A Guide to Income Investing for Retirement

Learn to Build an Income Investing Portfolio

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Retirement is one of the major life goals everyone needs to have a plan for. Most Americans expect to retire by age 66. Combine that with a life expectancy of 78.93 years (and many living much longer than that), and the average American needs to save for at least 13 years of retirement.

While Social Security can help cover the cost of living in your golden years, the Social Security Administration paid out an average of only $1,503 per month in 2020. If you're planning on doing more than just scraping by on an annual income of $18,306, investing for retirement is key.

Whether you're new to income investing or looking to expand your knowledge, our complete income investing guide will walk you through:

  • REIT investing
  • Dividend investing
  • Bond investing
  • Selling options
  • Mutual funds

Continue reading to learn all you need to know to build a retirement portfolio and prepare for your future.

Who Is Income Investing For?

One in three Americans has no 401(k) or IRA offered by their employer. But even those without workplace options should take advantage of the opportunity to start investing for monthly income after they retire. Unfortunately, a Bloomberg study found that 20% of workers say they don't think they'll ever be able to retire. This statistic is worrisome but understandable when you consider that most seniors will need some type of long-term care that can cost thousands of dollars per month and is not necessarily covered by Medicare.

The best way to be able to retire comfortably is by building a retirement portfolio through income investing sooner rather than later. There has long been an assumption that investing for retirement is only the concern of older individuals, yet there are several advantages for those who just entered the workforce.

A robust portfolio not only sets the stage for a comfortable and secure retirement, but it also helps build wealth and protect against inflation. Building wealth through investing allows you to be prepared in case of an emergency whether it be medical, sudden unemployment, or major life changes.

Additionally, dividend income, quality bond investing, mutual funds, and other forms of investments allow you to earn a passive income to supplement your salary. Choosing the right assets to build your portfolio depends upon your financial goals and the amount of risk you can withstand.

1 in 3

Americans have no 401(k) or IRA offered by their employer.


The average return on investment in the US real estate market, according to the S&P 500 Index.


The historical average stock market return over the last 100 years.

Components of an Income Investing Portfolio

The most common ways to build a retirement portfolio are through 401(k)s and IRAs (individual retirement accounts). Each has certain tax advantages, and both can be part of your income portfolio as you prepare for your post-career life.

But there are numerous ways to invest for monthly income upon retirement, whether it's with a traditional 401(k), IRA, a regular investment account, or a combination of them all. Ultimately, it comes down to personal circumstances and when you decide to begin preparing for retirement.

In our complete income investing guide, we'll discuss five opportunities that can help pave the way to the good life in your golden years and show you how to earn income on your investments.

REIT Investing

REIT investing (real estate investment trust) may be one of the best passive income investments because REITs are legally required to pass their profits on to shareholders. With REITs, you can invest in real estate without ever having to buy and manage property. The REIT is simply a company that owns and operates properties and is traded publicly as a stock.

REITs can be focused on various types of properties, including apartments, office buildings, medical complexes, warehouses, and more. They can also be investments that pay monthly dividends. Some even own cell phone towers. There are three main types of REITs-equity, mortgage, and hybrid-each of which we'll break down in our income investing guide.

Dividend Income

Dividend-paying stocks allow investors to profit from a company's success. Some companies, when they begin to see net profits, will reward shareholders with dividends. These companies keep a large portion of their profits to fund business and potentially expand but also issue a portion to shareholders, usually in a dollar amount per share.

Dividends are occasionally issued as stock or property and can take two forms: ordinary and qualified. Ordinary dividends count as taxable income, while qualified dividends are considered capital gains and receive a lower tax rate, accordingly.

Bond Investing

Bonds are simply loans given from an investor to a borrower. Typically, the borrower is a corporation or governments who seek loans to grow their business or fund infrastructure. The borrower sets the term of the bond which includes the interest rate and the maturity date and borrowers will get their investment back if they hold until maturity. Borrowers can also get interest payments over the life of the bond.

The higher the interest payments, the riskier the bond, which is important to understand as a borrower. There is potential that your investment isn't repaid. Corporate bonds are typically riskier than government bonds, but government bonds also pay much lower interest rates. Additionally, the borrower's credit and the length of the maturity date affect the interest rate, with lower credit and longer maturity leading to higher interest.

Selling Options

Options contracts give investors the right to buy or sell shares of a stock at an agreed-upon price by an agreed-upon date. While many investors buy options contracts, you can also sell, or write, options contracts yourself. When you sell an options contract, you get to keep the entire cost of the contract. But selling options comes with considerable risk. We'll show you how to limit that risk and sell options for consistent income.

Mutual Funds

Mutual funds are professionally managed portfolios that bring together money from several investors to purchase stocks, bonds, and other securities. Investors are charged certain fees, like an annual fee, sales commission, or a percentage of assets being managed.

Mutual funds are divided into different categories based on the types of companies and securities in which they invest and investment goals. You can earn income off of dividends, interest earned, capital gains, or when a fund share increases in price, depending on the type of mutual fund you invest in.

Investing in mutual funds can help you diversify your investments and take advantage of having a savvy professional money manager, and we'll help you understand the differences between them to make the right choice for your portfolio.