Four Ways For Retirees To Create Income

cnbc.com

Historically, such assets have been less volatile that the broader equity market, but they also offer a smaller return.

Jeffrey Hirsch, president of the Stock Trader’s Almanac, identified a handful of top blue chip picks that have consistently increased their dividend for at least the last 10 years in his latest book, “Super Boom: Why the Dow Will Hit 38,820 and How You Can Profit from It.”

They include IBM, Abbott Laboratories, Nucor , McDonald’s, PepsiCo and Wal-Mart.

Morningstar also selected the mutual fund Vanguard Dividend Growth Fund, , as a top pick for its investment in companies with a history of dividend growth.

The fund produced an average return of 8.4 percent over the last 12 months, 14.4 percent over the last 3 years and 3.1 percent over the last 5 years.

Depending on your financial picture, Olsen suggests retirees allocate “at least half” of their equity exposure to dividend paying stocks, focusing primarily on the more stable domestic stocks.

TIPs

Despite their present day low yields, Treasury-inflation protected securities, TIPS, are still a popular choice for retirees seeking safe haven income solutions.

Exempt from state and local tax, TIPS pay out a regular fixed-rate interest payment, adjusting the principal to reflect changes in the consumer price index.

They are designed to keep pace with inflation by returning the adjusted principal.

Inflation, of course, is the nemesis of fixed income investors as it reduces purchasing power. (At a steady inflation rate of 3 percent, for example, a portfolio worth $50,000 would be worth the equivalent of just $23,880 in 25 years.)

According to Benz, retirees should allocate anywhere from 10 percent to 30 percent of the fixed income portion of their portfolio to TIPS, dollar-cost averaging in with a series of smaller investments to mitigate market risk.

Because you’ll owe federal taxes on the interest income, she adds, TIPS are best held in a tax-sheltered retirement account.

Morningstar’s top-rated TIPS bond are Harbor Real Return andVanguard Inflation-Protected Securities, along with exchange traded fund iShares Barclays TIPS Bond.

Retirees who are looking to turn their portfolios into paychecks have a variety of investment tools from which to choose, but none are a one-size-fits all solution.

Consider your risk tolerance and life stage carefully before signing on the dotted line, says the conventional wisdom.

“People are working longer and living longer, so you need a strategy that utilizes all available tools in different proportions based on your financial situation," says Olsen. “You don’t want to take all of your money at age 65 and put it into an annuity because that won’t give you flexibility.”