Real investment advice: what is an income investment plan?

Retirement planning is a complicated process that involves a lot of different moving parts. You need to keep track of how much you’ll need to have saved up to fund your desired lifestyle and necessary expenses, tax rate trends, and more to ensure that your strategy is one that’ll pay off for you in the long run. One especially important element of your plan is the actual investments driving the value of your retirement accounts.

Many different types of assets may form the basis of a retirement account, and the kinds that may be best for you to target depend on how close to retirement age you actually are. If you’re close to retirement, safe bets are likely best: assets with a steady, stable rate of return each year. A younger investor, though, may find it more worthwhile to target riskier investments and potentially reach their goals more quickly.

Income investment plans, or monthly income plans (MIPs), establish an income stream through dividend and interest payments and are typically favored by retirees as a path toward stable financial gains. While they aren’t necessarily a high-risk type of investment, they do carry a certain level of risk, and you need to be aware of how this type of investment may help or hinder your progress toward your financial retirement goals.

How does a monthly income plan work?

Monthly income plans are considered mutual fund schemes. Your singular investment into a given plan may cover an array of different assets. Generally, these plans target debt securities and equities, and the allocation of these assets among the holdings associated with the plan will vary. Investment into debt securities is often the stronger focus than into equities, as the latter is more prone to fluctuations in value based on changes in the market.

Benefits and risks of a monthly income plan

Whether a monthly income plan is the right choice for your retirement strategy depends on the type of investor you are, your account withdrawal rate once you’ve retired, and the strength of the market.

In a strong, healthy market in which many assets and equities are performing well, monthly income plans can be an excellent choice for a retirement portfolio depending on their asset allocation. Under these circumstances (and assuming the underlying investments are strong), a monthly income plan can produce a steady stream of income to bolster the funds you’re using to cover expenses and enjoy your retirement.

On the other hand, a market that’s doing poorly makes monthly income plans a much riskier choice for a few reasons. As with other types of investments, a substantial decrease in the value of the underlying investments of the plan will lead to a reduction in your overall rate of returns for that period of time. But because MIPs produce income through dividends and interest payments, a retiree depending on this investment may not even receive that money, as an MIP may stop distributing payments altogether if profits are low.

Is this income investment plan right for you?

If your retirement strategy involves careful, steady withdrawals and isn’t entirely dependent on MIPs and similarly unreliable investments as an income source, it may very well serve as an incredibly helpful contributor to the value of your overall portfolio. Deciding whether it’s a good fit for you means carefully examining your planned post-retirement expenses and the investments included within any given MIP you’re considering.

Real investment advice from wealth management professionals like the ones at Miser Wealth Partners can also play a crucial role in helping you find the right investment opportunities for your strategy. To learn more, schedule an appointment with us or contact us with any questions.