Financial planners often recommend replacing about 80% of your pre-retirement income to sustain the same lifestyle after you retire. This means that if you earn $100,000 per year, you'd aim for at least $80,000 of income (in today's dollars) in retirement.
Fixed income often refers to the elderly, who are living on pensions, social security, etc. Other than cost of living increases (which rarely if ever keep pace with inflation), that's all they'll ever get, while their expenses will rise with inflation.
The outlook for fixed income
As Ryan Blute explains, the starting yield on bonds is particularly appealing now as he tells us: “Fixed income is really exciting again. For investors who were managing portfolios from 2009 until 2022, they were living in a world of very low interest rates.
Bottom Line. Moving 401(k) assets into bonds could make sense if you're closer to retirement age or you're generally a more conservative investor overall. However, doing so could potentially cost you growth in your portfolio over time.
Credit risk and interest rate are the primary risks of investing in fixed income. Usually, the market bond's value decreases directly in response to an increase in interest rates. The likelihood that the bond issuer won't be capable of paying principal and interest payments is called credit risk.
Treasuries are safe investments because they are backed by the “full faith and credit” of the US federal government. The US government has never defaulted on a debt obligation. One special category of treasury securities is Treasury Inflation-Protected Securities (TIPS). TIPS interest rates are indexed to inflation.
Investing for Recovery
In fixed-income markets, increased demand for risk makes corporate debt of all grades and mortgage-backed securities relatively more attractive. As risk premium declines, so do the yield spreads for such debt over U.S. Treasuries with a similar maturity.
Fixed income investing can be a particularly good option if you're living on an actual fixed income and looking for ways to maximize your savings. And if you're worried about the potential wild ups and downs of the stock market, fixed income investing can help you sleep a bit better at night.
Famed financial guru Suze Orman once told Paula Pant on the “Afford Anything” podcast that $2 million isn't enough to retire early on. So, how much does she say you will need to live comfortably in your golden years? She advocates saving significantly more — closer to $5 or $10 million to retire early.
Approximately 40% of older Americans rely solely on their Social Security income to get by,4 which averages about $1,913 monthly. In times of economic instability—such as soaring inflation—living on a fixed income becomes especially challenging for people.
In a world in which the average monthly Social Security benefit is just over $1,792, it may seem like a pipe dream to live off $10,000 per month in retirement. But the truth is that with some preparation, dedication and resolve, many Americans can reach this impressive level of retirement income.
The $1,000 per month rule is designed to help you estimate the amount of savings required to generate a steady monthly income during retirement. According to this rule, for every $240,000 you save, you can withdraw $1,000 per month if you stick to a 5% annual withdrawal rate.
$3,000 X 12 months = $36,000 per year. $36,000 / 6% dividend yield = $600,000. On the other hand, if you're more risk-averse and prefer a portfolio yielding 2%, you'd need to invest $1.8 million to reach the $3,000 per month target: $3,000 X 12 months = $36,000 per year.
The safest investment with the highest returns tends to be investment-grade corporate bonds. These bonds aren't "risk-free" like treasuries but tend to have higher returns while offering a lower risk profile than junk bonds.
We believe fixed income is an attractive place to redeploy cash, particularly for investors seeking to lock in income as bond yields remain at elevated levels. With diverse sectors, fixed income solutions can potentially help support investors with a range of goals and risk tolerances.
1. Saving Accounts. There's a good chance you already have a savings account. Like checking accounts, they're federally insured and are generally the simplest and safest place to keep cash in good times and bad.
Treasurys, says Collins, are similar to government and corporate bonds, as they are backed by the full faith and credit of the U.S. government. They are typically seen as safe investments during a recession. "In times of market volatility, investors may flock toward Treasury bonds, seeking stability," he says.
A stable value investment is neither insured nor guaranteed by the U.S. government. There is no assurance that the investment will be able to maintain a stable net asset value, and it is possible to lose money in such an investment. All investing is subject to risk, including the possible loss of the money you invest.
If you have $300,000 and withdraw 4% per year, that number could last you roughly 25 years. That's $12,000, which is not enough to live on its own unless you have additional income like Social Security and own your own place. Luckily, that $300,000 can go up if you invest it.
While retirees should in most cases be in the stock market, it can be so volatile in times of economic uncertainty. It's always wise to secure other ways to maximize your retirement resources so you don't find yourself in an unpleasant situation.