by LaTisha |
If you haven’t started planning for retirement yet it might be because you don’t know where to start. The truth of the matter is, most people won’t even start planning for retirement until they start hating their job. For some people, that is sooner than others. Ideally, as soon as you secure your first steady paying job, you should start planning for retirement. The ultimate retirement is possible if you start planning now. There are 3 components to planning the ultimate retirement and they all revolve around cash flow.
Fixed Income has long been used as a way to receive cash flow on a periodic basis. Bonds, as they are also called, are normally seen as a safe investment. They are not entirely safe, meaning there’s still a chance that you could lose your money. As it relates to stocks or other investment vehicles like futures, bonds are relatively safe. It really all depends on the entity that backs the bond. If the bond is issued by a company with questionable financials, it will not be so safe. If it is issued by a government with a strong economy then it is considered to be low risk.
The first step is to find a bond that pays a coupon. Since we are focusing on cash flow in retirement, you will want to invest in bonds that will pay you as often as possible. Most bonds will pay annually or semi-annually. They key is to ‘ladder’ your investments so that you receive a coupon payment each month. Instead of investing in several bonds at one time, you can invest each month so that your coupon payments will trickle in each month.
Another way to invest for cash flow in retirement is to set up annuity payments. Life insurance companies usually offer life annuities that will make a stream of payments or a lump sum payment when the annuity has matured. When you first buy into an annuity, you make steady payments into the plan. After a number of years, you will receive payments. They can do this because they will invest the cash that you pay in, in addition to everyone else. They may invest the cash received in bonds or other financial instruments.
I won’t go into the types of annuities or how they are structured because I’m not an insurance agent. But if you call your local insurance agent, I’m sure they would be happy to go over the types of annuities that they offer.
Dividend Stocks: Mid-Life
The last way to plan the ultimate retirement is to invest in stocks that pay a dividend. And not just any dividend paying stock. You want the stocks that have matured and are no longer in their growth phase. Kind of like young people when they first reach mid-life. By the time you are in your 40s and 50s you have lived about half of your life, hence the term mid-life, and you are pretty much settled in your ways. Your daily routine doesn’t change much, and as you get older, you get cranky if it does change.
These are the type of stocks that you are looking for. Stocks like Johnson and Johnson and Eli Lilly, just to name a few, are matured stocks that pay a dividend because they are set in their ways. Obviously you should research any stocks that you are looking to purchase, because even though you want a stock that is matured, you don’t want a dinosaur stock that will be extinct by the time you decide to retire.
They often pay a dividend quarterly or semi-annually. You can diversify your stock portfolio by purchasing dividend stocks strategically so that the dividend payments come in each month.
Even though you may have a 401k sponsored by your company, or a retirement savings plan set up that you invest in yourself, it’s always good to diversify the investments that you plan to live on in retirement. Fixed income, annuity payments and dividend stocks can all help you plan the ultimate retirement with plenty of cash flow for your golden years.
How are you planning for retirement?
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Disclosure: You should seek advice from your financial advisor concerning your particular situation. I do not own stock in Johnson and Johnson or Eli Lilly and I am not recommending the purchase of any stocks listed.
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This was a guest post by LaTisha who teaches basic investing concepts at Financial Success for Young Adults. Learn how to retire with tax free money, how much to save to buy a house, and more at www.youngadultfinances.com.
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