Retirement Income Planning
Although the growth-based financial strategies you used during your working years might have been effective in helping you grow your retirement savings, those same strategies can actually jeopardize your financial stability once you near retirement.
That’s why many of the best retirement plans recommend that you should try to reduce your exposure to growth-based financial strategies once you near retirement. Instead, it makes sense to switch your focus to income-based strategies designed to help you preserve your savings, so you can use it as a source of steady income. This is known as Investing for Income.
By focusing on income-generating investments, such as bonds and bond-like instruments, you can know with a greater sense of certainty what your financial future holds.
This doesn’t mean that you cannot remain invested in the stock market once you near retirement. For those with the ability to endure some level of market risk, high dividend-paying stocks can be a viable way to enjoy the benefits of investing for income. The right dividend strategy can help reduce your stock market risk and give you a more practical way to invest in stocks as you approach or enter retirement. That’s because if you’re retired when the market experiences a downturn but the dividends satisfy your income needs, you can hold the stock and wait for it to come back, essentially giving you staying power. If you don’t need the income at the time, you can reinvest those dividends and grow your money the old-fashioned way through the power of compounding.