106- The Eternal Quest for Income
Actualizado: ene 15
Written by: Paul Werlin, President, Human Capital Resources, Inc.
I’ve been helping people invest for more than 30 years. From twenty-somethings to seniors well into their “golden years,”I’ve worked to help them build financial security. While every individual is unique in their earnings, expenses, risk tolerance and goals, there are still many things most investors have in common—as they get older and closer to retirement, their objectives shift from generating capital gains and growing their net worth, to preserving their wealth and generating income. This is just a natural evolution for the “build wealth” stage to the “live off the wealth” stage. As people approach retirement, they become more focused on preserving their wealth and building strategies for that money to provide them an ongoing income stream to pay their bills and maintain a high-quality standard of living in retirement.
But with US 10-year US Treasury Notes paying less than 1% (and that’s before taxes), 5-year CD rates under 2% (also before taxes and don’t forget potential early withdrawal penalties), it’s not easy to generate solid income streams. $500,000 invested at 1 ½% would only generate $625 a month in pretax income.
So, what are some of the investment alternatives that can generate more income? Well, there are many, and the one or ones right for you depend on many things- your tax bracket, other sources of income (like Social Security) and other assets you own just to name a few. And, of course your risk tolerance. When you’re evaluating any investment choices, always remember that if the “promised” return seems too good to be true, 10%, 15% or more, than there probably is something wrong.
High Dividend Stocks: Smart investors have understood the value of owning stock in strong companies with long records of paying and even increasing dividends. Many public utility companies are now paying over 4%. And some well-known financial companies are paying even more. While many companies have an outstanding record of paying and even increasing dividends in good times and bad, remember companies don’t guarantee dividends won’t be cut or even eliminated. Of course, if you sell the stock you get more or less than you paid. If you’re not comfortable picking companies yourself, there are excellent mutual funds and exchange traded funds (ETF’s) that put together diversified portfolios of high dividend paying companies
Real Estate Invest Trusts or REITS are companies that own, operate or finance income-producing real estate. REITs provide investors the chance to own real estate, present the opportunity to access dividend-based income and total returns. REITs invest in a wide range of real estate property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure and hotels. Most REITs focus on a particular property type, but some hold multiples types of properties in their portfolios. Public REITs are traded on exchanges like stocks, or in mutual fund or EFT format. Some REITs are paying 10% or more, but tenants can move out, properties can be foreclosed and the value of the underlying real estate can drop. Because of the coronavirus crisis, (and other factors) real estate investing can be pretty risky at the moment.
Annuities: There are many types of annuities that can provide attractive income to owners. Immediate Annuities, as their name suggests provide income right away, but Single Premium Deferred Annuities, Variable Annuities and Equity Indexed Annuities may provide options called “riders” that can be used to get income. But all annuities have life insurance features that may appeal to some people, but not everyone. And of course, these features may have fees and costs. Both variable annuities and Equity Index annuities’ returns are tied to stock portfolios or stock indexes so returns can vary widely.
Bonds: Municipal Bonds (federal tax free and perhaps state tax free, depending upon the issue) can provide safe tax-free income. Corporate Bonds, while taxable, can also provide high returns, but the return of your principal at maturity is only as good as the company’s ability to pay. Remember Washington Mutual, Enron, Toys R Us? Bond holders at best, got pennies back on their dollars of bonds. US Treasury Bonds are the most secure investment there is, and that’s one of the reasons that rates today are so low.
It would take a book to list all the investment and insurance products that are designed to provide income to their holders. The choices can be complicated and confusing. So, I strongly urge anyone who doesn’t already have a trusted financial professional to find one and work out a detailed plan to get the income you need and still be able to live the life you want and sleep at night.