How to extract income from a retirement portfolio

We compare different strategies for generating cash flows, from pure total return to income-centric approaches to annuities.

Christine Benz 26 March, 2018 | 5:00PM

It seems like a bygone era and it is: Cash yields were close to 5% just a decade ago, and bond yields were even more robust.

But yields plummeted over the subsequent decade, owing to the financial crisis and persistently sluggish economic growth. While yields have increased recently, pushing cash yields over 1% and 10-year Government of Canada bond rates close to 2.5%, it has still been a challenging environment for retirees. How can they extract income from their portfolios in an era of incredible shrinking yields?

For some retirees, a pure income approach is still the answer; they're allergic to touching principal. Yet other retirees can't afford to subsist on income alone; they need to tap appreciated positions in order to generate a livable cash flow. Indeed, as the equity market has enjoyed a sustained rally and yields have remained quite low, I've argued that retirees' best source of cash flows is hiding in plain sight: trimming appreciated equity positions.

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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