By taking appropriate action now, and setting up an investment plan as we have often discussed, you can and will enjoy a more secure and safer retirement. There are many ways to get there, but as many of you know, I subscribe to the basics of dividend and growth stock investing.
Our current portfolio consists of ExxonMobil (XOM), Johnson and Johnson (JNJ), AT&T (T), General Electric (GE), Annaly Capital (NLY), Southern Company (SO), Exelon (EXC), Procter and Gamble (PG), Philip Morris (PM), Intel (INTC), Realty Income (O), ConocoPhillips (COP), Pfizer (PFE) Chevron (CVX), E.I. du Pont (DD), Duke Energy (DUK), PPL Corp. (PPL), Coca Cola (KO).
One could begin with our basic beginning portfolio of $100,000 to invest, and set up the following portfolio that will give you a 4.75% dividend return with just a core group of stocks to start with, like this:
I discussed this in my beginner series of which we are now in Part 3 (which can be reviewed here).
Or, many of you might look towards our more advanced portfolio, of which today's article is a continuation of (Review the latest article here).
We used the same $100,000 to start with, but it is now expanded and has begun to reap profits:
Either way, an investor seeking to minimize risk, maximize gains, increase reliable income, and have more security and safety in retirement (nothing is ever risk free, ever), this strategy has worked for many millions of regular people who are either living in retirement now, or ready to embark on the journey soon.
Once action is taken, a very different view of retirement becomes clear, achievable, and quite frankly, not that difficult. Then you can ignore the "biggest lies".
The 10 Biggest Lies We Are Told About Retirement
1) You will need multi-millions of dollars to retire "comfortably"
The usual headlines are something like this: "$39 Million Is Not Enough For A Secure Retirement".
Obviously, I am exaggerating by just a "tiny" bit, but you get the picture. Then there are the "one-size-fits-all" calculators that accompany the headlines, of which most of them are either alarmingly wrong, or will scare the daylights out of most anyone!
The truth of the matter is that having a safe and secure retirement is all about what your goals and priorities are and living within your means.
In other words, it's more about how much you spend, and not spending more than comes in, than it ever will be about the amount of money one has. That being said, it would be so much easier on all of us if we did have $39 million saved!
2) Social Security will not be around for those over 50 when you retire
This one is a "doosy" also. I think it has become an art form to scare folks in their 50s and early 60s, approaching their "golden" years by screaming basically every day that Social Security is broken, will never be able to keep up with payouts, and we will all have to live in tribal communities sharing our undergarments and cat food with our bunkmates!
Okay, so I am exaggerating a little bit again. Those of us near or in retirement know exactly what I mean though. Truth be told, however; Social Security does need to be worked on and fixed because we cannot get away from the simple truth that there are less workers paying into the system to pay to more of our older population and disabled. People are living longer, and the strain on Social Security payments are obvious, but certainly not the impending doom that some folks (politicians, perhaps?) would have us believe.
I am of the belief that Social Security can and will be fixed. Those nearing or already in retirement should just switch off the noise and not give any more than passing attention to anyone that is humming "Taps" while discussing Social Security.
I should offer a caveat here; I do believe that the younger generations with 30 years or so to go before retirement age will see a different form of Social Security, and they should take that into consideration as they plan for their own later years.
3) Medicare will not be available for those approaching retirement
Of all the issues that I personally view as being "real", it is our healthcare program. That does not mean it cannot be fixed. It would mean higher taxes, and perhaps moving the date of eligibility in tandem with Social Security eligibility dates.
Right now, anyone turning 65 is eligible for Medicare, while the new Social Security age is 66/67. I have no idea why it is different, but a slight change such as this one could help down the road.
I will also point out that those on Medicare, or nearing eligibility should not be afraid that it will not be there. This topic is also a political football and has been used by politicians to garner votes for as long as I can remember. Read my lips... Medicare is not going bye-bye today.
This issue, while larger than Social Security can also be fixed, and in my opinion will be fixed. Keep in mind that those with a 30-year horizon or so will more than likely see a completely different form of healthcare program in place.
4) Keep a much smaller % of cash invested in equities
I can hear that little voice in my head telling me, "Deduct your age from 100 and that is how much should be in stocks and the rest in bonds". I don't even remember who started this nasty rumor. Must have been a municipal bond trader, or some sadistic kid who wanted to play with all the new toys on his own. Imagine being 66, just retired, and believing that you should have 34% of your available cash in stocks, and 66% in bonds.
To me, this is such absolute hogwash that it defies a gnat's intelligence. With a rate of inflation upwards of 3% in the real world (not the fantasy world of Government officials who need to massage the numbers to look however they want), how would anyone expect to keep up with inflation with that allocation?
I am sure that at some time in ancient history, that formula actually worked for a few years. Wow, has it stuck around, or what? Toss it out, folks. It can wipe us out, in my opinion.
Keep cash (completely liquid) on hand to pay your bills for an extended period of time (five years, let's say), if you're already retired especially, and put the rest of your money to work in equities. For my money, large cap, blue chip, dividend paying monsters.
Then we have the best opportunity for a safe and secure retirement from my point of view.
5) The 4% withdrawal rule is the best to follow
Whoever came up with this must have been left out of their parents will or was a lawyer who specialized in estate civil cases. The big question is why? I get the notion that we want our money to last and not run out, however check out "Lie number one", and if my suggestion is followed, we can toss this malarkey out with the lie about stocks/ bonds/ age allocation.
