Preparing for Retirement: Building Income Streams Aside from Social Security

Social Security faces a challenging future. The latest trustee report indicates that its trust funds may run out by 2037, impacting those years away from retirement. If this occurs, benefits could decrease to only 76% of planned payouts.

This revelation compels workers in their 50s and younger to factor in that Social Security might not be their primary financial support. Today’s steps toward securing additional income for retirement are not just wise; they are crucial for achieving financial independence.

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Fortunately, a well-structured investment portfolio can help fill this forecasted income gap. Let’s explore three options that might provide stable passive income, supporting Social Security benefits if they are reduced.

Rithm Capital Delivers Solid Mortgage Income

Rithm Capital (NYSE: RITM) shines as a real estate investment trust (REIT) noted for its strong yield and solid performance. The firm has seen an impressive 87% increase in stock price since May 2020, resulting in a total return of 187% when reinvested dividends in tax-advantaged accounts are included. Current yields sit at a gratifying 9.38%, preferably supported by the company’s operational success.

Rithm’s financial health is evident through its robust performance in the third quarter of 2024, producing $270.3 million in earnings available for distribution, or $0.54 per share, which is more than double the $0.25 it pays as a quarterly dividend. The REIT’s diverse business model, incorporating mortgage servicing, asset management, and real estate lending, enables it to earn consistent income across various market conditions, making it a sensible choice for those looking for reliable quarterly earnings during retirement.

Chevron: Reliable Energy Dividends

Chevron Corporation (NYSE: CVX) is another strong candidate for retirement portfolios due to its commitment to growth and income stability. The company has rewarded investors with a 36.9% rise in share price over the last decade and a total return of 109% when reinvested dividends are accounted for. At present, Chevron offers a yield of 4.02%, supported by its sustained operational proficiency.

Chevron maintains a manageable payout ratio of 70.3%, distributing approximately $0.70 in dividends for every dollar earned. Priced at 13.4 times forward earnings, it offers attractive value compared to the S&P 500, which stands at 23 times earnings. Its diverse business operations ranging from oil production to retail gas stations create a natural safeguard against price fluctuations in the energy market, thereby helping to maintain dividend reliability.

Global Diversification with Vanguard’s Dividend ETF

The Vanguard International High Dividend Yield ETF (NASDAQ: VYMI) rounds out a comprehensive retirement income strategy with international dividend opportunities. Launched in 2016, this fund offers exposure to established dividend-paying companies from both developed and emerging markets, all at a lower cost than many actively managed funds. With an expense ratio of just 0.22%, significantly below the category average of 0.96%, this ETF allows for greater dividend income retention for investors.

This ETF holds a diverse portfolio made up of nearly 1,500 stocks from various regions. Around 44.3% of assets are in European dividend companies, with 25.7% stemming from the Pacific region, and 21.5% from emerging markets. This geographical blend helps hedge against risks stemming from any one country’s economic fluctuations.

Constructing a Strong Retirement Portfolio

The three investments discussed here provide multiple income streams through different approaches. Rithm Capital’s high yields, Chevron’s growing energy dividends, and Vanguard’s global diversification come together to create a robust income strategy for retirement.

Though Social Security’s future remains cloudy, a balanced portfolio can help safeguard against potential income shortfalls. By blending the strengths of Rithm, Chevron, and Vanguard, retirees can establish a sustainable income source for the years to come.

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George Budwell holds positions in Chevron, Rithm Capital, and Vanguard International High Dividend Yield ETF. The Motley Fool recommends Chevron.

The views and opinions expressed herein are solely those of the author and do not necessarily represent those of Nasdaq, Inc.