It appears that this is a tremendous lack of knowledge when it comes time to transform your accumulated retirement nest egg into vehicles that generate a steady income.  So today, Ill take the opportunity to look at the benefits of income-generating investments.  A recent survey commissioned by the investment arm of a Canadian bank found that many investors are unaware of the ways they can generate income from their investments.  Lets review the different options.

It seems that only 55% of people surveyed were aware that mutual funds could help provide them with additional cash flow.  In the old days, you worked for the same company from the time you finished school until the age of 65.  In return, the company provided you with a pension that allowed you to retire.  These days, this scenario is quite rare.  So it can be both a challenge to save enough for your golden years.  For many, mutual funds are considered risky investments and therefore disassociate themselves with them as a solution to their retirement income dilemma.  There are numerous mutual funds that are designed to payout monthly income.  The advantage of this for the retiree is that you receive a regular income and if you need access to emergency cash, you can still sell additional units.  While you give up the security of having your capital guaranteed, you have flexibility that is not available with a pension plan or annuity.

Fixed Income Securities and Savings

It is hard to believe, but only half of those surveyed said they were aware that bonds could provide income, and 57% understood that guaranteed investment certificates could create income. So while the oldest baby boomers began turning 65 this year, for the next twenty years an estimated 7,000 to 10,000 Americans a day are expected to reach that milestone annually.  It is important to know what your options to create a retirement income.  Given the low savings rate, the volatility of market returns over the past decade and the record low-interest-rate environment and a host of other factors,investors will have to figure out how to manage their retirement.  Traditionally, pension funds loaded up on government and quality corporate bonds to generate income.  Individuals did the same with term deposits, certificates of deposit, guaranteed investment certificates, etc.  The problem these days is that a 5 year maturity is yielding around 3%.  With reports these days of inflation predicted to approach 2.7% in the next couple of years, there is not much room to manoeuvre.

Exchange Traded Funds (ETFs)

Only one-third of the respondents realized that exchange traded funds could generate income.  This is not surprising as it is only over the past few years that ETFs have exploded in popularity.  I believe that folks who go this route will have lots of experience investing or will use advisers to manage the assets in their IRAs, RRSPs and 401(k) plans.  It makes sense to find yourself a retirement specialist who can propose income strategies and ways to hedge market risk.

Dividend Stocks

In addition, only half of those surveyed were aware of the benefits provided by income-generating investments, such as cash flow and tax efficiencies.  While many of these types of investments have changed due to legislation, good old dividend stocks have returned to the forefront as a viable solution to generating retirement income.  Think about it: you invest your money in companies that generate profits and have proven track records of paying out dividends in the neighborhood of 3-4%.  If the markets do well, there is the potential for additional capital gains.  And much like what we mentioned earlier about mutual funds, you have the flexibility to sell if you need access to cash.

Investment income is becoming increasingly important for many investors, particularly as boomers begin to retire and seek out additional sources of cash flow. Indeed, the survey results showed that three-quarters of respondents were interested in learning more about income-generating investments.  In order to ensure you have a steady income from your investments, stay tuned as we expand on this introduction to help you realize your ideal retirement lifestyle.