With rising inflation, retirees relying on passive income sources have to re-strategize in order to keep pace with or hopefully outpace increased consumer prices. As such, there are some alternatives to consider to counteract inflation, as outlined in a Motley Fool article.
While economic uncertainty remains, especially with recession forecasts looming large, retirees can rely on companies with strong balance sheets that have a consistent history of dividend payments. That said, high dividend payouts need to make way for more consistent dividends, since it can be easy to get caught in the trap of becoming attracted to the highest yields.
“Any dividend payouts are good, but they really reward investors who are willing to be patient and wait to receive payouts in retirement,” the article said. “Using a dividend reinvestment program (DRIP) — which automatically reinvests the dividends you receive back into the stocks that pay them — can add to the effects of compound earnings and put investors in a position to receive sizable income in return down the road.”
While it might be higher on the risk scale, one exchange traded fund (ETF) to consider that focuses on dividends is the Vanguard High Dividend Yield Index Fund ETF Shares (VYM). The fund employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index, which consists of common stocks of companies that pay dividends that generally are higher than average.
Furthermore, an obvious choice would be to use an individual retirement account (IRA) such as a 401(k). What retirees need to understand is how they can maximize the IRA to their benefit, depending on the type of account they currently have.
Of course, it’s never too soon to start utilizing an IRA in order to adequately prepare for retirement.
“A 401(k) plan is the go-to retirement account, mainly because many employers provide it, and employees are often automatically enrolled,” the Motley Fool article explained. “Individual retirement accounts (IRAs) and the benefits they provide can often fly under the radar, but when used properly, they can be a powerful player in achieving your retirement goals. There are two types of IRAs: Roth and traditional. Which one you choose mainly depends on your current versus projected tax bracket.”
Returning to the Workforce
It can seem counterintuitive to re-enter the workforce after retirement, but there are certain cases where it’s acceptable. For retirees who choose to re-enter work by their own admission rather than need, it’s an option to consider to not only provide an income source, but to keep the mind/body active.
“There’s nothing wrong with working in retirement — especially if it’s by choice and not out of necessity,” the article said. “Just because you ‘retire’ or begin taking Social Security benefits early doesn’t mean you have to stop working; you may just need to monitor how much you make.”
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