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Put Your Money to Work

Generating income for your retirement

As you approach the time when you’ll trade your paycheck for retirement, you’ll begin relying on your hard-earned retirement income sources to help provide an income stream that will see you through your retirement years.

Determine your retirement income sources

Start by determining your potential sources of retirement income, and how much income they are likely to provide in retirement. Our printable worksheet can help you get started, and common income sources include:

  • Social Security
  • Pension plans (i.e., defined benefit plans)
  • Annuities
  • IRAs
  • Retirement savings, including 401(k), 403(b), and 457 plans
  • Other nonretirement savings, including brokerage accounts, savings accounts and certificates of deposit (CDs)

Categorize your retirement income sources

As you think about the retirement income sources available to you, begin grouping them into income categories such as lifetime, dividend, and interest income. Because of their predictability, many retirees use lifetime income sources to cover essential living expenses. Discretionary and unexpected expenses are generally more flexible than essential expenses, so your investable assets can help cover these costs.


Dividend

Interest

Lifetime

Goal
Income with growth potential
Steady income stream
Lifetime income stream
Examples
Dividend-producing stocks, equity mutual funds
Bonds, bond mutual funds, fixed income instruments, cash, CDs
Social Security benefits, pension plan payments, annuity payments, insurance benefits
Helps manage
Adverse impact of inflation
Market volatility
How long assets will last and market volatility
Benefit
Seeks to provide growth to help outpace inflation
Minimizes impact of market volatility
Creates predictable income to cover essential expenses, regardless of market activity
Considerations
Severe market drops or prolonged periods of volatility can reduce portfolio value
May not produce income adequate to outpace inflation and rising health care costs

Limited liquidity and control of assets

Additional costs associated with annuity and insurance products


Diversify your retirement income sources

Because each retirement income category represents a different type of income, and mitigates different retirement risks, diversifying your retirement income across all three can help you generate income in retirement that may last a lifetime.

  • Dividend: Equity income investments.  Designed to provide long-term growth and income, equity income investments can help offset the effects of inflation. But, because of their growth potential, they are also subject to market volatility. As you approach retirement, keeping a portion of your investable assets invested in high-quality, dividend-producing stocks and equity mutual funds can hedge your retirement portfolio from inflation risk. These investments also give your portfolio the opportunity to benefit from strong market performance — which is increasingly important for retirees, as many people are spending 20 or more years in retirement.
  • Interest: Bond and fixed income investments.  Interest-bearing investments offer the benefit of a stable, low-risk income stream, while also preserving your principal investment. They may offer protection against market volatility, but may also be subject to credit risk. As you near retirement, increasing your interest-bearing investments may help protect your portfolio from market fluctuations.
  • Lifetime: Social Security, pensions, and insurance and annuity products.  By providing a fixed payment amount for life, lifetime income sources protect you from market volatility and lower the risk of outliving your money. Social Security benefits are the primary source of lifetime income for many of today’s retirees. Although you can start receiving Social Security benefits as early as age 62, or defer your benefits until age 70, the monthly payment amount you receive varies based on your retirement age. Our Social Security tool can help you decide when to start receiving Social Security benefits.

Get started today

Wells Fargo can help you invest your savings to create predictable retirement income

As you consider various strategies for investing your retirement savings, Wells Fargo can help. Get started today by calling us, requesting a retirement consultation, or learning more about withdrawal strategies for your retirement savings.

No lifetime income sources?

If you don’t expect to receive Social Security benefits and pension plan payments, or if these amounts won’t cover your essential living expenses, you can secure a lifetime income source by converting a portion of your investments into an annuity