In retirement, it's important to have access to different income streams. Social Security can be one of them. But you should expect to need more than those monthly benefits to cover your costs.
Retirees tend to turn to bonds when they want to generate income on top of Social Security. But there's another asset it pays to hold in your portfolio -- real estate investment trusts, or REITs.
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REITs are companies that make money by operating different types of real estate portfolios. What makes them a valuable retirement investment is the fact that they're required to distribute at least 90% of their taxable income to shareholders.
For this reason, REITs often have more generous yields than traditional dividend stocks. And because real estate values have a tendency to rise over time, some REITs may provide some protection against inflation.
Of course, if you're going to hold REITs in retirement, they should be part of a broader investment strategy. REITs shouldn't be the only source of income you have on top of Social Security.
The value of REITs can fluctuate the same way stocks can gain or lose value. And REITs can also face sector-specific challenges that cause their value to drop.
Take hospitality REITs. If there's another pandemic or broad economic downturn, travel activity could halt. If people pull back on booking hotel stays, hospitality REITs could lose value.
For this reason, it's best to put together a retirement portfolio that's diverse and focused on different types of assets. That could be a mix of bonds, REITs, dividend stocks or ETFs, and even growth stocks.
But if you're looking for fairly reliable retirement income, REITs are a good asset to hang on to.
