Who Needs Income from Investments?
Income investing is a powerful and flexible strategy that can benefit a wide range of people, but it is particularly valuable for those navigating the financial complexities of life after 65. The goal isn't just to grow wealth, but to create a steady, reliable cash flow that works for you, giving you peace of mind and control.
Here’s a look at the specific groups who can benefit most and how an income-investing strategy can address their key concerns.
1. The Independent Retiree on Social Security
​
Key Concern: Relying on Social Security alone may not be enough to cover all living expenses and enjoy a comfortable retirement, leaving a retiree vulnerable to unexpected costs or market downturns.
How Income Investing Helps: A well-structured income-investing portfolio acts as a second "paycheck" to supplement Social Security. By generating a consistent flow of dividends, interest, and other distributions, you can bridge the gap between your income and expenses. This allows you to cover daily living costs, travel, or pursue hobbies without the stress of selling off your core assets.
Strategic Advantage: You can build a portfolio that prioritizes stability and consistent returns, providing financial security and reducing the anxiety that comes with market volatility.
2. The Self-Employed Retiree
​
Key Concern: Unlike traditional employees, you don't have a company-sponsored pension or 401(k) match. Now that you're receiving Social Security, you need to turn this income into a lasting source of financial independence.
How Income Investing Helps: Income investing allows you to create your own personal pension. Instead of simply spending your Social Security check, you can strategically invest it to build a portfolio that generates its own reliable income. This not only supplements your Social Security but also creates a compounding effect, accelerating your journey to true financial freedom.
Strategic Advantage: This approach allows you to build a legacy, using your monthly Social Security income as a foundation for a wealthier and more secure future for you and your family.
3. Individuals Planning Their Social Security Options
​
Key Concern: Deciding when to start Social Security can feel overwhelming. Do you claim early for immediate cash flow, or delay for a larger monthly benefit? How do you fill the income gap if you choose to wait?
How Income Investing Helps: Income investing provides the flexibility to make the best choice for your situation. If you decide to take benefits early, a strong income portfolio can supplement the reduced monthly check. If you have the savings to delay until age 70, income investing can provide the cash flow you need to live on comfortably, allowing your benefits to grow and maximize your lifetime payout.
Strategic Advantage: This strategy empowers you to make a decision based on long-term financial gain, not short-term cash flow needs.
4. Children of Baby Boomers Assisting Their Aging Parents
​
Key Concern: Managing an aging parent's finances can be complex, often requiring you to balance your own life and family with the need to ensure your parents' security and comfort.
How Income Investing Helps: Income investing offers a straightforward solution by focusing on creating a steady, reliable stream of income. This cash flow can help cover essential expenses like healthcare, housing, and daily living costs, reducing the need to sell assets at unfavorable times. This provides peace of mind and a clear financial strategy for both you and your parents.
Strategic Advantage: You can simplify financial management for your parents, allowing you to focus on quality time and ensuring their comfort and security.
5. Retirees in Assisted Living or Nursing Home Care
​
Key Concern: The significant cost of assisted living or nursing home care can quickly deplete a lifetime of savings, even with Social Security income.
How Income Investing Helps: When a long-term care policy is in place to cover your care expenses, your Social Security income and other savings are no longer needed for daily costs. This creates a unique opportunity. Your money can be strategically invested to grow for the future. This two-part financial plan ensures your care is covered while your wealth continues to work for you.
Strategic Advantage: This approach protects your wealth from being depleted by care costs, and instead, helps it grow into a lasting legacy for your children or other loved ones.
The Tax-Efficient Advantage of Income Investing
A well-designed income-investing strategy goes beyond simply generating cash flow—it focuses on creating tax-efficient income to help you keep more of your money. This is achieved through a combination of strategic investments and carefully managed distributions.
​
The significant cost of assisted living or nursing home care can quickly deplete a lifetime of savings. Social Security is never sufficient to provide these services, and private funding is needed. Often Life savings are needed to also support a surviving spouse who may not need specialized care in a nursing home, and often long-term care insurance is being used to pay for services but may not be fully sufficient in every situation so private funds or income from investments are needed to cover ongoing expenses.
​
When a long-term care policy is in place to cover care expenses, your Social Security income and other savings may not be needed for daily costs, for a period, but these policies often do not provide for lifetime claims. When the policies exhausted, assets may ultimately be needed to fund services. This creates a unique opportunity to save and invest the social security income for future needs during the time that insurance is being used if it covers the necessary costs, and to reinvest income to grow assets while maintaining a conservative investment policy.
​
Careful planning is needed in these situations. Investment income is often vital to provide for current living expenses, or to supplement insurance. If your assets are sufficient, your money can be strategically invested for current income and to grow for the future. This two-part strategy ensures your care is covered by making use of all available insurance benefits, while your wealth continues to work for you to provide for anticipated future needs. This approach can protect your and potentially help to provide a legacy for your children or other loved ones.
Tax-Advantaged Sources:
​
Tax-Free Bonds: Interest from municipal bonds is generally exempt from federal and, in some cases, state and local taxes, providing a truly tax-free source of income.
Qualified Dividends: Dividends from certain stocks are taxed at a lower rate than ordinary income, offering a more favorable tax treatment.
Efficiently Using Managed Distributions:
​
Managed Distributions and ROC: Many closed-end funds use "managed distributions" that can include a portion of cash flow classified as "Return of Principal" (ROC). ROC is generally not taxed when received but instead reduces your cost basis. This allows you to receive cash flow without an immediate tax liability, deferring taxes for the future.
Strategic Use of Retirement Distributions: By coordinating withdrawals from different accounts—such as taxable, tax-deferred, and tax-free—you can control your taxable income and avoid being pushed into a higher tax bracket, particularly when managing Social Security and required minimum distributions.
No matter your circumstances, income investing is about creating stability, maximizing your wealth, and gaining the peace of mind to live a better life after age 65.