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Coasting in Retirement Ep 6: 5 Ways to Generate Income in Retirement, Part 1 Thumbnail

Coasting in Retirement Ep 6: 5 Ways to Generate Income in Retirement, Part 1

Josh and cohost Michelle discuss ways to use both your investment assets and possibly your real estate holdings to generate passive income.


  • Total Return is basically a fancy way of describing a diversified portfolio of stock and bond index funds 
  • Deferred income annuities are the most "pension like' for form of annuity options. In fact, many pension benefit payouts are facilitated through an insurance company
  • REITs can be attractive to because they offer the opportunity to ear dividend-based income from real estate without having to actually own and maintain any of the properties, but there are liquidity concerns. Listen to this episode to learn more!

Segment 1 (Show Open):

Good afternoon everyone and welcome to Coasting in Retirement! I am your host, Josh Null, and I’m joined by my co-host, Michelle Lee Melton. Michelle, how are you doing? We’ve got a great show today, recording in our brand new state of the are Jubilee Studios in Daphne, Alabama! First, for those new to the show, I am the owner of Gulf Coast Financial Advisors, an independent financial planning firm based out of downtown Fairhope, Alabama that serves clients up and down the Gulf Coast. You can learn more about us on our website at Gulfcoastfa.com, and we will repeat our contact info several times throughout the show. As always, Michelle and I are here today to discuss financial topics relevant to those in or near retirement living their best life along our part of the coast. 

Today we are going to discuss something near and dear to all of us, income. When you’re still working and collecting a paycheck, generating income can be as simple as getting out of bed and going to work. But happens when you’re no longer working? You still need to generate income. What are some ways to do this? With that in mind, welcome to Part 1 of our 2 part episode series, called “5 ways for retirees to generate income in retirement”. Michelle and I going to discuss ways to use both your investment assets and possibly your real estate holdings to generate passive income. Today we are going to discuss the first 3 in our list, picking up our discussion next week for the final 2. 

Before we layout out our list of 5, let’s do a short disclaimer. In no means is this list meant to be a complete or exhaustive list of generating income in retirement. For example, some folks lend money to a younger working generation, similar to a bank only in a private transaction, for an agreed upon interest rate. Some investors use sophisticated products such as structured notes. We’ve only got 1 hour to get to all of our great information so were going to keep our list to strategies that should be familiar, and accessible, for most investors. Plus there is no “golden ticket” strategy to generating income in retirement, and all investments, no matter what anyone tells you, involve risk. Finally as you will learn in this episode, most financial advisors, including me, use some combination of these strategies to spread the risk, often in what is called the “bucket approach”.

We’ll layout our list then circle back to each individually. In no particular order, here are the 5 ways to generate income in retirement: 

  1. An investment account designed using what is called the “total return approach” 
  2. Income Annuities
  3. REITs
  4. Laddering bonds and/or CD’s
  5. Rental properties, such as Airbnb

Today we are going to talk about the first three in our list: Using a total return portfolio, income annuities and REITs. We will pick up the discussion on laddering bonds and CD’s, and rental property, in next week’s episode.

Let’s start with using an investment account to generate income in retirement. There are 2 broad ways of doing this. The first is generally referred to as interest and dividend investing. The idea is to create interest from bond investments and dividend payments from stocks that distribute corporate profits. The goal with this investment portfolio is to set up consistent payouts on a monthly or quarterly basis, without selling investments to generate the income. Hopefully. 

There are several drawbacks to interest and dividend investing. First, it takes a significant chunk of assets to generate a high payout, and it’s not uncommon that these interest and dividend payments are not enough to cover a retiree’s monthly lifestyle needs. Bond yields, or the amount of money you make off of your bond investment, have an inverse relationship with interest rates, so up until our recent higher interest rate environment, bonds had low yields for many years. Plus, dividends are never guaranteed. Companies will cut or even eliminate dividend payments during rough economic patches. Often investors will start “hunting for yield” in this scenario, which can damage the total return of your investments, which eventually can reduce the longevity of your portfolio. Retirement lasts for decades, and your investments also need to last for decades. 

