Putting It All Together: A Sample Strategy
Let’s make this real with a hypothetical example. Meet Carol, a 67-year-old retiree. Her home is paid off, she receives Social Security, and she has a 401(k) from her former employer plus some additional savings. Her goal is to create an extra $1,000 per month in reliable income to cover travel and hobbies without touching her core retirement funds too quickly.
Carol is cautious. She is worried about the sequence of returns risk, which is the danger that a big stock market downturn early in retirement could seriously damage her portfolio’s longevity. Because of this, she decides on a blended approach that balances growth potential with guarantees.
Here is her three-part strategy:
Part 1: Dividend Income for Growth ($400/month). Carol decides to roll over a portion of her 401(k) into an IRA. Within that IRA, she invests $120,000 into a low-cost dividend-focused ETF that has a historical yield of around 4%. This is designed to generate approximately $4,800 per year, or $400 per month. She understands the value can fluctuate and the dividend isn’t guaranteed, but she is comfortable with this risk for a piece of her portfolio.
Part 2: Annuity for Guarantees ($300/month). To protect against market risk and create a solid income floor, Carol takes $60,000 of her cash savings and purchases a Single Premium Immediate Annuity. The insurance company gives her a guaranteed lifetime payout of $300 per month. This check will arrive like clockwork, giving her immense peace of mind.
Part 3: CD Ladder for Safety ($300/month). With her remaining cash, Carol builds a CD ladder to generate the final $300 per month. She invests $72,000, spread across CDs with different maturity dates, at an average interest rate of 5%. This portion of her plan has zero risk to her principal and provides predictable interest payments.
By combining these three strategies, Carol achieves her $1,000 per month goal. She has a mix of market-based income, guaranteed insurance income, and safe interest income. This diversification helps her sleep well at night, knowing that her income doesn’t depend on any single source.
