Investing for Retirement & US Economic Review
In the good old days, investing for retirement was so much easier. Government and Corporate Bonds were paying 7% to 8%. A 3 to 5 year CD paid close to 5%. Maybe, you purchased a few dividend stocks. Then all you had to do is sit back and collect the checks with the knowledge that your nestegg was secure.
Not only have the rules of investing for retirement changed but we are not even playing in the same ballpark. Interest rates are at rock bottom with no movement in site. Dividend yields are good but there is risk on the horizon.
This doesn’t even take into account tax costs, required minimum distributions, healthcare costs and much much more that needs to be considered. Its not just how much you make but how much you keep.
So let’s set the destination. This means having a good understanding of how much you need in retirement to live on, what kind of tax costs are you expecting down the road? how is your health? are you going to move? and many more questions.
That brings us to your nestegg. Do you have enough? Do you have enough to generate income for the rest of your life? Will you need to invade principal to get there?
We believe in the income layered approach or purpose based investing. Let’s say you need $10,000 a month net to live on plus inflation. Now subtract social security (modified for medicare costs), pension or annuity income which leaves the net amount you need to generate from your investments.
Let’s say you need to generate 4% a year to earn enough for the income you need. Do you just sell everything and move it into dividend and interest bearing accounts. Maybe not such a good idea given the volatility we have experienced.
This is where investing in retirement differs from just investing for pure growth.
In my next blog, which will be out in two weeks, I will go into more detail about the nuts and bolts of re-positioning your portfolio for the future. Plus discuss some potholes to avoid.
I have also attached an article about the US Economy and to put things into perspective.
My best, Mark