How about inflation? Read inflation predictions from 10 years ago. Almost everyone said it would be around 2%. Personally, I am not a psychic; I have no prediction, only a commonsense suggestion: Err on the side of caution. If you end up with a little more money than planned, that is not a bad thing. Keep an eye on your inflation estimate, consider sources other than the Bureau of Labor and Statistics (BLS), and adjust it when necessary.
What about “about 100 minus your age?” Most savvy retirees are accepting that traditionally safe, high-interest-bearing investments have left the building and are not coming back. We must be all in to survive.
But by “all in,” I do not mean all in the stock market. I would not recommend that any more than I would recommend spending your entire nest egg on an annuity or any other one investment. “Don’t put all of your eggs in one basket” is a famous proverb for a reason.
By “all in,” I mean fully committed to learning and understanding what options are still available for reaching your retirement objectives. This may include options like an annuity or reverse mortgage, in addition to other, more traditional investments.
And we must be all in for diversification. We cannot risk losing our nest egg once we have stopped working. That means looking for many opportunities that provide safety, yield, growth, and inflation protection.
There is no one vehicle to get the job done. It takes a combination, each contributing to your financial health in its own unique way. Dividend-paying stocks are one good example. If you own a stock paying a 3% dividend, it’s not beating what I believe to be the true rate of inflation. If that stock appreciates another 6% on top of the dividend, you have inflation beat and some left over to supplement your Social Security checks, without tapping into your principal.
Hitting a Moving Target
Folks on either side of the cusp of retirement have to adapt to a changed world. We are trying to hit a moving target, but it can be done. Let’s review the new benchmarks for staying on track:
- Our portfolio needs to grow at a rate sufficient to beat inflation and provide supplemental income.
- We should monitor inflation regularly. Take the BLS’s official rate with a grain of salt, and consider alternative rates. Only you know your personal inflation rate, so monitor your costs from year to year and plan for increases in sectors like health care. Make sure part of your portfolio is allocated in investments that have a history of keeping up with inflation, such as precious metals.
- Plan for a long life. 120 years is still a good rule of thumb.
- Right now, I see no reason to own CDs, TIPS, or any other fixed-income investment. Their abysmal rates will destroy your portfolio. That leaves 100% of your portfolio to achieve your goal. If targets are moving, we must be able to move with them.
On a positive note, I know a good number of folks who have accumulated a decent nest egg. One old-fashioned rule of thumb that will never change is to work hard and work smart. Folks who had the skill and foresight to build a sizeable retirement portfolio have the qualities necessary to learn how to make it last. It’s simply a matter of learning a new skill set.
I am reminded of the line from the old Mission Impossible television series: “This is your mission, should you choose to accept it.” Baby boomers and retirees, however, have no choice. We must accept it. Now it’s time to get on with the job.
To help us get started I’ve brought together leading experts to explore the problems we face and present real, actionable solutions that you can put in place starting today, regardless of whether you’re already retired or have some years to go.
These experts include John Stossel, formerly co-anchor on ABC’s 20/20 and now on Fox Business Network’s Stossel, David Walker, former Comptroller General of the United States, and Jeff White, president of American Financial Group. The discussion will be moderated by Casey Research’s own David Galland.
The online event is called America’s Broken Promise: Strategies for a Retirement Worth Living, and it premieres on Thursday, September 5th. Response has been overwhelming so if you want to reserve a spot then just click here to find out more.