Investing for retirement. How to make a steady income of $1000/month. I want to share what I think would be a good strategy for someone who wants to retire early, or anyone who just wants make a steady monthly income from their investments.
Let’s work with some numbers. The average retirement savings for someone 55 and above in the United states is about $185,000. Is there a way you can put this money to work such that you can get $1000/month or $12,000 per year of steady income for the rest of your life, without touching the principle?
The good news is yes you can!! But you have to do it in a smart way so as to minimize the risks. And definitely avoid some investments that are pretty much scams. I am going to show you a way you can do this and minimize risk…coming up right now!
In order to generate $1000/month from $185,000 – you have to get a return of 6.5% per year ($12,000/$185,000=6.47%)
How is such a high return of 6.5% possible when the best interest rate you can get from savings at banks is closer to 2%.
There are ways, but you have to be willing to take on additional risk. Smart risk.
When I say “risk” I don’t mean risk like gambling your money at a Casino, where you can and you will lose all your money. By “risk” I mean the risk of losing some of your principle, on paper, because it can sometimes decline in value due to market fluctuations.
You see, when you invest your money in a savings account at a bank, or money market, one of guarantees you get is that your principle of $185,000 will never go down in value.
This is called “safety” which is short for “safety of principle.” Your principle of $185,000 is safe in value. The price you pay for this safety is low returns.
In order to get a significantly higher rate of return like 6.5% instead of 2%, the compromise you have to be willing to make is to forgo this 100% safety of principle. You have to be willing to let your $185,000 fluctuate in market value, at least on paper.
But what you should know is this, you only lose money, if you cash in or sell your investment.
So the money that you will be investing $185,000 is not something you will want to access but leave right where it is until the day you die.
Rather, a smarter way is to diversity your investments by putting your money in several investment classes, and several companies.
How? Because it is less likely that you will lose all your money because even if one company or investment in your portfolio goes bankrupt, your whole portfolio will not drown.
So what are some places that can get you a 6.5% annual return with a diversified investment portfolio?
I like Closed end funds or CEF’s because they provide good returns with acceptable risk. Another reason to like them is because they can provide a steady income stream over 6% even when the principle may have lost value.
So if you invest $185,000 in closed end funds at 6.5% yield, you will continue to receive $1000/month, even if your principle on paper, drops to say $170,000.
Borrowing money to make investments would be a risky strategy if you did it on your own, but it is lower risk in a fund because they are buying dozens of securities with 10’s of millions of dollars, not just a few that you would buy if you were doing it on your own.
Their corporate high yield fund for example, invests in corporate junk bonds which are considered risky, but this risk is reduced because they are buying the bonds of dozens of different companies. So even if one or two companies cannot pay its bond interests, you will still get money from the other companies.
Now here are some investments to avoid, in my opinion:
To Avoid:
– Don’t put all your money in the stock market. It is too risky. Although over the long term, you can get an average of 7% annual return, if you are looking for steady income, month after month, it will not happen.
– Don’t put all your money in long term bonds. Paradoxically, this is also too risky. What many people don’t understand about bonds is that they can decrease greatly in value in economic conditions where interest rates are rising like they are right now.
– Annuities. Your insurance agent will push for these. Although these will result in steady income for you all your life, the actual rate of return is quite low after you take into account the often hidden costs that are not disclosed to you by the agents. And they will keep all your principle. Annuities are a type of life insurance product. There are better options in my opinion.
Note that the information presented here is for information only and should not be construed as financial advice, or recommendation to buy or sell any stocks or securites. I am not a profession financial planner. And you should always do your own further research.
All I’m offering is an opinion from my education in the school of hard knocks.
