Using Stocks to Generate Retirement Income

Many retirees have a nest egg built up that seemingly will work for them from retirement until the funds are no longer needed. However, what many of these people do not account for is the rising cost of inflation. Cost of living tends to increase over time, and many seniors have put themselves on fixed incomes through their investments. If you are at all comfortable with the stock market, using stocks to generate retirement income is a great way to beat the inflation bug.

One suggestion is to put some of your funds into a few dividend paying stocks to generate a little more income on a regular basis. Doing this can help you better keep pace with an investment concurrent with the rising cost of living Data collected from 1/1/1975 - 12/31/2004 show that dividends collected on a $10,000 investment in the S&P 500 generated a growing stream of income, while CD rates have fallen approximately 7.5% in the same time frame. (The S&P 500 is an unmanaged group of securities considered to be representative of the stock market in general; it is not possible to invest directly in the index.)

When choosing a stock to purchase for dividend payment, you will need to strongly consider the company itself. Not only is the dividend payment dependent on the profits of the company itself, they are also dependent on the history of the dividend payment of that company. The frequency of dividend payment will vary from stock to stock, so keep in mind that you will need to budget each dividend accordingly. It is always best to do complete research before investing money in anything, including the stock of a well known company.

There are several things that should be considered about stocks and CDs before their purchase. Publicly traded stocks tend to be a more of a risk and are better suited for an investor that can afford to take a loss occasionally. On the other extreme, CDs are more in tune with the conservative investor who wants to protect his initial investment and is not looking for a large return on the investment. Keep in mind that CDs are FDIC insured, the stock market is not. Stock prices fluctuate, sometimes on a daily basis. This, of course, can result in a loss or a gain in price when the final sale is made.

The retirement income from either of these investments is taxable, however, dividends are generally taxed at 15%, while CD interest is taxed as your ordinary income tax rate. Some CDs have early withdrawal penalties while stocks can normally be bought and sold at any time.

If you are at all comfortable with the stock market, using stocks to generate retirement income is a great way to have more money for retirement than you ever though possible. Just keep in mind that your limits are best set by your knowledge of the situation. If you are unsure how to do this on your own, consider researching financial institutions to find a financial planner skilled in working towards retirement income.