how much risk you’re willing to take before choosing an investment strategy,” Elson said.

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