You don't have to save all the money in your mutual fund. You can take part of it out as monthly income. Once you set up your mutual fund for this option, you can receive a check in the mail or a direct deposit each month. You must select your fund carefully so that your income won't deplete your investment.
Invest in a bond fund or an equity income mutual fund. An equity income fund specializes in stocks that pay dividends, though they may also invest in bonds from time to time. Bond funds and equity income mutual funds both are designed to produce income. You can find income fund ratings on websites such as TheStreet.com.
Ask for the systematic withdrawal plan. Most mutual funds offer this option. You select an amount you want sent to you each month from the mutual fund. This amount can come out of interest or dividend earnings. If you do not have enough interest or dividends, the fund will redeem shares for you to raise the money to send to you.
Monitor your investment growth. Most income mutual funds experience lower growth rates than funds that hold stocks that do not pay dividends. Your income fund investment will not grow as fast as other types of investments if you systematically take out income instead of reinvesting it in additional shares. If your fund is not giving you some growth, you may have to reduce the amount you take out in income each month.
- Roger Wollner, writing for U.S. News Money (money.usnews.com) points out that many advisers recommend withdrawing no more than 4 percent of your investment each year as income. This will give your holdings a chance to grow or produce enough income to replace the 4 percent you take out.
- If you consistently withdraw more money than your mutual fund produces in income, you can reduce your investment value to zero over time.
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