What I consider the evolution of a dividend and interest strategy is called the “total return approach”. Total Return is basically a fancy way of describing a diversified portfolio of stock and bond index funds. The goal is  to balance investment gains with income production by choosing investments beyond ones focused solely on interest and dividends, which may not always provide the best growth potential. The portfolio is managed to generate income while also providing room for capital appreciation and longevity. Remember that retirement spending rules, such as the 4% Rule, are based on total return investing, not income investing. 

At Gulf Coast Financial Advisors, we use a strategy that seeks to generate above­ average current income using a blend of mutual funds, closed­end funds, and ETFs, covering a diverse group of asset classes. This portfolio may include dividend paying common equity, preferred stock, publicly traded REITs, Master Limited Partnerships “MLP”, and various types of bonds. We generally target a range of 40-50% for total equity exposure, and a total fixed income exposure, including preferred stock and cash, of about 50-60%. If you’re interested in learning more about this strategy, give us a call at 251-333-5151 to make an appointment. 

Up next in our list of 5 ways to generate income in retirement are annuities. Let’s first quickly re-cap the general types of annuities: Deferred income annuities , Immediate income annuities – often called Single Premium Immediate Annuities, or SPIAs for short, Fixed annuities, otherwise known as Multi-Year Guaranteed Annuity (MYGAs), Fixed Index Annuities and Variable Annuities.

We most certainly don’t have time to break down each type of annuity, so where going to focus on the 3 types of annuities in this episode: deferred income annuities, single premium immediate annuities, or SPIAs, and fixed index annuities. If you want to hear an indepth breakdown of annuities, including many pros and cons, check out the podcast version of Episode 3 by searching for “Coasting in Retirement” on Spotify. 

Deferred income annuities are the most “pension” like of annuity options. In fact many pension payouts are facilitated thru an insurance company. You make a contributions or multiple contributions, called premium payments, to the annuity over a certain time period, with the income start date “deferred” until either some pre-determined time in the future or when you decide to start taking income out of the annuity. You don’t have much control is this situation – when you turn your premium over to the insurance company, by contract, it is to be used in the income calculation, and typically the amount of income, once set, stays the same. It’s because of this fact that you have to be careful with inflation 

Immediate income annuities, or Single Premium Immediate Annuities (SPIAs). Similar to deferred income annuities except it typically involves paying a single premium, usually a decent amount of money, and the income can start pretty much instantly. You definitely lose control of your premium, and just as with deferred income annuities, you have to be careful of inflation. 

Fixed Index Annuities – this is the most popular annuity among insurance companies and producers right now. Describe how it works – tracks an index, with a cap rate in exchange for a 0% floor. Zero is your hero stuff. Often have long surrender periods and high fees and high commissions so they need to be looked at carefully. Most have some type of attractive income rider, and the selling feature is basically that you get to participate in some market upside without having the bottom drop out.

The bottom line is this: if you are looking to incorporate annuities into your financial plan, then it needs to be done with appropriate education and with your eyes wide open as to what you getting into. We do use annuities in our practice, but it’s done with a specific purpose every time. And we’re also more than happy to help you dissect and understand an annuity that you are considering buying. If you have questions about annuities or any other part of your wealth management plan, give us a call at 251-333-5151 to set up an no obligation, no cost appointment, or you find our contact info on our website, gulfcoastfa.com. 

Next up are REITs, or Real Estate Investment Trusts. There 2 broad types of REITs: publicly-traded and non-traded, or private. Publicly traded REITs are often traded on well-known securities exchanges. Investors may buy and sell publicly traded REITs in the same way as stocks during a trading session. Folks typically hold REITs to generate income via dividends, often as part of their retirement.