I don't know about you, but I worked my entire adult life and saved on my own. Invested on my own, and I am not going to leave an entire chunk of money to future generations, while I snack on warm water with lemon and a few Saltines!
I get it. We want to leave some money to our kids and grandkids etc. How about while we are alive? Give them some money now, or take out a term life insurance policy with them as the beneficiary. Let them know well in advance that this is what they will be getting and they need to start saving (if they haven't already) and then let's spend all of our money.
I subscribe to the "Die Broke" philosophy, and the last check to be written from my account to the mortuary will bounce!
6) Annuities "guarantee" money for life
Let's just keep this simple. Annuities, however they are structured, are insurance products. To have one costs money. Sometimes a lot of money, and is all about big insurance companies making a profit, insurance salespeople making big commissions, and absolutely not an investment.
There is a segment of regular folks that might benefit from this insurance product, and there is no doubt that people who opt for these products absolutely see all of the positives for their own personal circumstance, but it does cost money and does not truly grow in value unless you "buy" a different type of annuity that is even more costly to begin with.
Yes, you are paying to have somebody give you back your own money, usually every month, with a tiny little extra in mind-numbingly low interest, for as long as you live.
Those are the basic bottom line results with an annuity, period.
Yes, if the insurance company is still in business, they have a contractual obligation to do what I have mentioned. We fork over a chunk of money, say goodbye to it forever, and they will give us a "guaranteed" percentage of that money back to us every month. It could be 6%-8%, depending on our age and the type of "product" we purchase, but that's about the size of it.
If anyone wants to do that, send me a note, and we can work out a little side agreement where you give me all of your money and I will be glad to give it back to you every month in little pieces for as long as you live because we are best pal buddies. Okay? (I am obviously joking, but I wanted to illustrate that if I had the legal right to do that, I want that deal!)
7) Stocks are too risky in retirement
There are no free rides and there are inherent risks in every investment (including mattresses, government insured savings accounts, piggy banks, and yes, even annuities). That being said, stocks and bonds do have risks, but when weighed with the rewards that are apparent, a retired individual/couple should take on some risk so that their lifestyle in retirement is where their goals and needs are met.
There are ways to mitigate some of the risks which we employ in our "Team Alpha" strategy, while positioning ourselves to have a regular stream of income, a potential capital appreciation that will grow the overall value of our portfolio, and have enough in cash reserves to take advantage of opportunities as they arise, or for emergencies.
Investing in large cap, blue chip, dividend paying stocks is perhaps the best way to have a more secure retirement, not only in my opinion, but in the opinion of many millions of retired folks already reaping the benefits.
8) Make sure you have a professional advisor to "help" you
Ever since I began my own personal journey on the path towards retirement, I was inundated with offers from "professionals" to help manage my money, invest for me, tell me what to do and when to do it, and I was always told that it is simply too complicated to attempt to do it on my own.
Yes they get paid. Surprise, surprise! In whatever manner that payment is, you are paying someone for their knowledge. That is not an awful thing, and it happens to be an honorable profession. A profession that has seemingly been cloaked in mystery, big words, complicated formulas, and intriguing theories. None of which cannot be broken down into bite-sized pieces, in a simpler way for ordinary folks like us to understand.
Once we understand that we can keep the entire adventure relatively simple, we can keep the fees ourselves and re-invest them as we take actions on our own for our own needs and goals.
There are people who prefer to pay someone to do this for them and that is fine, but I do not believe that we need them or we will fail.
9) Make sure you leave enough for the kids
We all want the best for our families and our children. That being said, where is the "law" that says that we must leave enough for our beneficiaries after we are gone?
Is there a formula, or a certain percentage that is the "right" amount? Are there legal ramifications if we decide to spend the money we earned over our life time, the way we want without leaving a big chunk for inheritance?
Obviously these questions are silly, and it is purely an individual's personal desires, goals, needs, and priorities that will determine where each of us fall on this topic. The real question should be if we have enough for our own retirement, or future well being, and long-term care if needed, so as not to be a burden on our family. I think that would be a fine legacy to leave for our kids.
10) Retirement is an outdated idea, work forever
To me, this is another spoon-fed cop-out that we have been hearing for a few decades now. After all, what do we know about the world of investing that will come anywhere close to having it secure a healthy retirement? (Tongue in cheek, firmly planted).
Since we will have no savings, and Social Security/ Medicare will not be around, we will just have to continue working until we simply go to sleep and die.
I hear this often these days because of the weak economy, as well as a dangerous reliance on the Government to take care of all of our needs until we fade away. The danger is that we relinquish our personal responsibility of our own well being to others, namely taxpayers who always wind up paying the bill.
The fact of the matter is that while there are many older Americans who can work until they die, most folks will either choose not to work any longer, or will not be capable of holding gainful employment after a serious illness or an age where we simply cannot "do it" any longer.
If we have not prepared for that time, we are going to be in a very difficult position. Not just ourselves, but our family, our community, as well as our Nation.
I firmly believe that all able-bodied Americans can choose their own path towards retirement if they like. By investing in dividend and growth stocks that offer a reliable stream of income as described in the opening paragraphs and charts, we can enjoy a more secure retirement than if we do nothing at all.
I hope you decide to follow our future articles, as well as review what we have already written, and stay involved.
We are all in this together.