Home > Articles > Business & Management > Finance & Investing

Introduction to Higher Returns from Safe Investments: Using Bonds, Stocks, and Options to Generate Lifetime Income

📄 Contents

  1. How Much Money Do You Need to Retire?
  2. Let's Get Started...
Marvin Appel explains that the income-generating strategies you will learn from this book are those that have been safer than the typical investment in the stock market and have the potential to return more than the average investment in the bond market.
This chapter is from the book
  • "Give a person a fish and you have fed him for a day. Teach him to fish and you have fed him for life."
  • Chinese proverb (Lao Tzu)

In the wake of the worst financial crisis since the Great Depression, many investors are wondering how they can get attractive returns while still being able to sleep at night. This book shows you how, using investments that generate income.

You might ask what this means. Isn't the goal of all investments to generate income? Actually, there are two ways you can profit in the financial markets. One way is to buy low and sell higher (hopefully), thereby generating capital gains. The allure of investing in search of capital gains is that when you are successful, the profits can be very large. The main disadvantage of investing for capital gains is the significant risk that you will lose money. Even if your investment is ultimately profitable, you do not know in advance how much you will make or when your profits will materialize.

The other way to profit, which is the subject of this book, is to own investments that pay you a stream of income in return for just holding them in your account, regardless of which direction the markets are moving. You can profit even during periods when the financial markets are flat. Bonds are a prime example of an income-generating investment: You buy a bond and collect the income every six months. Dividend-paying stocks are another. Stocks generally pay quarterly dividends. Even if the stock goes up and down while you hold it, you will continue to receive the quarterly dividend check as long as the company continues to pay.

Let's take a minute to discuss why income investing could be good for you. The major advantage of income-producing investment strategies is their greater potential safety than those strategies that entail buying and selling in pursuit of profit. Another advantage of making an income-generating investment, especially in bonds, is that once you invest, you have a very good idea how much cash you will receive and when you will receive the payments.

So far, so good—as an income investor, you could possibly earn dependable income at reduced risk. What's not to like? The answer in today's markets is that many income-producing investments, including bank certificates of deposit, money market funds, and many bond investments, are simply not paying you as much as you need. One of the fundamental principles in investing is that you have to bear greater risk to earn higher returns. (Unfortunately, many investors have learned the hard way that simply bearing risk does not guarantee returns.) The implication would seem to be that if you invest for safety, you could be condemning yourself to modest, perhaps even inadequate, earnings. The goal of this book is to show you that this is not necessarily true. The pursuit of greater safety than you might find in the stock market or in real estate, for example, need not limit your returns to the meager rates now available from the average bond or bank CD.

Fortunately for the investor concerned about safety, as an income investor, you might not need to give up much, relative to what you might earn from riskier approaches. This book shows you that not all bonds are created equal, and that there are several areas of the bond market with above-average profit potential. Promising areas in 2010 include high-yield corporate bond funds and long-term individual municipal bonds. Because these types of bonds pay more than average, they also expose you to potential risks. You will learn how to mitigate those risks when we discuss each type of bond in more detail. Down the road, conventional bonds might again pay attractive levels of interest income. This book tells you what you need to know to become an informed investor in such bonds, whether through mutual funds or with a brokerage account in which you buy bonds from individual borrowers.

You will also learn about two types of stock market investments that have been less risky than the overall stock market and which can be good sources of ongoing income: stocks with above-average dividends and a strategy using exchange-traded funds and stock options known as covered call writing. Moreover, in the right amounts, these stock market strategies can improve your returns (compared with holding only bonds) with very modest amounts of added risk.

The income-generating strategies you will learn from this book are those that have been safer than the typical investment in the stock market and have the potential to return more than the average investment in the bond market. Although the future performance of any investment strategy cannot be predicted or guaranteed, you will see how much risk has been associated with different income investments and you will learn how to manage that risk in the future. Even without a guarantee, you should be able to sleep at night.

How Much Money Do You Need to Retire?

Yogi Berra once said, "If you don't know where you are going, you might end up someplace else."1 In the context of retirement planning, you should interpret Berra's wisdom to mean that you should not retire until you have established and achieved a prudent set of financial goals.

As a general rule, I counsel clients to plan on spending up to 5% of their retirement savings each year if they don't want to deplete their savings over time. Although no future results can be guaranteed for any investment program, the assumption behind this advice is that it should be possible to earn an average of 5% per year on your investments without taking unacceptable levels of risk. To the extent you earn more than 5%, you should save any surplus to help keep up with inflation and to provide a cushion for those years when your earnings fail to meet your expenses. If you can limit your expenses to 5% or less of your savings each year, your savings might last you indefinitely. On the other hand, the greater the amount you withdraw from your savings to spend each year, the greater the chances that you will deplete your investments and possibly run out of money.

Let's see how this works with an example. Suppose you have saved $250,000 in your 401(k) plan; 5% of that amount is $12,500, which is the amount you should be able to safely withdraw from your 401(k) plan each year to spend. Now, I realize that very few retirees are living on $12,500/year. Fortunately, you will also receive Social Security and, if you are lucky, perhaps a pension from your job. Your retirement budget should be within the sum of all these sources of income: 5% of your retirement savings plus Social Security plus any other pensions.

Another example in reverse: Suppose you decide that after taking Social Security and other pension income into account, you still want to be able to withdraw $50,000/year from your investments. How much do you need before you retire? You would divide $50,000 by 5% (which is 0.05) to get the answer, in this case $1 million. If you want to be able to spend $50,000/year from your investments without taking on too much investment risk, you need to have saved $1 million.

According to the longevity tables that the IRS uses to calculate required minimum IRA distributions (IRS Publication 590 at www.irs.gov), a couple that retires when both spouses are 65 will, on average, need to support one or both spouses for another 26 years. A lot of crazy things can happen in 26 years: inflation, recession, economic dislocations, and more. You don't want to find yourself short of money in your seventies if events take an unexpected turn. Rather, you need to be confident that the money you had when you retired will still be there in 10 or 15 years. Achieving that confidence requires investing with both safety and returns in mind, and limiting the rate at which you spend your money to a sustainable level of 5% or less of principal each year.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020