REITs can be attractive to investors because they offer the opportunity to earn this dividend-based income from real estate without having to actually own and maintain any of the properties. In other words, investors don’t have to invest the money and time in buying a property directly, which can lead to surprise expenses and endless headaches. Common REIT holdings are apartment buildings, healthcare facilities, hotels, office buildings, even self-storage buildings you see popping up all over the place. There are two broad types of REITs, publicly traded and non-traded, and while they share a lot of the same similarities, there are some different risks associated with each type. For non-traded, you have liquidity and cash flow risks. Bottom line is you don’t have a ton of control over the REIT, particularly if you are trying to sell one and move on. Additionally they tend to be fairly expensive, there are typically some hefty fees associated. Now while you can say generally that publicly traded REITs have less inherit risk than non-traded, there are still risk. The biggest risk to REITs is when interest rates rise, which reduces demand for REITs because investors typically opt for safer income plays, such as U.S. Treasuries. And just as if you owned the properties directly, there’s always inherit risk in investment real estate – think about what has happened to so many indoor shopping malls over the past 10-15 years. 

Note listeners: there have been some develops in exchanges to buy and sell non-traded REITs. You’ll hear us discuss this more later in this episode. 

Alright, so we’ve covered the first 3 of our 5 part list of ways for folks to generate income in retirement: using a total return style investment portfolio, purchasing an annuity and utilizing REITs. We will pick up on laddering strategies and rental properties next week. Have questions or concerns about your current investment strategy or not comfortable doing it yourself? Remember at Gulf Coast Financial Advisors we offer both investment management and comprehensive financial planning services. For those in or near retirement, here is our basic process: 

  • First we figure out how much you’ll need for the retirement you’ve been dreaming about
  • Next we uncover the main risks posing a threat to your retirement, including inflation, stock market volatility, potential tax increases, skyrocketing health care costs, etc
  • Then we discuss options for generating income in retirement and putting your investment portfolio to work doing specific jobs, such as battling inflation
  • Finally we discuss how to keep your current standard of living in retirement, even as costs keep rising.

The strategies we use are designed in part to help you with income production as well as inflation and longevity risks. Not only are we trying to match your risk tolerance with your investment holdings, we want to help make sure you don’t end up outliving your retirement savings. If you’re interested in having that conversation, give us a call at 251-333-5151, or find us at gulfcoastfa.com. That’s gulfcoastfa.com.

Alright folks, coming up next - There’s always a lot going on in the world! Particularly the world of finance. Every week Michelle and I scour the interwebs for helpful financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Join us after the break to hear Michelle and I discuss this week’s relevant headlines in our “Michelle with the News of the Week” segment. Stay tuned!

Segment 2 - Michelle with the News of the Week:

Josh: “Welcome back to Coasting in Retirement, your host Josh Null here! As we discussed before the break, every week Michelle and I scour the interwebs for helpful financial articles related to our topic of the day, especially articles that pertain to those in or near retirement. Coasting in Retirement’s co-host Michelle and I are going to help you all understand and decipher the deeper meaning of those headlines, or at the very least, provide context. So with out further adieu, here’s “Michelle with the news of the week”!:

1. Michelle: Alright Josh, were going to start with a new site we found called Bankrate. This article is titled “A Retirees Guild to Hosting on Airbnb”. This article states that the average Airbnb investors made $13,800 during 2021. I did some further research and it appears this number jumps around a little of different sites, and possibly even dipped in 2022 as the Covid effect eased some, but all the available data still points to the fact that Airbnb can be a viable source of rental income. I’ve hosted an Airbnb in the past and found that it worked reasonably well. What say you about this as it relates to investors interested in rental income in retirement? 


2. Michelle: Back to our old friend, Investopedia. Their site has a recent article titled “4 Sources of Income for Your Retirement”. So first, Investopedia, get with the program, odd numbers are were it’s at, plus 5 ways to generate income in retirement gives more options that 4. That said, this article discussed a concept you discussed in the opening, systematically laddering CDs. I kind of remember my grandma doing this when I was kid, but can you explain why more about this, especially why it’s back on the radar of investors? 

Josh: Discuss bank CDs vs brokerage CDs. Compare rates over the past 20 years with current rates. Discuss pros / cons


3. Michelle: Alright Josh, let’s pivot to Forbes. They have an article titled “How to Create a Paycheck for Retirement”. This article discusses Single Premium Immediate Annuities, which goes by my favorite abbreviation, SPIAs, but that’s not the part I want to concentrate on. My guess is that the part I want to discuss probably hurts the average investor’s brain a little. Forbes lays out the difference between “Interest & Dividend Investing” and “Total Return Investing”. It seems like these 2 concepts have some overlap, but what are the primary differences between the two, and why does that matter to investors in retirement? 


