Income Funds

During the course of previous discussions, we have identified three general stages in an individual’s investment life-cycle: building a fiscal foundation (conducted during your 20s and 30s), accumulating wealth (occurring between the early 40s and mid-50s), and pre-retirement, the five-year period prior to your desired retirement age. During the pre-retirement stage, debt is eliminated and a plan – considering the withdrawal rate (e.g. the 4% rule) and the order of withdrawal from the various retirement accounts – to draw down the retirement nest-egg is developed.

Retirement IncomeWith a sufficient nest-egg in place, debt eliminated, and an understanding that the nest-egg has to be drawn down in a manner to ensure that it will last 30+ years if necessary, the question then becomes, “how can I turn my retirement savings into a reliable retirement income and what type of investments should be held during the retirement period?”

One potential option are income funds. These types of funds are geared toward individuals already in or entering retirement. As the name suggests, an income fund is a type of mutual fund that emphasizes current income, either on a monthly or quarterly basis.

Develop Your Withdrawal Plan [RetirementSavvy]

Unlike growth funds, which focus more on capital appreciation – normally accompanied by above-average risk and volatility – income funds tend to utilize a more conservative asset allocation strategy. These funds attempt to meet the objective of providing steady income throughout retirement by holding some combination of government, municipal, and corporate debt obligations, preferred stock, money market instruments, and dividend-paying stocks.



As with any mutual fund, a thorough reading of the prospectus should take place before deciding on a particular fund(s). Key factors to consider include ensuring that there is no load associated with the fund and the expense ratio is less than 1%.

In a later SavvyDiscussion, we will look at annuities as options for reliable retirement income.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

4 Comments

  1. I love this piece very much. Right now am on the verge of accumulating enough wealth but I still haven’t forgotten to keep saving for my retirement. Saving for retirement is a noble thing and one should ensure that they have a fund to survive during retirement. Now I am better placed to know how to use income funds to build a nest egg for my retirement.

    • Thanks for stopping by, Chella. Great to hear that you are on verge of accumulating enough wealth to sustain you in retirement. So often we focus on the accumulation and fail to develop a plan for withdrawing (decumulating) our nest eggs. Income funds can certainly play a role in the phase of retirement planning. Thanks again for adding to the conversation.

  2. Watching my parents struggle financially after 25 years of retirement reinforces the need for in-depth planning for a comfortable retirement. With no solid plan in place and a ‘I made it I can spend it if I want to’ attitude my parents face a very uncertain financial future.

    • Great points, Brad. One of the many reasons I love the tagline of this blog, living better through planning, is because dreams and aspirations mean nothing without a well-defined plan [and sustained execution]. The best lessons are usually those learned through one’s own trials and errors or the trials and errors of close friends and family. Thanks for stopping by and adding your thoughts, my friend.

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