Pros and Cons of Income-Generating Strategies in Retirement
Living off of current yields is just one way to extract the cash flow you need.
Note: This article is part of Morningstar's September 2016 Retirement Matters Week special report. A version of this article appeared on Jan. 29, 2016.
Retirees often obsess about generating income from their portfolios, conflating their need to replace the income they once earned from their salaries with a need to invest their whole portfolios in income-producing securities. This phenomenon probably has its roots in a more favorable yield environment: When bond yields were higher, many retirees could readily generate the cash they needed from their portfolios, even with money markets and bonds.