Beginners Guide to TikTok for Search - Rachel Pearson - We are Tilt __ Bright...
CDI_ClosingRetireIncomeGapSub (1)
1. Closing the
Retirement
Income Gap
3 Simple Moves
Every Investor
Must Make Now
to Save their Future
By Chloe Lutts Jensen, Chief Analyst, Cabot Dividend Investor
2. According to a recent report by CBS MoneyWatch, one in three Americans will run out of
money in retirement. Even worse, that ratio jumps to nearly one in two when looking at those
currently between the ages of 56 and 62. And it includes a broad swath of the population,
including many currently earning over $90,000 a year.
A lot of retirees will blame 2008’s market collapse, but there are other factors too, including
increased longevity, rising health care costs, the rising cost of living, low interest rates,
inflation and the still-recovering housing market.
That’s a lot of moving pieces, which collectively mean you must be more vigilant than ever
when planning for retirement. You don’t just need adequate savings: you also have to ensure
your nest egg is safe and growing. Plus you’ll want a reliable income stream to live on. And,
to keep up with inflation and the rising cost of living (not to mention rising health care costs),
you’ll also want your income stream to grow over time.
That’s a lot of goals to purse simultaneously. But that’s what Cabot Dividend Investor was
designed to help you do. And you can get started today: in this report are the first three steps
you need to take to secure your own safe, steady and growing retirement income stream.
Move #1: Take Charge
If you want to maintain your standard of living in retirement, you can’t sit back and expect
your money to take care of itself. Inflation will slowly eat away at that nest egg, and it will
be gone well before you are. And you can’t expect your portfolio to survive a market crash
without you. Putting your money somewhere “safe” isn’t enough. Every year, there’s some
new bubble or crash that puts formerly “safe” investments on the risky list. No, you need to
actively protect your money, and help it grow.
You might think someone else can do this job: your pension manager, the government, your
financial advisor or your 401(k) manager. But pensions can be cancelled in bankruptcy, and
Social Security will start running out of money in 2035. Account managers and financial
advisors make mistakes, and don’t always have your best interests at heart. Remember the
4% rule?
The bottom line is: No one cares about your money as much as you do.
The key to a successful retirement is to create it yourself. Analyze your needs and compare
them to your resources. Once you have the facts, make a plan. And then be an active advocate
for yourself, and your retirement. Is your money working as hard as it can for you? Is it safe
enough? You should know the answers to these questions.
I’m not going to promise it’s going to be easy, or stress-free. It will take some work. You will
need to make tough decisions occasionally. But I can help you. And as long as you’ve got a
decent head on your shoulders, you’re the best person for the job.
-2-
3. -3-
Move #2: Fix Your Bond Strategy
Once you’ve decided to take on this responsibility, where do you start? Well, if you’re like most
investors who have been following the conventional wisdom for retirement saving over the past
few decades, you probably have some of your portfolio in bonds. Your first step is to fix that.
Thanks to the Fed’s low interest rate policy, the bond market is a nightmarish place for investors
today. Current yields are abysmal, yes, but you should really be worried about the future: once
yields start rising, prices are going to fall, and any bonds you’re holding are most likely going
to lose value. Bond funds will face the same challenges with their holdings.
So your first task is to closely analyze the bond portion of your portfolio, and ask yourself
what’s going to happen to these investments once interest rates start rising. Look closely at any
bond funds you hold, and make a serious analysis of what the managers plan to do when prices
fall. Do they have a plan, and does it sound feasible, or like wishful thinking? If you don’t sell
now, make a plan that states when you will sell.
Also look at any bonds you hold individually, and decide if you’re willing to hold them to
maturity. Consider selling any that you wouldn’t.
Any remaining portion of your bond portfolio should be invested in short-maturity individual
bonds. Individual bonds have a principal guarantee, so regardless of what happens to the bond’s
price, you receive the full value of your investment at maturity (as long as you didn’t overpay).
I recommend focusing on bonds with near-term maturities because interest rates are likely to
rise in the near term, even if only slightly. If that happens, you can exchange your bonds for
ones with better yields when they mature in a few years.
You can also use bond laddering to keep your income steady. For example, buy one-, two-,
three-, four- and five-year bonds, then, when your one-year bond matures a year from now,
replace it with a new five-year bond. Each year, you’ll replace the maturing bond with a new
five-year bond—thus keeping your ladder intact.
The rates won’t be great, but your ladder will keep the income flowing without tying your money
up in low-interest-rate instruments for too long.
You can use this strategy with treasuries, munis or investment-grade corporate bonds. There
are also some defined-maturity bond funds available now that can be used in a bond ladder.
