When you retire, you have more free time on your hands, but your income from working also stops. There are some guaranteed income streams that you can count on, like Social Security or a pension if you're lucky. Aside from these sources, though, you're responsible for creating your own income in retirement. 

Much of your income will come from money that you take out of your retirement portfolio. You can make those withdrawals go further and give your income stream a boost with these three strategies. 

Older couple sitting on a bench with a view of the ocean.

Image Source: Getty Images

1. Dividends

Your dividends will come from the stocks that you invest in and will typically pay out quarterly. Dividends offer you the benefit of an income stream without locking your money up for long periods but your income will fluctuate if the company changes its dividend.

When you're finding dividend-paying stocks for your portfolio, aim for stable companies that have a good handle on debt, a high level of profit, and that have consistently paid out dividends each year. If you can find companies that have a history of increasing their dividend it will be even better because this growth will help you keep up with inflation. You can track this by paying close attention to dividend yield and whether or not it has increased over time.

Building a stock portfolio is tricky, and you'll need enough stocks if you want diversification. The more stocks you add to your portfolio, the more money you'll need. You'll also need more time to research the stocks you add and monitor your portfolio so you can make changes as they are needed. If you don't have the time or desire for this work, you can invest in mutual funds that pay dividends and get the benefit of diversification automatically instead.

2. Bonds or CDs

Certificates of deposit (CDs) are cash equivalents and are considered one of the safest types of investments because they are usually insured up to applicable limits. When you buy a CD, you're receiving whatever the going interest rate is. When interest rates are low, your CD rate will also be low and will only increase as rates rise. Your rates will also go up the longer you hold it, but your money will be locked up longer.

All bonds issued by corporations are taxable but there are some that are some government issues that are also taxable. Corporate bonds will take into account the credit quality of the company that issues them in addition to yields reflecting the time that you own them and will usually pay more than CDs because they are riskier. You can also invest in tax-exempt bonds issued by municipalities. These types of bonds will probably offer a lower yield than taxable alternatives, but when you account for your tax savings, it ends up being similar. It could even be higher if you're in a high enough tax bracket.   

Just like building a stock portfolio, picking individual bonds is time-consuming. As an alternative, you can invest in bond funds which will offer you diversification against the event that a company you own goes out of business or a municipality whose bonds you own defaults.

3. Annuities 

You can purchase either a fixed annuity or a variable annuity. A fixed annuity is simple and will give you a set rate of return over a certain period of time that will not change. Because of their stability, the rates they offer aren't high. A variable annuity participates in the stock market with funds and it will provide a guaranteed rate as well but your withdrawals fluctuate with market performance. 

You typically buy a variable annuity before you retire and don't plan on taking income from it until you need it in retirement. With time on your side, stock market performance, and tax-deferral it can grow while you're still in your accumulation phase.

If you purchase this type of annuity for $100,000 and it grows to $200,000 by the time you retire, your withdrawal rate is now based on your new account value. Variable annuities also offer you protection in bear markets. If over that same time period your $100,000 shrinks to $50,000, the insurance company that you buy your annuity from will usually offer some type of minimum rate that you can depend on. But you could lose your principal.

Annuities are a viable source of income in retirement because they offer guarantees but they usually cost more and have limits on accessing your money if you need it. Annuities are not a suitable investment for everyone but if used correctly, they can be an important part of your retirement-income strategy. As long as you're educated about the type of risk you're taking and feel comfortable with it, you can consider adding annuities to your portfolio for the reliable income they provide. 

Be smart about your retirement income

Your work income will stop in retirement but unfortunately, inflation will still exist, and the products that you buy will get more expensive. While working, you could depend on regular increases in your pay that help you keep pace, but your income streams in retirement can only go so far. Using your assets and creating other sources can help alleviate this problem and help you gain financial freedom in retirement rather than worrying about living on a fixed income.