4. Michelle: I knew it. You would find a way to work in Kiplinger to this episode. Just so you could make your silly 80’s hair metal band lead singer Kip Winger reference. (Josh inserts joke). Alright, we’ll lets get serious again. Kiplinger, not Kip Winger, has an article titled “How to Create a Retirement Income Stream”. Now this article has a TON of information, so I’m going to be specific on which part I want to discuss. One section of the article discussed the bucket approach to investing in retirement, including having a safety bucket, an income bucket and a growth bucket. I get it about the first 2 but why do retirees want to still have a growth bucket for some of their investments? Doesn’t that expose them to more risk? 

Josh: Discuss why a retiree should still have some long term objectives in their portfolio, after they satisfy their income solve and safety (pillow test) needs.  


5. Michelle: OK, lets pivot to Fidelity’s site. Before I bring up the article, isn’t Fidelity one of the custodians you use Josh? (Josh – briefly discuss what a custodian is, why it matters, and that you use Schwab and Fidelity, agnostic but Fidelity nickels and dimes more). Michelle – sounds good, not on to the Fidelity article, very simply titled “Retirement Income Strategies”. This article has a lot of information that collaborates with some of our other headline articles, so let’s focus on the part where Fidelity discusses having an “Investment portfolio with guarantees”. What do they mean by the “guarantee” part? 

Josh: Discuss how we often couple an income annuity with an investment portfolio to generate income, why we don’t use all an investors’ assets in an annuity but how it can provide guarantees in retirement. 


6. Michelle: Alright Josh, back to the those fools at Motley. No, not your other favorite hair metal band, Motley Crue, but the Motley Fool! (Josh – insert hair metal band ranking here?). Motley Fool has an article titled “8 Best Strategies for Retirement Income”. Fools - odd numbers are better, remember? There’s 2 parts I want to discuss about this article. First, they discuss delaying social security to maximize the payout, which sounds good to me, but second, they discuss working a part time job in retirement! Ewww! Gross! I don’t like that part at all, but wanted to hear your thoughts on both. 

Josh: Use social security part from previous episode here. Then compare and contrast those that want to work part time in retirement, vs those that don’t (Michelle). Tie together the Airbnb conversation here, i.e., a part time job could be maintaining an investment property, or properties. 


Josh: Michelle, great job as always with the headlines, these are all important pieces of information that impacts those in or near retirement! And for our listeners are impacted by our discussion topics and interested in learning more about our strategies at Gulf Coast Financial Advisors, we invite you to take action and start a conversation about your financial plan. You can reach us at 251-333-5151 or find us at gulfcoastfa.com. 

Alright folks, coming up after the break, we get to have a little fun and I’ll probably get picked on a little bit by my co-host, Michelle in our next segment. We call it “Where Josh nailed it, where Josh was a little off”. Let me provide a little context. I’ve always had strong opinions, and I can prove it. My son Payton recently dug up some old English papers I wrote back in high school when I was his age, and I must say, I come off a little preciouses! Not that I was wrong, mind you, I’m actually proud of some of the things I believed in a million years ago in high school. So for this segment, we’re just going to go back a few years, and share some opinions I’ve made public, as an adult, that proved fairly accurate, and for balance, or at least be fair, a few where I didn’t quite stick the landing. I am human after all! See you after that break! 

Segment 3 - Where Josh nailed it, where Josh was a little off: 

Welcome back! So the point of Coasting in Retirement is to offer general financial guidance and education to those in or near retirement, which means I often give my professional opinion. And while I am proud of thought, care and due diligence I put into giving my professional opinion, both on this show and in my financial planning practice, I’m also human, which means I don’t always stick the landing perfectly. So each week I get to poke a little fun at myself by admitting to any thoughts or opinions I’ve put out there that weren’t 100% on point. BUT this segment has to be fair, so I also get to pointing to some of my thoughts and opinions that were pretty accurate. We call this segment “Where Josh nailed it, and where Josh was a little off”. Alright Michelle, what’s first?

