Safer Investment of Mutual Fund

1. An Immediate Fixed Annuity

If you want income with the predictability of Social Security or a pension, you might go to an insurance company for an immediate fixed annuity – a contract for a guaranteed income stream for a specified time. As “immediate” suggests, the contract starts paying you virtually right away, usually the month after purchase and monthly thereafter.

“The good news for an immediate fixed annuity is you have ‘guaranteed’ income/cash flow for life. The bad news is that you don’t know what that ‘guaranteed’ income will be worth or buy,” notes Dan Stewart CFA®, president and CIO of Revere Asset Management, Inc., in Dallas, Texas.

2. Systematic Withdrawals

Since you typically can’t get your money back from an annuity once it starts paying out, you might simply put the money in an investment account with a systematic withdrawal plan. Such a plan can be established in both non-retirement and retirement accounts with a form instructing the investment company what sum to distribute monthly, quarterly or annually. You keep control of your money but you don’t get the guarantee of an annuity.

“The biggest difference between a systematic withdrawal plan and an annuity is liquidity. Once you pay your premium to the insurance company, you no longer have access to your capital. By creating a systematic withdrawal plan, you’ll always have access to the capital as long as it’s been preserved,” says Kevin Michels, CFP®, financial planner with Medicus Wealth Planning in Draper, Utah.

3. Bonds

Bonds represent debt. So if you buy a bond, it means somebody owes you money and is regularly paying you interest. When assembled into a properlydiversified portfolio, the safest bonds like those issued by the federal government, government agencies, and financially sound corporations can be a crucial source of dependable retirement income. (To learn more about bonds, check out our tutorial: Bond Basics.)

4. Dividend-Paying Stocks

Unlike bonds, stocks represent ownership and company owners may get regularly-scheduled dividends. Not all companies pay dividends, though, and dividends can be stopped if a company gets into financial trouble. Plus, stock prices sometimes plunge. That’s why retirees who buy stocks for income should probably limit their exposure to this strategy and stick with large, very stable companies with a history of paying dividends.

5. Life Insurance

Life insurance really isn’t meant to be a retirement plan, but it can be a welcome additional income source for retirees who find they’re a bit short each month. The safest policy for the job is one like whole life or universal life that accumulates cash value on a schedule. People can access the cash reserves via a loan or an actual withdrawal. The catch: Loans and withdrawals don’t affect the policy’s face value, but they do reduce the policy’s overall death benefit by a like amount.

6. Home Equity

Relying too heavily on the value of your residence to fund your retirement can be dangerous because home values could drop suddenly and reduce or wipe out your home equity. Like life insurance, it might be better to think of home equity as a backup plan. You can access it by selling your home or taking out a home equity loan or reverse mortgage. (Read Reverse Mortgage or Home Equity Loan?)

7. Income Property

Retired or not, it’s nice to get that check each month when you rent out a home or sell one to someone and hold their mortgage (just like a bank). But it’s not so fun if the renter or homeowner doesn’t pay you. And remember, if you’re a landlord, you’re on the hook for property taxes and costs for upkeep. (For more, check out Real Estate Investing: A Guide.)

8. Real Estate Investment Trusts (REITs)

If you like real estate but aren’t into being a landlord or mortgage holder, consider investing in REITs – companies that buy, sell and manage commercial properties like malls and apartmen bulldings. REIT shares, which are purchased directly on securities exchanges or indirectly through mutual funds, pay high monthly or quarterly dividends.

“Real estate has provided diversification benefits to investors alongside their global stock and bond positions. REITs provide investors access to a diversified bundle of both residential and commercial real estate around the world that is highly liquid,” REITs can be volatile, like regular stocks, so it’s best not to overdo them.

9. Savings Account and CD Interest

When it comes to generating income, there’s nothing safer or more reliable. While this strategy obviously isn’t viable when CDs and savings accounts pay 2%, 1% or even less, it can be a fine option when interest rates are reasonable.

10. Part-Time Employment

Retirees often want to stay active and involved. Working part-time can be a good way to do that while earning extra income. And the only thing at risk is some time.


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