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Dennis Miller is the author of “Retirement Reboot”, a book chronicling his own journey to save his retirement in a low yield, turbulent investing environment. He works with some of the country’s top investment managers, authors and analysts to tackle the financial challenges faced by today’s... More
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  • Advancing To Level II: A Bulletproof Retirement 0 comments
    Dec 26, 2013 10:46 AM

    That's right, retirement has a Level II. I bet your competitive streak wants to get there, and that means building an overall strategy for producing stable monthly income. Depending on your personal goals, that might mean income to supplement your paycheck, or income that'll have you sipping Mai Tais on the beach in Tahiti next to your spouse of 30- or 40-plus years.

    But before we get to Level II, let's review Level I.

    Retirement Level I

    Retirement changed radically when the government bailed out reckless banks at the expense of seniors and savers. A lot of people, myself included, entered the 2008 crash thinking their portfolios were as safe as a bomb shelter.

    Personally, I allocated my portfolio by the "100 minus your age" rule. Cash holdings aside, nearly 70% of my capital was in income investments (leaning heavily on CDs, given the excellent rates at the time), and the remaining 30% was very conservatively invested in the market. In other words, I followed the rules.

    Unlike many who took a large hit when the market crashed, my losses were minimal. I don't say this to brag, nor am I encouraging you to follow my old allocation. I simply want to share that, even with my allocation down pat, I too was struck hard by the crash… just not in the way one might imagine. Why? Because it wasn't the number at the end of my brokerage statement that let me sleep well at night, it was the income those investments produced.

    I was living on that income, enjoying the retirement dream. Then-almost overnight-my "paycheck" was cut by 66%.

    Like so many others, I was caught by a risk in my portfolio that had been unheard of a few years prior. With decades of livable interest rates behind us, not one financial advisor ever suggested I was at risk. Almost no products existed to deal with it.

    The new, zero-interest-rate world was, as the kids in Silicon Valley like to say, a game-changer.

    When our team sat down to develop Money Forever, we knew that retirement investing demanded both a defensive and an offensive strategy, played at the same time.

    The defensive goal is to avoid catastrophic losses. Too many Americans were caught with their pants on the floor at the end of the dot-com and real estate bubbles. Others from around the world have been robbed of their savings as governments overspent and spurred inflation.

    Bonds have performed very well recently. But the largest gains are not from yield, but from the Federal Reserve driving interest rates lower and holding them there.

    While long-term bond funds appreciated handsomely, a new risk crept into portfolios around the world: the so-called bond bubble. If rates rise (we've seen a light preview of this since May), the net asset value of the billions of dollars in many bond funds will drop dramatically.

    When we put our retirement money in fixed-income investments, we are investing for safety and yield. We cannot risk another bubble bursting at our expense.

    Moving Forward

    Yes, we want yield. But there is another reason for fixed-income investing: safety. What if there is a huge market drop? We may be domestically and internationally diversified and have adequate stop losses in place, but a wave can act like a tsunami at times, and right now is one of those times. So we are moving on to Level II.

    Level II: Bulletproofing Your Retirement

    There are two important facets of a strong portfolio: income, and opportunities. Miller's Money Forever helps guide you through the better points of finance, and helps replace that income lost in our zero-interest-rate world.

    Pre-crash, if an investor bought a CD at the prevailing rate, and then interest rates rose during that period, he would not lament his loss in net asset value. He would be satisfied with the interest, and when his CD matured, he would buy another one at the current rate. So why do we look at bond funds, see our net asset value go down, and worry? Because most bond funds are always busy selling, baking in those losses along the way.

    Some funds, however, hold them to maturity. In that regard, it is like a CD. Of course, it is not FDIC insured. That does not make it unsafe, however. In fact, in the fall of 2008, I would have been better off holding non-callable bonds at a nice, juicy 6% rate instead of FDIC-insured CDs. My income certainly wouldn't have taken the hit it did. (I must forgive myself for that sin against my portfolio, but now I know better.)

    This is where the value of one of the best analyst teams in the world comes into focus. We focus on our subscribers' income-investing needs, and I challenge our analysts to find safe, decent-yielding, fixed-income products that will not trade in tandem with the steroid-induced stock market-or alternatively, ones that will come back to life quickly if they do get knocked down with the market. They recently showed me seven different types of investments that met my criteria and still withstood our Five-Point Balancing Test.

    Somewhere in the discussion, I mentioned how tired my peers are of having holes blown in their retirement plans. While nuclear-bomb-shelter safe may be impossible, we still want a bulletproof plan.

    This is what we've done at Money Forever: built a bulletproof, income-generating portfolio that will stand up to almost anything the market can throw at it.

    It is time to advance to Level II and learn about the vast market of income investments safe enough for even the most risk-wary retirees. Some investors may want to shoot for the moon, but we spent the bulk of our adult lives building our nest eggs; it's time to let them work for us and enjoy retirement stress-free. Learn how to get in, now.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Themes: retirement
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