Get Income from Your Investments
If you need to boost your retirement paycheck to supplement Social Security and other sources of guaranteed income—or to generate cash while you wait for delayed benefits to supercharge your Social Security—dividend-paying stock in a taxable portfolio should be high on your list. They can make up one-fourth to nearly one-half of your stock portfolio.
A number of blue-chip stocks have yields of 2.5% to 4%, including such stalwarts as Boeing (symbol BA), Caterpillar (CAT) and 3M (MMM). Look for companies with a record of regularly increasing dividends over time, which can serve as a hedge against inflation. But beware of chasing the highest yields. Outliers that boast yields of 7% or 8% may not generate enough profits to sustain those dividends.
As alternatives to individual stocks, consider exchange-traded funds and mutual funds that focus on investing in companies that pay dividends.
Bonds are another key source of income. You can make a huge difference in your income and your total return by properly managing the bond portion of your portfolio.
The bond allocation for conservative Alice investors near or at retirement is roughly 40% or more. Adam recommends that up to half of that be invested in a core bond or bond index fund consisting of U.S. government and high-quality corporate securities. Or, if you’re in the 28% or higher tax bracket, make municipal bonds your core holding, she says. The yields on munis issued by state and local governments tend to be lower than those of some other bonds, but you won’t owe federal taxes on the income.
After allocating money to munis, the rest of the bond money can be spread among TIPS, high-yield bonds (also called junk bonds), international bonds, strategic bond funds, floating-rate bond funds, and preferred stocks. (Preferreds behave like bonds, paying out regular fixed payments.)
Real estate investment trusts, which own and manage properties such as offices, apartments and shopping malls, must distribute at least 90% of their taxable income to shareholders. Plus, REITs are a hedge against inflation. You can invest in REITs through ETFs and mutual funds.