3 Ways For Anyone To Generate A Stable Retirement Paycheck

Retiring comes with many challenges, and chief among them is often the worry about how to turn your retirement savings into an income stream. Replacing that monthly paycheck with a payment to yourself can be a confusing proposition. Fortunately, there are several ways to do this. Here are 3 methods for any retirement budget.  

Annuities. Purchasing an annuity is a means to convert a chunk of savings into a reliable monthly paycheck -- usually for the rest of your life. At retirement, you can purchase an immediate annuity with a portion of your overall savings. Choices include a fixed amount or an annuity that varies depending on inflation, and you may be able to buy a joint or survivor annuity to cover both spouses. The downside to annuities, of course, is that you can't reverse course once you've decided to buy into one. 

Ladders. Investment ladders, or buckets, are a way of staggering payments and risk during retirement. A ladder usually involves investing in similar things (such as CDs and/or bonds) that mature at different rates. You could place money in 1-month, 3-month, 6-month, and 12-month CDs, for example, then take the earnings as they each mature while reinvesting in the original amount. Bonds are a more long-term ladder and can be used to generate income later in the process. This income method is often the most liquid and most easily reversible in the event of a change in your plans. 

Assets. Using some of your retirement savings to purchase an income-producing asset is a plan for those who want to remain actively involved in making their money work. This type of asset generally means a rental unit, but it can also mean investing in some or all of a business. If you decide to do this, it's important that you first determine how involved you want to be in the management of the investment, what you will do when you no longer want to do so and how much risk is involved. It's also a good idea to avoid tying up all your savings in such a purchase -- both for liquidity purposes and to manage risk. 

These three basic methods for designing your own income stream can be combined with other strategies or with each other. In fact, it's generally recommended to diversify your investments, risk and income sources. By doing so, you can know where your money will be coming from no matter what the climate of the economy -- local, global or industry-specific -- is.