As investors move closer to retirement, they begin to reflect deeply on the investments they have made, and the money they have earned. The focus for most at this point is to supplement their modest monthly income, while they are retired. Among the leading choices for investment income are dividends, interest payments, and business revenues.
A sum of money that is paid regularly by a company to its shareholders out of its profits or reserves is called a dividend. Typically distributed quarterly, and decided upon by the board of directors, dividends can be issued as cash payments, as shares of stock, or other property. Dividend payments may be structured as a one-time special dividend, or as a source of ongoing cash flow to owners and investors.
In many countries, the income from dividends is taxed at a more favorable rate than ordinary income. Investors seeking tax-advantaged cash flows, like retirees, may look to dividend-paying stocks in order to take advantage of potentially lower tax rate.
A payment from a deposit-taking financial institution to a depositor of an amount above the principal sum deposited is called interest. The interest is paid on money held in savings accounts, certificates of deposits, or other such investments. Interest income is usually taxable and, in most instances, the ordinary income tax rate applies to income generated from interest.
Another way for investors to earn an income from their investment money is to invest in business opportunities. One of the best examples of this approach is investing in shipping containers. Under these circumstances investors purchase shipping containers that are then leased to shipping companies, and generate a monthly income based on their utilization.
With retirement lasting longer and longer, investors must choose investments that will continue to earn additional money for them each month. This is particularly important when you stop to consider the rising cost of living, and the looming threat of inflation. These two adverse conditions can quickly eat away at the value of an investor’s returns on investment.
To address the challenges posed by economic uncertainty, investors have begun to revise their investment portfolio to include more income generating assets. Whether it be dividend, interest, or business income, the investment community is preparing for an easier retirement, supported foremost by a strong residual income stream.