Saving money to secure a comfortable retirement may be the main reason people invest. Finding the right balance between investment risk and return is critical to a successful retirement savings strategy.

Here are 10 tips to ensure you make the best decisions when it comes to retirement savings.

Building a Total Return Portfolio

At the heart of the “total return” concept is the idea that you are putting your money into investments that target an average annual rate of return over 10 to 20 years. This annual return should meet or exceed the amount you plan to systematically withdraw.

Investments should be allocated between stocks, bonds and cash. A common way to create retirement income is to construct a portfolio of stock and bond index funds or work with a financial advisor who specializes in this type of work. The portfolio should be designed to achieve a long-term rate of return of about 7 to 10 percent.

For a total return portfolio to work, you need to reallocate capital over its lifetime to match the risk-to-reward ratio. There are a number of strategies to accomplish this, the most common of which is an equity glide path strategy that adjusts the asset allocation based on the glide path criteria you choose.

Systematic withdrawals follow a predetermined withdrawal amount. Typically, you withdraw between 4% and 7% of your capital each year and increase the withdrawal amount each year to account for inflation.

Utilize Retirement Income Funds

Retirement income funds are a specialized type of mutual fund where you invest capital, and professional managers handle the rest. These managers allocate your money across a diversified portfolio of stocks and bonds. By investing a minimum amount into the fund, you can leave the management to the experts, allowing your investment to grow over time. This option is ideal if you prefer professional management and have several decades for your investment to mature

Opt for Immediate Annuities

Annuities are insurance products designed to generate retirement income rather than traditional investments. The process is straightforward: you provide a lump sum to the annuity provider, and in return, they guarantee a specific income at regular intervals. Immediate annuities typically start making payments to you within one month of your investment.

Imagine you have saved $250,000 for your retirement. Managing this amount on your own for 25 years might be challenging. Instead, you decide to invest it in an immediate annuity. The annuity provider agrees to pay you $1,500 per month for the next 25 years.

The insurance company is able to invest the money you provide and generate additional returns, which benefits both you and them. By achieving a 6% annual growth rate, they can afford to pay you $1,500 monthly, ensuring your annuity lasts the promised 25 years while also securing their profit.

Invest in Bonds for Steady Returns

A bond represents a loan you give to a government entity, corporation, or municipality. In return, the borrower agrees to pay you interest over a specified period and eventually repay the principal amount you lent. The interest income, or yield, from bonds or bond funds can provide a reliable source of retirement income if you strategically plan their maturities.

Bonds are rated by companies like Standard & Poor’s Global Ratings, Moody’s, and Fitch Ratings. These ratings indicate the issuer’s ability to pay interest and return the principal, giving you an idea of the bond’s quality.

Bonds come in short-term, mid-term, and long-term varieties, each with different interest rates. Some bonds have adjustable rates (floating rate bonds), while others have fixed rates.

High-yield bonds offer higher interest rates but come with lower quality ratings, indicating higher risk. Conversely, low-yield bonds have higher quality ratings and lower risk. Both types can play different roles in a retirement plan.

To manage retirement income, individual bonds can be arranged into a bond ladder. This strategy aligns bond maturities with your financial needs over time, often referred to as asset-liability matching or time-segmentation.

In a bond ladder strategy, you hold bonds until they mature. For instance, if you plan to retire in May 2040 and need your first payment then, you would start by purchasing a $1,000 bond maturing in May 2040. Next, you would buy a bond maturing in June, then August, and so forth.

You continue this process until you have covered every month you need income. This strategy is most effective when buying bonds that do not pay yields but have a face value higher than the purchase price.

Invest in Rental Real Estate

Rental properties, also known as investment properties, can offer a reliable source of income during retirement.

Owning investment property is a business venture, not a quick path to wealth. For those with real estate experience or who are willing to dedicate time to managing it as a business, rental real estate can be an excellent retirement investment.

However, it’s important to account for maintenance costs and unexpected expenses. Before purchasing a rental property, thoroughly calculate all potential costs over the period you plan to own it. Additionally, consider vacancy rates—no property will be rented out 100% of the time.

Don’t jump into real estate investing without thorough preparation. It can be a risky way to generate income, so ensure you are fully prepared before making any investments.

Purchase a Variable Annuity With a Lifetime Income Rider

A variable annuity differs from an immediate annuity. With a variable annuity, your money is invested in a portfolio of assets that you select. You experience the gains and losses of these investments, but you can add guarantees, known as riders, for an additional fee. Think of a rider as an umbrella—it may not always be necessary, but it provides protection in worst-case scenarios.

Riders that offer income guarantees come under various names, such as living benefit riders, guaranteed withdrawal benefits, and lifetime minimum income riders. Each type has a unique formula that determines the guarantee it provides.

Variable annuities are complex, and many people who sell them may not fully understand their intricacies. Riders come with fees, and the total cost of variable annuities often ranges from 3% to 4% annually. This means that to achieve any profit, the investments must generate returns that cover these fees and exceed them.

Maintain Some Safe Investments

It’s essential to allocate a portion of your retirement investments to safe backup plans. The main objective of these safe investments is to preserve your capital rather than generate high current income.

Every retiree should have an emergency fund. This account should not be considered part of the assets available for generating retirement income. Instead, it serves as a safety net for unexpected expenses that may arise during retirement.

Invest in Income-Producing Closed-End Funds

Closed-end funds are investment companies that issue shares through an initial public offering (IPO). After raising capital, they use the funds to purchase a portfolio of securities. These shares are then traded on the open market.

Unlike open-end funds, money does not flow in and out of closed-end funds. They are structured to generate monthly or quarterly income, which can come from sources such as interest, dividends, or, in some cases, a return of principal.

Each closed-end fund has a distinct investment objective: some focus on stocks, others on bonds, and some employ a dividend capture strategy. It is crucial to conduct thorough research before investing.

Many closed-end funds use leverage, borrowing against the securities in the fund to purchase additional income-generating assets, thereby potentially offering higher yields. However, leverage introduces additional risk, and the principal value of closed-end funds can be quite volatile.

Invest in Dividends and Dividend Income Funds

Instead of purchasing individual dividend-paying stocks, you can opt for a dividend income fund. These funds are managed by professionals who select and manage a portfolio of dividend-paying stocks on your behalf. Dividends can provide a steady source of retirement income, with the potential for growth if companies increase their dividend payouts over time.

However, during economic downturns, dividends can be reduced or even suspended.

Many publicly traded companies issue what are known as “qualified dividends,” which are taxed at a lower rate than ordinary income or interest income. Therefore, it may be more tax-efficient to hold funds or stocks that produce qualified dividends in non-retirement accounts, such as those outside of an IRA, Roth IRA, or 401(k).

Invest in Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust (REIT) functions similarly to a mutual fund but focuses on real estate. A professional management team oversees the properties, collects rent, pays expenses, and distributes the remaining income to investors.

REITs often specialize in specific property types, such as apartment buildings, office buildings, or hotels/motels. There are also non-publicly traded REITs, which are typically sold by brokers or registered representatives who earn a commission.

Incorporating REITs into a diversified portfolio can be a suitable strategy for retirement investing. Given the tax characteristics of the income generated by REITs, it is often advantageous to hold these investments within a tax-deferred retirement account, such as an IRA.