Ten Factorial Rocks - Adding stocks to your retirement strategy can help boost wealth and income.
How can you incorporate stocks into your retirement strategy? Planning for retirement can be daunting, but whether you do it yourself or seek guidance from a professional, you can benefit by incorporating stocks into your plan. Here are a few ways to incorporate stocks into your retirement.
Capital Appreciation
If you pick the right stocks, they can increase in value. This will increase your wealth and can give you more cash for spending or investing if you sell your position. Boosting your net worth in retirement can be a favorable condition especially if you no longer have a paycheck to rely on.
Remember that anything that you gain will be a paper gain until you decide to sell. Also be aware that selling may incur a Taxable event. Any profit that you make from a stock position will normally be subject to taxation, so something to keep in mind and plan for.
Income
Having a steady reliable source of income in retirement is a must. Many can’t survive on Social Security alone, and the era of pensions is over. In fact, only 12% of workers had a pension plan as recently as 2016.
Here is where stocks can help to supplement your income. Specifically, stocks that yield a dividend. You may already own stocks or funds that pay regular dividends. If you own them within a retirement plan, then they are most likely being reinvested. This is an excellent strategy to acquire more shares of a position, but in retirement you can elect to take the dividends as cash payments.
There are nearly an endless number of stocks and funds that you can buy that pay dividends, so do your research. Many have built portfolios that yield thousands of dollars per month. Having this type of supplemental income could boost your freedom and spending capabilities in retirement.
There are many websites, social media groups, and YouTube channels dedicated to dividend investing. You should consider joining one or more if you want to start to learn about this strategy.
Tax Sheltering
Having income from capital appreciation and dividends is great, but how can you avoid the large tax bills associated with them? One way is to perform transactions within a Roth IRA. Since money in a Roth account is added post tax, anything you do within the account won’t be taxed. This essentially means you can sell stocks within a Roth without having to pay any capital gains taxes. It also means that any dividends that you receive also won’t be subject to taxation.
If you manage to accumulate a significant sum in a Roth IRA and switch it to income yielding investments, then you can see how this would be a nearly invaluable part of a retirement strategy. Having a tax free thousand dollars a month or more at your disposal in retirement could be a game changer.
Balance
While you could be tempted to go all in with stocks and dividend yielding investments, please use caution. Stocks can appreciate, and they can provide income, but they also open you up to risk. Markets can crash, and dividends can be cut.
You will need to not only choose investments that aren’t too risky, but you will also want to balance your accounts between stocks, bonds, cash, and possibly other investments such as real estate. Going all in on any one investment can open you up to various forms of risk.
Wrapping Up
How can you incorporate stocks into your retirement strategy? Supplementing your retirement plan with stocks can provide you with a source of capital appreciation and income. This appreciation and cash flow can hedge against inflation and provide supplemental income to Social Security and other income sources that you may have. Just be wary of possible tax consequences and be sure to manage risk.
This article was originally published on Ten Factorial Rocks
