This year, an unprecedented number of Americans are anticipated to reach retirement age, a significant milestone that often comes with both excitement and apprehension. Many individuals approaching this stage may face a challenging reality, as a growing number report feeling less secure about their financial plans. This sentiment highlights the importance of having a robust strategy in place to navigate retirement successfully.
According to the 2025 State of Retirement Planning study conducted by Fidelity Investments, although approximately two-thirds of individuals in their planning years express confidence about their future, this statistic represents a decline of seven percentage points compared to the previous year. Concurrently, a concerning 70% of current retirees report that escalating living costs have significantly diminished their savings, stressing the need for effective financial management.
Fidelity’s insights are echoed by a recent 2024 survey from The Senior Citizens League, which revealed that 67% of seniors depend on Social Security for over half of their income. Such heavy reliance on these benefits can lead to precarious financial situations, underscoring the urgency for individuals to take proactive steps towards enhancing their retirement income and financial security.
One effective approach to bolster confidence and avert financial difficulties in retirement is to develop a comprehensive retirement plan. This strategy may involve leveraging various investments as part of a blended income strategy to help manage ongoing and unforeseen expenses throughout your retirement years.
Understanding the Concept of Blended Income in Retirement Planning
As of January 2025, the average monthly Social Security benefit amounts to $1,976, which falls significantly short of the average monthly expenses incurred by older Americans, averaging $5,007.25 for individuals aged 65 and above, as reported by the U.S. Bureau of Labor Statistics. This disparity emphasizes the necessity for retirees to explore additional income sources to ensure a comfortable lifestyle.
Implementing a blended income strategy can effectively bridge this gap. A recent 2023 survey by Goldman Sachs found that nearly 60% of retirees utilizing a blended income approach reported an improved quality of life post-retirement, compared to only 49% of those relying solely on one secondary income source besides Social Security. Furthermore, retirees employing a blended income strategy experienced greater satisfaction regarding their financial situation.
Blended income involves integrating multiple sources of both fixed and variable income to create a diversified and steady cash flow, essential for financial stability in retirement. Fixed income typically includes consistent amounts from sources such as annuities, bonds, pensions, and Social Security, whereas variable income is derived from investments that may fluctuate, including traditional IRAs, Roth IRAs, 401(k) plans, and individual investment accounts.
Each income type presents its own advantages and risks, as outlined in a report from the investment advisory firm Vanguard, which advocates for a combination of both regular (fixed) and variable income sources to optimize retirement income. Fixed income offers predictability and shields retirees from market volatility, whereas variable income tends to provide a higher risk-reward potential. By combining these sources, retirees can benefit from the strengths of each while mitigating potential downsides.
Before devising a strategy to diversify retirement income, it’s crucial to ascertain your risk tolerance. “Identifying that optimal balance is our initial step with clients,” states Jaime Ruff, a certified financial planner and principal at Homrich Berg. “From there, we can begin to construct a tailored income plan that aligns with their financial goals.”
Gaining insight into your risk tolerance is vital for determining the best approach to cover any potential shortfalls between anticipated retirement income and actual expenses.
“We create a financial roadmap that takes into account all income sources outside of investments — including pensions, Social Security, and even post-retirement work opportunities that generate income,” explains Ruff. “We then develop a long-term projection that deducts expenses, ultimately identifying the total return necessary to achieve their financial objectives.”
Once this critical line is established and you understand the required total return, the subsequent step in crafting a blended retirement income plan involves identifying which fixed and variable income sources will be incorporated into your strategy.
Exploring Fixed Income Sources for Retirement Financial Security
In addition to Social Security, fixed retirement income often encompasses annuities, bonds, and defined benefit plans, commonly known as pensions. It also includes cash alternatives such as certificates of deposit (CDs) and specialized financial instruments like mortgage-backed securities.
Annuities, which have gained popularity in recent years, are contracts provided by insurance companies that guarantee an income stream to the purchaser in exchange for premiums paid. It is essential to distinguish these from life insurance policies, which only pay out upon the insured’s death. Among the various types, fixed annuities offer guaranteed returns for a specified term or throughout the policyholder’s life, independent of market performance.
However, it is important to note that annuities can come with high associated costs. Premiums can be paid as a lump sum or through periodic payments over time. Additionally, commissions, administrative fees, and other expenses can make annuities more costly than other investment options. For instance, the commission for a 10-year annuity may range from 6% to 8%, in stark contrast to the 0.5% to 2% typically associated with stocks and bonds.
“I have a preference for fixed income and guaranteed returns,” Ruff asserts. “However, the costs associated with annuities can be quite substantial.”
Instead, he advocates for utilizing bonds, stating that upon maturity, investors can either use the principal as income or reinvest it. This approach can be implemented through bond laddering, which involves creating a timeline with various bonds that have different maturity dates, allowing retirees to capture proceeds as income or reinvest them for continued growth.
Bond laddering is especially appealing to individuals with lower risk tolerance. Ruff recommends Treasury bonds for those seeking safety and guaranteed income, emphasizing that they are “theoretically the safest bonds available” since they are backed by the federal government. He also suggests considering corporate bonds, which typically exhibit very low default rates.
“Bonds serve as the ballast in a ship — they stabilize your portfolio,” Ruff explains. “I encourage clients to maintain several years’ worth of cash and bonds to meet their financial needs. This way, if the stock market experiences significant downturns, they still have substantial assets in their portfolio that remain stable.”
Since the foundational principle of a blended income strategy is diversifying income sources, combining Treasurys, corporate bonds, and cash equivalents like CDs can create multiple avenues of fixed income to complement Social Security.
Understanding Variable Income and Its Role in Retirement Planning
Variable income provides retirees with greater access to their funds compared to fixed income, but it also comes with less predictable yields. Traditional sources of variable income typically include investments made through 401(k) plans, IRAs, or brokerage accounts, but it may also encompass income derived from alternative assets such as real estate.
When strategizing for variable income, it is important to remain aware that equities (including stocks, mutual funds, and ETFs) carry a higher risk, particularly when held in either tax-advantaged retirement accounts or standard brokerage accounts. Upon retirement, the focus should shift towards wealth preservation and generating income rather than seeking capital appreciation.
“Many individuals allocate their entire portfolio to stocks,” Ruff cautions. “The risk here is that the stock market will inevitably decline at some point, leading to significant losses for many investors.”
Market fluctuations are an inherent aspect of the economic cycle; however, as individuals age, they have less time to recover from such losses. Experts suggest prioritizing conservative investments over growth stocks when considering variable income in retirement. This can be achieved through a mix of income-producing equities, such as bond funds (which provide dividends unlike individual bonds locked until maturity), dividend ETFs, and stocks from sectors recognized for slower growth and reduced volatility, such as consumer staples and utilities.
“Stocks with a reliable history of consistent or gradually increasing dividend payouts are likely to be the most appealing options for retirees,” states a report by U.S. Bank.
Nonetheless, equities carry an elevated risk-reward profile, necessitating a balanced approach with complementary income streams. Bank products like high-yield savings accounts and money market accounts offer additional sources of variable income while maintaining a level of safety. Although the annual percentage yields (APYs) for these deposit accounts are not fixed, they typically enjoy FDIC or NCUA insurance protection and provide greater liquidity than fixed-income alternatives like CDs.
“Once you retire, your employment income ceases,” Ruff points out. “Thus, considering safety as an integral part of your strategy is essential.”
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