Real estate investment trusts can generate income and provide inflation protection in retirement.
Retirees who are worried about inflation eroding the value of their income may want to check out real estate investment trusts.
REITs are companies that own and/or operate properties like shopping malls, office buildings, warehouses and apartment buildings. Although they come with more risk than some other income-producing investments — such as Treasury bonds — they also have inflation protection built into them, experts say.
- About $1.5 trillion is invested in U.S. real estate investment trusts, according to Morningstar Direct.
- REITs generate revenue through the properties they own and are required to pass on 90% of their taxable income to shareholders.
- Long-term leases generally include inflation clauses.
As the U.S. continues climbing back to pre-pandemic economic activity, inflation has been on the minds of investors. A key inflationary measure — the core personal consumption expenditures price index — rose 3.4% in May from a year earlier. Another gauge, the consumer price index, also jumped last month to 5% over the same period.
However, given where the economy was a year ago — still in the throes of pandemic-induced shutdowns — Federal Reserve officials view the jump in prices as transitory.
Nevertheless, retirees searching for steady income that would be less impacted by inflation could consider REITs. Roughly $1.5 trillion is invested in U.S. REITs, according to Morningstar Direct.
Due to their legal structure, REITs are required to pay out 90% of their taxable income to shareholders in the form of dividends. Those payments typically are made quarterly or monthly, Rimassa said.
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