As retirees transition from active income to funding their expenses through savings and investments, having multiple reliable sources of income becomes essential. Social Security benefits provide a foundational monthly payment; however, they rarely cover all retirement costs outright. Consequently, retirees often seek supplemental investments that generate ongoing income.
One common approach has been to invest in bonds, which tend to offer steady interest payments. Yet, another compelling option to consider within a retirement portfolio is real estate investment trusts, known as REITs. These entities operate diverse real estate holdings including commercial properties, apartments, and other income-generating buildings.
What sets REITs apart is their legal obligation to distribute a minimum of 90% of their taxable income as dividends to shareholders. This requirement often results in REITs providing yields that surpass those of conventional dividend-paying stocks. Given that real estate typically appreciates over time, some REITs may also provide a hedge against inflation, preserving and potentially growing purchasing power in retirement.
Still, REITs should be viewed as components of a broader, balanced investment strategy rather than the sole income source beyond Social Security. Similar to stocks, the market value of REITs can experience volatility, leading to fluctuations in portfolio value. Sector-specific risks can also impact returns. For example, REITs specializing in hospitality properties might face steep challenges if a pandemic or economic slowdown suppresses travel demand, directly reducing occupancy and revenue.
Given these factors, retirees are often advised to diversify their portfolios across various asset classes. Combining REITs with bonds, traditional dividend stocks or exchange-traded funds, and growth equities may help balance income needs with preservation of capital and opportunities for appreciation.
In conclusion, while REITs involve risks typical of equity assets and unique sector characteristics, their consistent dividend payout obligations and potential inflation buffering make them worthwhile additions for those seeking stable retirement income streams.