Investors often spend decades working and saving to build a nest egg for retirement. During that time, their primary investment goal is to see their assets grow. When retirement finally arrives, the primary investment goal often changes from seeking to grow assets to using those assets to generate income. The investments used to pursue this new goal need to change accordingly.

Match Your Choices To Your Assets

What you need to do largely depends on the size of your nest egg and how much income you require. The most fortunate among us have amassed such an enormous nest egg that all they have to do to meet their income needs is to convert their portfolio to cash and spend it. Unfortunately, these folks are in the minority. And even if they do have the money, just spending it may not be the best use to make of it.

Interest-Bearing Investments: Watching Your Money Grow

The next most fortunate investors are those with nest eggs sizable enough that just a modest amount of income on their holdings will fund their retirement needs. Until relatively recently, this goal could be achieved by putting money in low-risk investments that generated interest payments. These investments included bank accounts, money market funds and certificates of deposit (CDs).

Bank accounts and CDs don’t pay what they used to. In the mid-1980s, some certificates of deposit paid interest rates of up to 10% according to Bankrate.com. As recently as 2006, bank accounts were paying rates between 4% and 6%. Today, interest rates are so low that certificates of deposit pay between 1% and 2%, while bank accounts pay just a fraction of a percent. In this environment, investors often need to seek higher returns to generate the necessary level of income.

High-quality bonds are the next step up, in terms of both risk and return. Government bonds, including those issued by the federal government and local governments, are among the most conservative investments in this category. Corporate bonds, which are issued by companies instead of governments, tend to offer higher rates of interest in exchange for a greater risk of default. Here again, the low interest rates available today may mean that high-quality bonds do not generate sufficient levels of income.

Lower-quality bonds can produce even higher interest rates; generally speaking, they have higher yields than their better quality peers. Of course, these lower-quality issues have a greater risk of default. For more detailed insight into bonds, check out the Bond Basics Tutorial .

Annuities: A Life-Long Income Stream

At one point in time, many retirees could count on life-long payments in the form of pension checks. With pensions disappearing at an alarming rate, investors seeking a predictable life-long income stream can purchase an annuity in exchange for a lump-sum payment. The income stream is based on a preset rate at the time the annuity is purchased, with periods in which interest rates are higher resulting in higher payments.

An annuity can be purchased as the primary vehicle designed to deliver all the income a retiree needs, or it can be one component of a larger portfolio. To learn more about annuities, see Introduction to Annuities .

Dividends: Regular Payments, Some Asset Growth

When growth and income are the goal, there are many potential ways to structure a portfolio. Dividend-paying stocks are one choice. Holding a mix of stocks and bonds is another choice. While small-cap and emerging market stocks may be too volatile, blue chip stocks might fit the bill.

A traditional path for investors approaching retirement is to shift their assets from growth-oriented stocks to stocks that generate income in the form of dividends. These stocks are often referred to as “widows and orphans” stocks because they tend to deliver reliable dividend payments in all economic environments.

In addition to the dividend payments, these stocks also offer the potential for price appreciation, making them appropriate for investors seeking to generate both income and some level of asset growth. Of course, there are no guarantees in the stock market, so the pursuit of growth brings with it the possibility of decline.

Going the Fund Route

Mutual Funds, instead of individual assets, make sense if you prefer to delegate the heavy lifting of picking stocks and researching bonds to a professional portfolio manager. There are mutual funds that invest in stocks, mutual funds that invest in bonds, and mutual funds that invest in a mix of stocks and bonds. There are even “target date” funds that invest more aggressively during your working years, then turn more conservative as your retirement date approaches (see An Introduction To Target Date Funds ). Investopedia’s Mutual Fund Basics Tutorial can help you get started.

Exchange-Traded Funds also offer a wide variety of investment choices, if they are more your style. Stocks, bonds, real estate, preferred stock and master limited partnerships are all available through exchange-traded funds (ETFs). See Generating Income In Retirement Using ETFs and ETFs Commonly Found In Re tirement Accounts .

Other Income Sources

Looking beyond traditional stock and bonds – and funds containing them – preferred stocks, real estate and master limited partnerships all offer income-generating potential for investors willing to spend some time learning about them. You can also invest in these categories through mutual funds.

Preferred stock. which is often described as a stock with bond-like qualities, pays out steady dividends that investors can use as a source of income. Shares of preferred stock tend to be less volatile than traditional shares of stock, gaining and losing less than other stocks when prices move. What You Need to Know About Preferred Stock can help you determine if preferred stock is right for your portfolio.

Real estate investors can buy physical property (a house or an apartment building – see Real-Estate Rents Can Fund Your Retirement ), or invest through a real estate investment trust (REIT). REITS, which trade like stocks, invest in real estate either by purchasing buildings or by purchasing mortgages. See How To Analyze Real Estate Investment Trusts for more information about REITS.

Master limited Partnerships (MLPs) are another potential income generating investment. MLPs are similar to mutual funds in that a pool of investors delegates responsibility for investment decisions to an investment professional (in the case of MLPs, that professional is referred to as the “general partner”). Shares of the partnership are sold to investors (referred to as “limited partners), with each limited partner receiving a portion of the income generated by the partnership. MLPS can be complex from a tax liability perspective, so potential investors should spend some extra reviewing the details before investing. Discover Master Limited Partnerships provides a closer look at these investments.

Human Capital

If your portfolio isn’t large enough to generate the income you need regardless of the investments you choose, you do have another option: human capital (you). While delaying retirement, working part-time or working at all may not be part of your ideal retirement-planning scenario, there may be ways to make the effort more pleasant than you anticipate.

Perhaps you can change jobs, leaving behind one you dislike for one you have always wanted to try. Maybe you can turn a hobby into an income-producing acitivity, so that you spend every minute enjoying your work. Consulting may be another option – and a chance to stay with the work you know but be your own boss. See Impact Of Continuing To Work In Retirement . Working In Retirement While Collecting Social Security? and Don’t Retire Early – Change Careers Instead .

Lifestyle Changes

Just as changing jobs can open up new avenues of opportunity, so can changing your lifestyle. Moving to smaller home or a less expensive area can reduce your costs, but be sure you do this strategically (read Avoid the Downsides Of Downsizing In Retirement ). Taking in a roommate or moving in with relatives can provide extra income to help with the bills.

Some retirement communities are even offering “shared suites” in which they match up potential roommates to share the cost of the accommodations. A little creativity could go a long way toward helping you fund your future. See New Retirement Living Option – And Income Source and  Benefit From Senior Discounts .

The Bottom Line

As you transition from your working years to your retirement years, take the time to analyze your personal situation. The investments that are most appropriate for your neighbor may be all wrong for you. Make sure you fully understand the potential risks, rewards and volatility associated with any investment you are considering before you put your hard-earned money at risk.

The older you get, the less time you have to recover from market downturns and the more your asset mix needs to be weighted toward low-risk vehicles that deliver asset preservation. Even so, today’s economic climate means you may need to take more risks than was once recommended (see Is ‘100 Minus Your Age’ Outdated? )

If you are unsure or uncomfortable with any aspect of the process, talk to a professional. Even if the advice you get simply reinforces what you were already thinking, the peace of mind may be worth the fee.

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