As we live longer, healthier lives, retirement no longer means simply stopping work and relaxing for the rest of our years. The traditional concept of retirement is shifting, and more people are choosing to stay active, take time off for personal pursuits, or even continue working part-time. At Age Brilliantly, we believe that age should never stop you from living a fulfilling life, and that includes ensuring your finances work for you in retirement.

One powerful way to support your lifestyle, whether you’re still working or in retirement, is by creating an income-producing portfolio. If you’ve saved and invested wisely over the years, you can put that money to work in ways that help cover your short-term income needs without sacrificing your long-term financial security. The key is to build a portfolio that provides both the flexibility and stability needed to make your money work for you—especially when you’re not actively working.

Here’s a guide on how to approach building an income-producing portfolio, what you should consider, and how to make the most of your investments to live comfortably, no matter your age.

Start Planning Early: Three Key Questions to Ask

Ideally, you want to start planning your income-producing portfolio three to five years ahead of when you plan to draw income. As certified financial planner David Seufer suggests, ask yourself three key questions:

1. How will you occupy your time after leaving your job?

Will you continue doing paid work, travel frequently, or perhaps go back to school? Knowing how you want to spend your time will help you determine how much income you need.

2. What fixed sources of income will you have?

For most people, this includes Social Security benefits (which you can estimate based on your earnings history here). If you’ll receive a pension, count that too.

3. What will your spending look like?

Understanding your core, essential expenses and your variable lifestyle costs is critical. Certified financial planner Marguerita Cheng encourages her clients to write down both fixed and variable expenses, noting any new costs you expect to incur in retirement.

Consider how your living expenses may change, especially if you plan to move or travel.

Ways to Generate Income from Your Savings

Once you know your income needs, it’s time to explore ways to generate that income through your investments. There are several common income sources you can tap into:

● Interest from savings accounts, money market accounts, and bonds.

High-yield savings accounts, certificates of deposit (CDs), and Treasury bills can provide a steady stream of income with relatively low risk.

● Dividends from stocks.

Dividends can be a reliable income source, but it’s important not to focus solely on high-dividend-paying stocks. As financial planner David Edmisten advises, it’s wise to have a balanced portfolio with both growth stocks and dividend-paying stocks. This way, you can enjoy dividends while also benefiting from potential capital appreciation, which helps combat inflation.

● Capital gains from selling assets.

If you’ve invested in stocks or other assets that have appreciated, selling them for a profit can provide income.

● Annuities.

Some people choose to purchase annuities to guarantee a steady paycheck over a set period. This can be an effective option if you’re seeking a more predictable income stream.

Setting Up an Income-Producing Portfolio: The Bucket Strategy

The goal of an income-producing portfolio is to provide both short-term income and long-term growth. Financial planner David Edmisten recommends the bucket strategy, which divides your investments into different time horizons:

Bucket 1 (0-2 years): Keep 18 to 24 months of living expenses in cash or cash-equivalents (such as high-yield savings accounts, short-term CDs, and Treasury bills).

Bucket 2 (3-5 years): Invest in short-term corporate bonds and longer-term CDs to ensure stable income in the near future.
Bucket 3 (6-10 years): A mix of stocks and bonds that balance risk and reward as you move into the mid-term.
Bucket 4 (11+ years): Long-term growth investments, primarily in stocks, to help combat inflation and ensure continued growth over time.

By dividing your investments into these buckets, you can ensure you have the necessary income to meet your immediate needs while allowing for growth in the long term.

Replenishing Your Cash Reserves

If your cash reserves are running lower than expected, there are several ways to replenish them:

Stop reinvesting dividends and take cash payouts when possible.
Sell some capital gains and rebalance your portfolio if you’re overexposed to a particular asset class. For example, if your portfolio has grown to 25% in large-cap stocks instead of your targeted 20%, sell the excess and move it into your cash bucket.
Liquidate bonds in your short-term bucket if needed to avoid selling long-term growth assets.

Additionally, if you’re still working and maxing out contributions to a retirement plan or IRA, consider temporarily reducing them to free up cash for more immediate needs.

Tax Implications and Diversification

When creating an income-producing portfolio, it’s essential to diversify your income sources to reduce risk and have flexibility in your strategy. Having a mix of stocks, bonds, annuities, and interest-bearing instruments allows you to pull from different sources depending on what’s most advantageous at any given time. Additionally, be mindful of the tax consequences of your income, especially with dividends, capital gains, and annuities.

Takeaway: Diversification helps mitigate risk and maximize the effectiveness of your portfolio. Work with a financial planner to ensure your portfolio is optimized for both income and tax efficiency.

Getting Help with Your Portfolio

If managing your portfolio feels overwhelming, consider seeking guidance from a certified financial planner (CFP). A CFP can help create a customized plan for you, assist with tax planning, and manage your investments. As Marguerita Cheng advises, it’s okay to ask for help, whether it’s to improve cash flow management or to determine the best time to claim Social Security.

There are many tools available to help you manage your investments and ensure that your money works for you. Apps like Personal Capital allow you to track your portfolio and manage assets. Alternatively, platforms like Betterment offer automated investment management for those seeking a more hands-off approach.

The Bottom Line: Plan Ahead and Make Your Money Work

Creating an income-producing portfolio that works for you is an essential part of securing a comfortable future. By understanding your income needs, investing wisely, and utilizing strategies like the bucket method, you can generate income without sacrificing your long-term security. Whether you’re planning for retirement or just looking for ways to make your savings work harder, the right strategy can ensure that you enjoy the freedom and financial independence you deserve.

What steps are you taking to create an income-producing portfolio? How are you planning to ensure that your savings support the life you want in the years to come?

Join the conversation and share your strategies at the Age Brilliantly Forum.