With only 27% of baby boomers confident their savings will last, exploring options like annuities, real estate and passive income streams is crucial. Taking a proactive approach and working with a financial planner can help baby boomers navigate their retirement income landscape effectively.
As of 2024, nearly 10,000 baby boomers are reaching retirement age daily. However, a striking statistic from the Insured Retirement Institute reveals that only 27% of baby boomers feel confident their savings will last throughout retirement. This situation highlights the need for reliable income sources that will keep up with inflation as we live longer, face increasing healthcare costs and are more sensible to market volatility.
While annuities often come to mind as a potential solution for guaranteed income, they are not the only option. Since the solution will depend on your situation, we’ll explore several vital strategies—including annuities, diversified investments, real estate and passive income sources—that can help baby boomers tackle the retirement income crisis more effectively.
Annuities—Your Safety Net for Guaranteed Income
One of the most common concerns among retirees is the fear of outliving their savings. Annuities offer a unique solution by providing guaranteed income for life. With fixed and variable annuities, you can secure a steady stream of income that won’t fluctuate with market conditions, making them a reliable option for many. However, one of the challenges is giving up upfront liquidity and locking in your money.
Annuities Case Study
Sarah, a 68-year-old retiree, decided to invest in a fixed annuity to ensure she receives a predictable monthly payment regardless of economic fluctuations. This choice alleviated her anxiety about outliving her savings and allowed her to focus on enjoying her retirement years with confidence. Her mother lived for 96 years, and she is widowed, so this option was optimal for her.
In this case, an annuity can serve as a financial safety net. However, it’s essential to consider the fees and the terms associated with these products to ensure they align with your financial goals.
Is An Annuity Right For You?
Diversified Investments—Growing Your Wealth Wisely
While annuities offer security, diversified investments can provide greater growth potential. By building a well-rounded portfolio that includes a mix of stocks, bonds and mutual funds, you can take advantage of market performance, manage risk and maintain flexibility with your capital during strong performance years or when planning for an inheritance.
To address the concerns of inflation and purchasing power, consider including growth-oriented investments such as a diversified portfolio of index funds. These funds mirror the overall global market’s performance while keeping costs low. This strategy enhances your potential for returns and offers the flexibility to adjust your portfolio as needed.
Diversified Investments Case Study
After witnessing market fluctuations, Tom, a 64-year-old retired accountant, decided to diversify his assets by allocating a portion of his savings to a combination of index funds and bonds. This option gave him growth while safeguarding his principal. With this option, he could beat his expectations and inflation, all while providing some advance inheritance to his son.
Real Estate—Creating Passive Income and Security
Investing in real estate can be a secure way to generate passive income and build long-term wealth. Rental properties can provide a consistent cash flow. Still, if bought in overpriced markets, high-interest environments or conditions where there is an oversupply of rental properties, it may not be a great strategy to do this 100% of the time.
However, real estate gives you the benefit of being able to adjust for inflation. Rental income typically rises over time, helping to maintain purchasing power, while REITs (a less expensive alternative) can offer dividends that also keep pace with inflation.
Real Estate Case Study
Mary, a 60-year-old nurse, decided to invest in rental properties in a growing neighborhood. After acquiring several units, she enjoyed a steady income while benefiting from property appreciation. Mary also bought REITs to diversify her portfolio without the complexities of being a landlord. By taking a well-rounded approach to real estate, she not only secured her retirement income but also created opportunities for further wealth accumulation.
Building Passive Income Through Business Ventures
Starting a small business or investing in existing enterprises can be another way to create passive income during retirement. Whether launching an online store, consulting or investing in a franchise, business ventures can yield substantial returns and offer the flexibility to adapt to your lifestyle. After all, what will you do with all the available time you’ll have after you retire?
Business Ventures Case Study
John, a 62-year-old retiree, decided to use his marketing skills to consult for local businesses. His flexible schedule allowed him to work flexible hours while generating a supplemental income. By leveraging his expertise, John found a fulfilling way to stay engaged and financially supported during his retirement without depleting his assets.
At retirement, it is wise to have a combination of income sources from your assets and your expertise. This approach will help you avoid depleting your capital-generating income.
Maximizing Social Security Benefits
Social Security can be an essential component of retirement income. However, many retirees are unaware of the strategies to maximize their benefits. Individuals may increase their monthly benefits by delaying claiming Social Security until full retirement age or even age 70.
Social Security Benefits Case Study
Linda, a 63-year-old client, initially planned to start claiming her Social Security benefits at 62. After discussing her options with her financial advisor, she delayed her claim until 70, ultimately increasing her monthly benefit by over 30%. This decision provided her with greater financial security, allowing her to rely less on her savings in the early years of retirement.
Creative Income Streams—Exploring Alternative Investments
In addition to traditional investment options, exploring alternative investments can diversify income streams. These can include peer-to-peer lending, investing in startups or even purchasing artwork or collectibles.
Creative Income Streams Case Study
David, a 59-year-old retiree, decided to invest in a few peer-to-peer lending platforms where he could earn interest on loans to individuals and small businesses. While this option carries some risk, it also provided him with the potential for higher returns, which he utilized to supplement his retirement income. David’s experience highlights the importance of exploring various income sources to enhance financial security. Investing only a small portion of your overall net worth here is advisable.
Navigating the Retirement Income Landscape
The retirement income crisis affecting baby boomers is significant, but it’s far from hopeless. Annuities can provide a reliable income stream while diversifying investments, exploring real estate and business ventures and maximizing Social Security benefits, which offer additional avenues for financial security. Together, you can build an inflation-proof, income-guaranteed portfolio that can keep growing.
The key to success lies in taking a proactive and educated approach to your retirement planning. Collaborating with a certified financial planner can help you navigate these options and create a comprehensive strategy tailored to your unique needs and goals.
Editor Norah Layne contributed to this article.
