Ah, the age old question of “How much is enough?” There is no simple answer to that my friend; your dilemma is between you, your family and God.
I have met 65-year-olds with $4 million portfolios — enough for over $100,000 a year until they are 100 without a penny of extra capital gains in the equation — who insist they have to keep working and investing to support their lifestyle.
Conversely, my wife’s grandfather is in his 80s and lives almost wholly on Social Security — but that doesn’t stop him from donating hundreds of dollars a year to veterans groups and Catholic charities.
To each his own. And good luck finding the balance between those worlds, because it’s not simple.
What I can help you with, however, is the idea of living a long and productive life into your 80s or 90s without running out of money. Americans are living longer and the old investing model doesn’t work as well for folks blessed with longevity.
So how can you ensure you’ll have enough cash if you live to 100? Here are a few tips:
No “Target Date” Funds
The simplest thing someone can do if they want to retire and live to 100 is to NOT buy target date funds — those offerings with a year like 2035 or 2045 in the name. The theory is that they automatically draw down risk as you age, but that means sacrificing performance. Yes, you should care about preserving capital as you age … but you should not settle for annual returns that barely keep pace with inflation or else your nest egg will stop growing.
Seek Low-Risk Income
A better bet would be to focus on specific investments that are low risk (nothing is no risk, mind you) while continuing to grow your funds modestly. Specifically, AAA rated bond funds that deal in elite government debt or high-rated corporate bonds are worth a look.
Take the elite PIMCO Total Return (MUTF:PTTAX) bond fund that delivers an average of 6% to 7% annual returns. It’s impressive track record and the shrewd management of bond all-star Bill Gross can’t be beat.
It’s not as good as cash, to be sure, so there are no guarantees. But the great history and potential for growth in Total Return make it a very attractive option for risk-averse investors who need to see continued growth in their nest egg well beyond retirement.
Dabble in Dividend Payers
Targeted investments in stocks like utilities, consumer staples and healthcare companies can result in big long-term payoffs even if they are riskier than bonds. That’s because a good dividend stock investment will pay you a quarterly distribution for a steady stream of income as well as deliver share appreciation over time.
The best investments are companies like those found on InvestorPlace‘s list of Dependable Dividend Stocks. Consider Procter & Gamble (NYSE:PG), for one, which has seen its stock appreciate 48% in the last decade and seen dividends more than double from 20.5 cents a quarter in 2002 to 56 cents a quarter in 2012. That’s a win-win with dramatic results.
There is always the risk of a dividend cut or trouble that results in a share price decline, but mixing a little of these higher-risk and higher-growth opportunities into your retirement portfolio is wise for anyone who wants to live a long life and not see the money run out.
Talk to a Personalized Investment Professional
While I am a big advocate of the do-it-yourself portfolio, the fact is that there are a number of very principled and skilled folks out there who will help you achieve your goals. While they may charge a small fee for the service, the good advisors and counselors out there are worth their weight in gold. If you are intimidated or worried your current strategy isn’t working, seek the advice of someone who does this for a living.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.