Generating Retirement Cash Flow From Your Investments

Once you stop working your objective shifts from growing your investment portfolio to generating income from it. Many retirees obsess over generating enough retirement cash flow from their investments. They prefer a predictable stream of income to partially replace their previous salary income.

Here are some strategies for getting cash flow from your retirement portfolio:

Generating Retirement Cash Flow

Generating Retirement Cash Flow From Your Investments

1.) Income only

This option is popular with retirees who want to maintain the value of their assets. Using this strategy, the retiree subsists on whatever income their bond and stock holdings generate.

Pros: As it doesn’t involve tapping into principal, this approach provides some insurance that a retiree won’t outlive assets. Investors tend to be more relaxed with short-term market volatility while receiving regular payouts.

Cons: Days are long gone where you could buy GICs and bonds yielding a safe 10 or 12%. Retirees in the 1990’s were dismayed to see the interest on renewals drop from double digit to mid-single digit rates, and now you may not get much more than 2%.

More investors are leaning towards dividend paying stocks. A basket of dividend paying stocks might generate 3% or 4% without taking on too much risk. Given these current low returns, the securities in a portfolio may have trouble generating a livable yield. Depending on your income requirements, you’ll likely need quite a large amount of invested capital to generate the income you desire.

Related: Why Living Off The Dividends No Longer Appeals To Me

Be careful when hunting for yield. Dividends are not guaranteed. Changes to a company’s dividend policy could occasionally result in payouts being reduced or eliminated altogether.

In reality, most investors will need to dip into their principal anyway to meet unexpected large expenses.

2.) Total return strategy

The retiree reinvests all income, dividends and capital gains back into their holdings at their target allocation after taking the amount they need for annual living expenses.

Pros: By rebalancing, it forces the investor to sell appreciated assets on a regular basis while leaving underperforming assets in place, or adding to them.

Cons: If there is a prolonged market downturn, withdrawals can drastically erode capital and reduce future return potential. That argues for holding a comfortable cushion of at least 3 –5 years worth of living expenses in liquid form – cash or cash alternatives.

I think this approach works best for investors holding a small number of broadly diversified ETFs, or mutual funds rather than individual stocks and bonds. Holders of individual stocks tend to be too attached to them – “I can’t sell now, look at the money I’m making!” / “I can’t sell now, I need to wait a bit to recoup my losses.”

3.) Annuities

Pros: The purchaser receives a stream of lifetime income in exchange for a chunk of their cash. This is appealing to those individuals without pensions. The best payoff from an annuity comes from living much longer than average. So, there is a certain peace of mind when you know you will not run out of money.

Cons: There is a loss of control. No flexibility. The funds are no longer available if a lump sum is required for large expenses. Payout usually ends at your death, so leaving money to your heirs is off the table.

Related: Five Ways To Enhance Your Retirement And Stave Off Crisis

Many annuity types (such a variable annuities) carry high costs which can erode some of the benefits. Each additional feature – survivorship, term guarantee, inflation protection, etc. – will reduce the payment amount.

Final thoughts

Most retirees will use a combination of two or three of these withdrawal strategies to generate retirement cash flow.

It’s important to build an appropriate level of flexibility into your plan so you can manage income needs and expenses, and also be able to choose to time the withdrawal of your capital when market conditions are the most favourable.

Print Friendly, PDF & Email


  1. Joe M on March 28, 2018 at 5:21 am

    Hi Marie, could you please elaborate a bit on 2nd strategy – total return? I am entering retirement soon and specifically wondering how to proceed… Thank you

  2. sara on March 28, 2018 at 6:00 am

    Real Estate Investment generates monthly income and capital appreciation. Besides food it is a necessity shelter for some. Every month mortgage amount gets reduced New House prices keep going up due to labour cost, material cost and inflation. Land never gets out of fashion. Land cannot be created (Except HongKong Airport or Dubai Pal). Owning in Canada is safe and the only thing to worry about is CRA.

    • Bill on March 28, 2018 at 6:54 am

      That is until a few bad tenants cause major damage or skip out on rent (all while working “the system” avoiding eviction), a major uncovered repair item comes up, a new surprise government tax appears (ie recent B.C. speculation tax), and/or rsing interest rates makie cash flow a fantasy. Better have deep pockets, trusted repair people and a whole lot of patience.

    • Judy Obee on March 28, 2018 at 9:47 am

      I agree completely with Bill. When I was younger and had rental properties, I could absorb the cost of a bad tenant. But the only time I made any money was when I finally sold the properties – the hassle just wasn’t worth it. Now that I am living off my savings, the last thing I need is a surprise expense. I would never recommend rental properties to someone who is retired.

    • Glenn on March 28, 2018 at 10:01 am

      Wait till real estate starts going down in value – as it has done in the past and will again in the future – it’s not a sure thing like you portray it to be.

  3. Peter on March 29, 2018 at 7:54 pm

    Managing decumulation can be more difficult than accumulation. Most financial websites, books and financial advisors seem to focus on saving and investing. We need more articles and advice on the post retirement stage of life. Marie’s post is a welcome addition to the slim pickings.

    • boomer on March 30, 2018 at 9:13 am

      Thanks, Peter for your kind words. I know that for retiring boomers this is a topic at the top of their minds.

Leave a Comment

Join More Than 10,000 Subscribers!

Sign up now and get our free e-Book- Financial Management by the Decade - plus new financial tips and money stories delivered to your inbox every week.