The Wobbly Retirement Stool

The traditional three-legged retirement stool consists of Social Security, retirement savings, and a pension to provide guaranteed income. However, today, most retirees lack the employer pension leg, and many also have concerns about the future of Social Security and the possibility of benefit cuts.

Bolstering the Pension Leg

What can replace the pension leg of your stool? Annuities are one option. With an annuity, you pay a lump sum to an insurance company, and in exchange, they guarantee you monthly payments for a specific time or even for life. If reducing exposure to market fluctuations is a concern, this strategy is worth exploring. Before investing in any annuity, talk with your trusted professional.*

Another option is a bond ladder.** This strategy involves buying individual bonds or defined-maturity bond funds that mature at different intervals. Defined-maturity bond funds are investment funds with a specific maturity date, typically indicated in the fund's name. As with individual bonds, at maturity the funds will be liquidated, and all assets will be returned to you.

As each bond or fund matures, you can reinvest the original principal into a new bond or fund, allowing you to maintain a steady cash flow from the interest accumulated. This approach not only can provide regular income but also allows you to take advantage of rising interest rates over time.

Variety Is the Spice

A key to a successful retirement strategy is not put all your investment eggs into one basket. The same principle applies to your retirement income sources. By combining Social Security, your personal savings, annuities, and possibly a bond fund ladder, you can create a robust plan that helps ensure you'll have the income you need. Remember, it's never too early—or too late—to start planning for a comfortable and fulfilling retirement.

* Distributions from annuities are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.

**Prices of fixed-income securities may fluctuate due to interest rate changes. Investors may lose money if bonds are sold before maturity. Before investing in any fund, read the prospectus and consider its investment objectives, charges, expenses, and risks.