Many seniors end up looking to Social Security as their primary source of retirement income. But it's important to have income outside of those benefits. And that extra income might come from a variety of sources.
You may have cash savings, bonds, and an IRA loaded with stocks that generate income. You might also choose to work part-time and bring home a modest paycheck. But there's one specific investment you may want to consider if you like the idea of ongoing income in retirement.
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Look to real estate -- without having to own property
Real estate can be a lucrative investment. But owning rental properties can be risky. And there can be a lot of work involved.
A better bet for you may be to put some money into real estate investment trusts, or REITs. REITs are companies that maintain different portfolios of properties. Industrial REITs, for example, maintain warehousing space. Healthcare REITs have portfolios that are comprised of hospitals, clinics, and urgent care centers.
The nice thing about REITs is that they're required to pay out at least 90% of their taxable income as dividends. As such, REITs commonly pay a higher dividend than stocks that opt to distribute dividends to shareholders.
Choose your REITs carefully
Many seniors worry about not having enough money in retirement. The steady income REITs have the potential to generate could not only help you cover your expenses but give you peace of mind.
That said, it's never a good idea to choose an investment based on its dividend alone. So in the course of selecting REITs for your portfolio, don't just look at the dividends they're paying. Rather, look at things like cash flow and funds from operations.
It's also a good idea to maintain a diverse mix of REITs if you're going to invest in them for your retirement. That's because you never know when a given sector might get battered by market or economic conditions.
Just look at what happened in 2020. Retail REITs, for example, took a beating in the wake of widespread store closures. And hospitality REITs also had a tough run when travel effectively came to a halt at the height of the pandemic.
In fact, if you're investing in REITs for the purpose of maintaining financial security during retirement, you may want to err on the side of putting money into those that are fairly recession-proof. Healthcare REITS are a pretty decent bet in that regard because medical care is a perpetual need. Residential REITs could also be a fairly safe bet because people will always need a place to live.
To be clear, there's technically no such thing as a completely recession-proof asset. And any investment you make carries a degree of risk, REITs included.
But REITs also offer a lot of upside for retirees. So if you like the idea of being able to sit back and collect income from real estate investments without owning actual properties, then you may want to give REITs a place in your portfolio.