1. Michelle: Josh, you’ve stated that even though you were just a youngster in the early 80’s, you still paid attention to interest rates because 1. you’ve always been a nerd and 2. Your Dad was in construction and you paid attention to the rates he was getting on construction and equipment loans. So having lived through that time period, albeit just a young boy, you’ve stated publicaly that you didn’t see how there was anyway both inflation and interest rates would rise to the levels of the late 1970’s and early 1980’s. So, did you nail it on this opinion or were you just a little off?

Josh: As bad as the inflation conversation got over the past few months, and even as high as bank CDs interest rate offerings have become, as of today, February 2023, we are still no where close to both the rate of inflation or bank interest rates from that time period. According to the old Annuity Expert himself, bank CD interest rates averaged 12% in the early 80’s, and the highest rate I could find thru a simple google search was Capital One at 5%. 

2. Michelle: Josh in one of your seminars from late last year, you discussed “Sequence of Return Risk”, and how you were concerned that those retiring in 2023 were facing a similar situation to those folks that retired in 2008. The main point I think you were trying to make is that all indications pointed to a significant stock market decline in 2023, possibly even a bear market, and while maybe not as severe as 2008, a significant market dip right out of the bat could set investor’s portfolios back years. As you’ve said many times before, you’re not a soothsayer, but do you feel you nailed it or you were a little off with this opinion? 

Josh: So if you put my feet to the fire as we are recording this episode in February of 2023, you’d have to say I was a little off! At least so far. And I’m usually the glass half full guy! Discuss market trends and describe what is sequence of return risk here. 

3. Michelle: According to you Josh, you’ve been a landlord in the past, both in residential and commercial real estate. And apparently the residential experience was rough enough that you’ve stated publicly that not everyone should be a landlord or real estate investor. Nailed it or little off? 

Josh: So Michelle, we discussed earlier in this episode how I’ve have strong opinions most of my life, even during times I may not have had the experience to spout my mouth off! Fortunately, I’ve grown and matured, much like Kip Winger and his music, and I’ve learned to have a more open mind. So in this opinion from years past, I definitely was a little off. The rental landscape is so completely different than it was, say, even 10 years ago. I attribute Airbnb and the like for much of this. Expound. Add why tech and property management companies have made it much easier to be a landlord and generate passive income, and also about how there is a housing shortage, so more demand than supply, tie in current mortgage rates, etc. 

4. Michelle: Well this is an opinion I’ve heard you express multiple times, both privately and publicly: while annuities can be a useful tool to generate income in retirement, they are not the “end-all-be-all”, and should be researched thoroughly and purchased carefully. You seem to have a particular sore spot for salespeople that try to hover up most, if not all, of the available assets an investor may have. So, in summary – annuities, not the “golden ticket” they are sometimes made out to be – nailed it or a little off? 

Josh: Unlike my previous landlord opinion, this is an opinion that I don’t see myself ever deviating from. So nailed it, but let me explain and provide context. Someone could hear this and lump me in with all the other commentors out there saying that “all annuities are bad.”. Listeners can go back to Ep 3 to hear why slapping this broad statement on all annuities is silly at best, disingenuous at worst. Discuss how you use annuities and the part of the market that irritates you so much. 

5. Michelle: Alight Josh, you’ve stated before that just like with annuities, REITs are an investment choice that should be researched before being bought. To get into the weeds a little further, you’ve directed this commentary specifically towards “Non-traded REITs”. Can you explain your opinion a little more in depth, and let us know if you nailed it or were a little off?

Josh: Use REIT section from previous episode, the pros and cons, then discuss that you feel you’ve nailed it, but that your opinion has softened a little because of the rise of non-traded REIT exchanges, such as Realto.ai.

Well listeners, once again I didn’t totally nail it, but I had valid reasons for being a little off. And I’m learning to be more open minded! Impressive maturity, one would say, right Michelle? To our listeners that heard us discuss something that impacts them, particularly those of you in or near retirement, you can reach out to us at Gulf Coast Financial Advisors to start a conversation. Take action and give us a call at 251-333-5151 or find us on our website at gulfcoastfa.com. Coming up next: we reach into our listener mailbag for our question of the week! Stay tuned! 


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