Want Guaranteed Income in Retirement? Here’s How to Get It.

Retirement can be a vulnerable time in your life. You’re no longer working — and may not even be able to work if you wanted to. You still have expenses, though, such as food, housing, utilities, and taxes. So your retirement income is vital. Wouldn’t it be great, then, if much of that income were guaranteed?

There are multiple kinds of guaranteed — or relatively guaranteed — retirement income streams. Here are a few to consider below.

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• Social Security benefits: Social Security is the best example of guaranteed retirement income, because if you qualify for it (which is relatively easy to do if you have an earning history of at least 10 years), the U.S. government has essentially promised to pay you monthly in retirement. It’s not exactly free money, either, because workers pay into the system throughout their working lives — typically over decades. Unfortunately, though, the program is facing some fairly easy-to-fix challenges, and there is little movement these days to shore it up. So this guaranteed income could end up decreased, significantly.
• Pensions: Pensions were much more common a generation or two ago, so you probably don’t have one to look forward to. If you do, though, that’s terrific, because it’s generally guaranteed income. (Some pension benefits may end up reduced, though, such as if your former employer goes belly up.)
• Annuities: Annuities can serve many people well. If you buy an annuity, it’s a lot like buying yourself a pension — you pay a hefty sum to an insurance company (or, possibly, a bank) and in return are promised certain payments beginning very soon or in the future. Consider favoring fixed annuities, as they’re less complicated and less problematic. This is income is guaranteed as long as the issuing company remains solvent.
• Dividends: Dividend investing is a glorious thing, because healthy and growing dividend-paying companies will tend to keep paying you no matter what the economy is doing, and they’ll likely increase their payout over time, too. On top of that, their stock prices will likely rise over the long term, as well. This income is rather reliable, but not quite guaranteed. A company in trouble may reduce or suspend its dividend.
• Interest payments: Interest payments from interest-bearing investments such as bonds, certificates of deposit, money market accounts, and the like are also rather reliable. Government bonds are actually guaranteed, and bank accounts typically carry protection from the Federal Deposit Insurance Corporation.
• Rental income: If you own property, you can collect income from tenants. This isn’t quite as attractive as it looks, because managing tenants can take some work (unless you hire a management company) and you’re still on the hook for repairs, maintenance, taxes, and so on. Still, it represents a way to generate mostly passive income.
• Creative thinking: There are more retirement income possibilities. For example, a reverse mortgage can serve some (but not all) retirees well. It’s when a lender promises you regular payments, with your home as collateral. When you die, the lender gets the home, unless some other arrangement is struck. You might also be able to cash out a life insurance policy and use the proceeds for living expenses.

Keep risks in mind

As you form a solid retirement plan, it can be best to set up multiple income streams for your future, but as you do so, remember their risks and plan for them, just in case. For example, perhaps assume that you’ll collect only around 75% of the Social Security benefits you’re owed. Maybe assume that one or two of your dividend payers will disappoint you. (You might look into some excellent dividend-focused ETFs.)

Remember inflation, too. Social Security is adjusted for inflation nearly annually, and dividend increases can keep pace with inflation, too. If you buy an annuity, you may be able to pay extra for a feature that increases your payments annually. Still, some retirement income can lose its purchasing power over time.

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