More Americans are expected to succeed in retirement age this yr than ever before. For many of us hitting that milestone, a difficult reality may await. That is because fewer persons are feeling secure with their plans.
In response to Fidelity Investments’ 2025 State of Retirement Planning study, while two-thirds of individuals of their planning years feel confident with their prospects, that figure is seven percentage points lower than last yr. Meanwhile, 70% of retirees say that rising living costs have eroded their savings.
Fidelity’s findings aren’t the one indication of trying times ahead: A 2024 survey from The Senior Residents League found that 67% of seniors depend on Social Security for greater than half of their income. Being that depending on Social Security advantages is a slippery slope towards financial hardship.
One approach to construct confidence and avoid those troubles is with a comprehensive retirement plan, which might entail using your investments as a part of a blended income technique to help offset recurring (and unexpected) costs throughout your golden years.
What is mixed income?
As of January 2025, the common monthly Social Security profit was $1,976. That considerably lags older Americans’ monthly expenditures, which average $5,007.25 for those ages 65 and up, in response to data from the U.S. Bureau of Labor Statistics.
Making a stream of blended income may also help retirees fill that gap. Nearly 60% of retirees with a blended income strategy reported having a greater lifestyle after retiring, compared with 49% of retirees who used just one additional income source other than Social Security, in response to a 2023 Goldman Sachs survey. Retirees using a blended income strategy also reported higher levels of satisfaction with their money.
Blended income combines multiple sources of each fixed and variable income to create diversified, regular money flow. Fixed income includes predetermined amounts from sources like annuities, bonds, pensions and Social Security, while variable income comes from sources where your money can ebb and flow, resembling traditional or Roth IRAs, employer-sponsored plans like 401(k)s and taxable savings and investment accounts.
Each type has its advantages and risks, in response to a report from investment advisory firm Vanguard, which recommends using each regular (aka fixed) and variable sources to provide retirement income. Fixed income provides predictability. It insulates you from market swings but in addition precludes you from benefiting from the market’s growth. Alternatively, variable income is tougher to forecast but provides the next risk-reward ratio. Combining them permits you to reap the advantages of every while limiting the downsides.
Before planning for methods to diversify your retirement income, you first need to determine your risk tolerance. “Finding that sweet spot is the very first thing that we do with a client,” says Jaime Ruff, certified financial planner and principal at Homrich Berg. “Then we will start desirous about the income construction.”
Understanding your risk tolerance can show you how to determine methods to best approach potential deficits between your expected retirement income and your likely expenses.
“We prepare a financial statement that considers all of the sources of income that usually are not of their investments — like a pension or Social Security or perhaps a post-retirement gig where they’re making some amount of income,” says Ruff. “Then we work right into a long-term projection where you deduct expenses, and there is this line, then, for what total return they need to satisfy their goals.”
Once that line is set and you understand what total return is required, the following step to crafting a blended retirement income plan is determining which sources of fixed and variable income will factor into the equation.
Fixed retirement income
Beyond Social Security, fixed retirement income is usually related to annuities, bonds and defined profit plans (i.e., pensions). It might probably also include money alternatives like certificates of deposit (CDs) and nuanced, asset-backed financial instruments like mortgage-backed securities.
Annuities, which have increased in popularity, are contracts issued by insurance firms that provide an income stream to the purchaser in exchange for premiums they’ve paid. Notably, these products usually are not similar to life insurance policies that only pay advantages when the insured person dies. While there are each fixed and variable annuities, fixed annuities provide guaranteed returns — for a term or the rest of your life — and usually are not linked to market performance.
Nevertheless, there will be high costs related to annuities. Premiums will be paid as a lump sum or satisfied in a series of installments over time. Moreover, commissions, administrative fees, expense ratios and other fees can lead to annuities being more costly than most other investments. The commission for a 10-year annuity, for instance, can range from 6% to eight%, in comparison with 0.5% to 2% for stocks and bonds.
“I like fixed income. I like guaranteed income,” Ruff says. “It’s just the fee of getting an annuity is typically really high.”
As an alternative, he prefers bonds, noting that after they mature, you’ll be able to determine to make use of the principal as income or reinvest it. This will be achieved through bond laddering — making a timeline with multiple bonds carrying various maturity dates, which permits you to either capture the proceeds as income or reinvest them to proceed growing your money.
Laddering is especially appealing to those with lower risk tolerances. Ruff suggests Treasurys for those searching for safety and guaranteed income, noting that they’re “theoretically the safest bond on the planet” since they’re issued by the federal government. He also recommends corporate bonds, which have incredibly low default rates.
“Bonds are just like the ballast in a ship — they assist regular things,” Ruff says. “I prefer to see clients have several years value of money and bonds available to satisfy their needs. So if the stock market drops loads, they still have loads of things of their portfolio that do not drop.”
For the reason that core concept of a blended income strategy is diversifying where your money comes from, combining Treasurys, corporate bonds and even money equivalents like CDs can provide quite a few sources of fixed income to complement Social Security.
Variable retirement income
Variable income provides greater access to your funds than fixed income, nevertheless it carries less predictable yields. Traditionally, sources of variable income include investments made through a 401(k), IRA or brokerage account. Nevertheless, it might probably also include income generated from alternative assets resembling real estate.
When considering methods to invest for variable income, be mindful that equities (i.e., stocks, mutual funds and ETFs), whether in a tax-advantaged retirement account or normal brokerage account, carry higher risk. Once retired, you need to deal with wealth preservation and income generation — not share appreciation.
“A whole lot of people put all of it in stocks,” Ruff says. “And the chance is, in some unspecified time in the future, the stock market goes to go down, and a whole lot of people will lose a whole lot of money when it does.”
Fluctuations are a natural a part of the market cycle, however the older investors get, the less time they should get well from losses. When eyeing variable income in retirement, experts say it’s prudent to deal with conservative holdings versus growth stocks. This will be completed with a mixture of income-producing equities resembling bond funds (which pay dividends unlike individual bonds which can be tied up until they reach maturity), dividend ETFs and stocks in sectors know for slower growth and lower volatility, like consumer staples and utilities.
“Stocks with a reliable history of consistent or steadily increasing dividend payouts are more likely to be probably the most attractive to think about for this purpose,” in response to a report from U.S. Bank.
Still, equities carry an elevated risk-reward ratio, so you’ll be wanting to balance them with other income streams. Bank products resembling high-yield savings accounts and money market accounts offer additional sources of variable income while providing a layer of safety. The APYs for those varieties of deposit accounts usually are not fixed, but they’re typically protected by FDIC or NCUA insurance and supply higher liquidity than fixed-income alternatives like CDs.
“When you quit your job, you not have employment income,” Ruff says. “So it is advisable to consider safety as a part of your strategy.”
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