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5 Ways to Invest for Income in Retirement

By U.S. News & World Report

When you’re young you invest for growth. The risks are higher, but over time the returns are better. If the stock market suffers stormy weather, there’s plenty of time to right the ship. This lesson should be fresh in our minds from the great recession. The market went down, and so-called growth stocks went down the most. But now, almost a decade later, the markets have made up those losses and then some. Investors are better off than ever before.

But what if you retired in 2007 and had to start cashing in your investments and use the money to live on? With no time to wait for a recovery, you likely lost a lot of money and perhaps had to reduce your lifestyle in retirement.

With that in mind, here are five suggestions for achieving steadier returns, more secure income and more peace of mind throughout retirement.

[Read: How to Pay Less Taxes on Retirement Account Withdrawals.]

1. Make modest withdrawals. One investment rule of thumb says you can withdraw 4 percent of your assets every year and not run out of money over a retirement lasting 25 or 30 years. However, in today’s low interest rate environment, when bonds often yield less than 4 percent and bank deposits even less, some analysts have questioned the 4 percent rule. These days many experts recommend withdrawals more in the 3 percent range to ensure that your money will last as long as you do.

2. Use a dynamic withdrawal strategy. This method allows you to take out 4 percent of your assets or even more as long as you are willing to be flexible and withdraw less during a bear market when your portfolio loses value. With this plan, retirees typically start out withdrawing 5 percent of their assets. If the portfolio increases over the course of the year, then they can continue to withdraw 5 percent the next year, perhaps even giving themselves a little extra bonus. But if the portfolio loses value, then the withdrawal rate needs to be closer to 3 percent for the year. Obviously, this strategy is more complicated, and you may need an adviser to help you do the math.

[Read: Tax Breaks for People Over 50.]

3. Invest to reduce volatility. No matter what your withdrawal rate, you don’t want your retirement portfolio to fluctuate too wildly during the year or from year to year. You can’t afford the time to wait out a lengthy bear market. This means focusing your equity investments in larger, safer and slower growing stocks, mutual funds or ETFs, rather than the next big thing in high tech stocks. It also means investing less in stocks and more in bonds, perhaps 60 percent stocks, 30 percent bonds and 10 percent cash at the start of retirement. But be careful. Make sure the bond portion of your portfolio is concentrated in safe, highly rated bonds, not risky, high yield bonds that often fluctuate right along with the stock market.

4. Increase your yield. Larger, safer stocks known as value stocks typically generate higher dividend payments, which allow retirees to live off the interest rather than dip into their principal. But again, be careful. Dividend stocks tend to be more cyclical and often rise and fall as a group. So even with a safe retirement portfolio, you want to be diversified, at least to some extent. A portfolio should be crafted for total return including bonds and dividend stocks, but with a limited amount in growth stocks to protect against inflation and the possibility of higher interest rates.

[Read: How to Retire Without $1 Million in a 401(k).]

5. Rebalance your portfolio. The world of investing is unpredictable and volatile. You never know where the next twist in the market will take you, which assets will be bid up in price and which will fall into disfavor. The way to hedge against the vagaries of the market is to rebalance your portfolio on a consistent, periodic timetable. Some people rebalance every quarter, but for most people once a year is enough. Keeping your portfolio targeted on your original compass heading requires you to sell off some winners to produce the cash you need for withdrawals as well as lower your exposure to a hot and risky market. The key is to rebalance in a systematic way, not based on the latest headlines or your own gut feeling. Having plenty of ballast and keeping an even keel is the tried-and-true way to find clear skies and smooth sailing for your retirement portfolio.

Tom Sightings is the author of “You Only Retire Once” and blogs at Sightings at 60.

More from U.S. News

How to Save $1 Million by Retirement

How to Reduce Your Tax Bill by Saving for Retirement

10 Ways to Make Extra Money in Retirement

5 Ways to Invest for Income in Retirement originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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