Retirement planning involves multiple steps, and one of the more common questions that people have as they prepare for the future involves where to put retirement funds. After you create a great budget for retirement, you must determine the best way to generate the necessary amount of income to accommodate that budget in the future. There are a few smart investment options to consider that can help you to be well-prepared for your non-working years.
Income-Producing Assets
There are two primary types of assets that you can invest in. Those are assets that generate income and assets that do not generate income. Examples of income-producing assets are rental real estate and dividend stocks. Some retirees will live entirely off of the income that these types of assets produce, and others will combine this income with other assets. Keep in mind that these assets may continue to increase in value while also throwing off income. Some of these assets may be riskier than other investment opportunities, so investors should consider their risk tolerance when determining how to properly allocate their portfolio.
Growth Assets
Another type of asset is a non-income-producing asset that may grow in value over time. Because these assets do not generate income, retirees typically must pull money out of the accounts in order to have funds to live on in retirement. For example, retirees may take distributions from a retirement account. This generally will decrease the value of the account. However, if the account balance increases at a faster rate than the funds are depleted, the asset value may continue to grow. CDs and stocks that do not produce dividends are a few other examples of these types of assets.
Social Security
Many retirees also receive Social Security income. This income is provided by the government, and it can be used to offset the amount of money that you may need to generate from your assets in retirement. The amount of Social Security income that you receive is directly related to how much you pay into the system in your working years. Social Security law services are available if you need legal advice and assistance when dealing with the Social Security Administration.
Living comfortably in retirement requires ample planning throughout many of your working years. You generally need to save and invest funds regularly so that you have enough cash available to pay bills and to fund your desired lifestyle. There are several income sources available in retirement, and your selection of investments directly affects your access to different sources.