Retirement Strategy: The Uncomfortable Facts Of Aging Retirees, Plus Some Investing Suggestions
Summary
- Those of us retirees who are in our 70s, 80s, and older face unique issues that youthful investors should at least be aware of.
- Time and tide wait for no one.
- Facing reality is not a walk in the park.
This article might touch some nerves and open some minds at the same time. I will try to be concise and direct but keep in mind that life's reality is difficult to face for many folks. At the same time, I will offer some dividend income growth suggestions for us older folks who are already retired and might have been for more than 10 years or more!
We Are Human
From the moment we are born the clock starts ticking. We have no alternative but to realize that we will all die at some point. If we are lucky, we will dodge lots of bullets as we take our personal journeys through life and wind up very old, surrounded by family and friends.
If we are smart, we would have prepared for the later years, with retirement, and having no paycheck to support ourselves. Knowing your personal priorities will go a long way to securing a sound future, both financially as well as personally. The sooner you can embrace this ultimate reality, the better off you WILL be.
Many actuarial tables show varying ages of life expectancy but I find the one that is used by the Social Security Administration to be the most reliable. The reason for that is they need to budget future expenditures which helps develop the entire budget every year for the USA. If you take the time to read this report, you will have a clear idea of how every insurance company (as well as the SSA) base their rates and payments for their entire life insurance business model.
Here are the actual charts used by the SSA to project its budgets and shortfalls:
As of right now, the average life expectancy for females is about 82, and for males, 77. I know these are averages from birth but if the SSA uses it, then I will accept the numbers.
For a bit more accurate chart based on those of us who have reached the magic age of 65, this one is probably designed more for our situations:
For us "geezers" this chart shows the average number of years of life expectancy once we hit age 65. For females, there are about 21 more years, and for males, about 18 more years... that works out to age 86 for the gals, and 83 for the guys. As we try to figure out our retirement needs, this is the chart I think is the most useful.
We are very aware that these numbers are averages and not carved in stone. We have Seeking Alpha subscribers who are extraordinarily active well into their late 90's as well as many who have lost their edge in their early 60's!
There are so many landmines on the road of life that nobody can be certain of the time we have on this Earth or the time we have left. Guess what though, these unknowns are used by the investing world for their own benefits, and will play on everyone's fears of two important points for THEIR business models.
- Am I saving and investing enough for my lifetime?
- Will my money last for my lifetime?
The Most Misleading Tactics That The Investment Industry Uses
I am not trying to tell anyone that the industry is lying, but it is to THEIR benefit for us older folks to stay invested, keep investing, and stay in "the game" because that is how they make money!
Can you imagine what would happen to the stock markets if all of us older retired folks pulled out of equities and bonds? Complete collapse of the equity and bond business, that is what would happen. This business has a vested interest in keeping you IN the markets, invested in equities and bonds, for their own profitability and actual existence.
Don't get me wrong, I am not saying that everyone should just dump everything and ride into the sunset, but the investment industry wants you to be afraid that you will never keep up with inflation and that you will run out of money if you do not plan on living to 100+.
Pictures of homelessness, burdens on your children, and wandering aimlessly in our final years, are what the industry wants us to picture.
(Source: GOBankingRates)
(Source: freedomretirement.net)
I do not know anyone who plans to have absolutely nothing by the time they can no longer work and earn a living. I DO know many folks who happen to have hit some of those landmines on the road of life and have less than they thought, but it is WRONG to believe that everyone needs to be taking risks in the markets forever. Actually, some folks have already won the race!
Winning The Race!
You have worked hard, saved and invested over your lifetime and have amassed a sizable portfolio. Now, turning age 75, your investing skills are diminishing either by age or illness and you can no longer make sound financial decisions for your portfolio. You have several choices you can make:
- You can have someone else manage your portfolio
- You can just keep everything the way it is and continue living off of your dividends, social security, and pensions.
- You can continue to add more to your portfolio to grow your wealth and income.
- You can sell everything, move to cash, take out what you need each year to live on, and never take another risk for the rest of your life.
- You can try to keep working.
Each of these is viable options, of course; however, we are living in perhaps the most tumultuous times of our lives when it comes to our investments as well as our longevity.
If you decide to maintain a simple portfolio, I would suggest looking at my most recent model portfolio, the Pandemic Retirement Income Portfolio, or PRIP for short:
PRIP consists of the following stocks: Johnson & Johnson (JNJ), Procter & Gamble (PG), Microsoft (MSFT), Apple (AAPL), AT&T (T), Walt Disney (DIS), PepsiCo Inc (PEP), Con Edison (ED), Exxon Mobil (XOM), Realty Income (O), and Altria (MO).
Here is the most current chart as of 6/11/2020, 11:00 AM:
A simple portfolio of mainly dividend aristocrats and kings that still produce wonderful dividends for your income stream. As of today's steep drop, several more stocks have fallen into my "buy zone". T, ED, XOM, and MO. That does not mean you MUST buy them, but they are worth a look at least.
While this portfolio is not difficult to understand or maintain, it still carries risk, even if you continue to actively manage it yourself, or have someone you trust manage it for you, or simply leave it alone.
Now let's just consider for a moment that you are in your mid-seventies and according to the actuarial charts noted above, you might have 10-20 more years of life expectancy.
If you are a couple and are both receiving an average of about $30,000 in SS and have a portfolio valued at about $500,000, you might consider getting rid of your risk completely, selling all equities and bonds and breaking down the $500k into 25 chunks of $20,000 each year without risking any capital depreciation or dividend cuts, that will last until you are about 100 years of age. Keep in mind that your expenses need to be in line with your cash flow... or, in this case, $50,000 per year.
That might or might not be enough for everyone and, for some, it is more than enough. Keep in mind that at this stage you have only 2 choices to make in order to have a more secure financial future.
- Increase your income
- Decrease your expenses.
That's it. You can start working on cutting all expenses like downsizing your home, getting rid of one car if you have two, reducing your cable or streaming TV bills, getting a Medicare Advantage Plan instead of a higher cost supplemental Medi-Gap plan, selling your whole life insurance policy, or even considering a reverse mortgage (to increase your cash flow and never have to pay it back until your passing)!
If your overall income is low enough, and you have NO savings to speak of, you can add Medicaid to your Medicare plan (check out United Health Dual Complete Plan). There IS help for so many folks that are out there but are not even known about.
A reverse mortgage means that you can use the equity you have in your home, without having to move, and have a stream of income depending upon the appraised value of your home and a 40% loan to value loan. The loan does not have to be repaid until you sell your home of the occupants of the home and the holders of the loan, pass away. I realize that this has been frowned upon for many years and most folks here will really be tough on me for even bringing it up. That being said, there have been many federal regulations that have made this "loan" far safer, and a decent option for SOME folks who have smaller portfolios and need the cash flow.
It might be very worth your while to research reverse mortgages and you can start right here. From there you can investigate the insurance companies that actually offer these "loans".
If you're 62 or older - and want money to pay off your mortgage, supplement your income, or pay for healthcare expenses - you may consider a reverse mortgage. It allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills. But take your time: a reverse mortgage can be complicated and might not be right for you. A reverse mortgage can use up the equity in your home, which means fewer assets for you and your heirs. If you do decide to look for one, review the different types of reverse mortgages, and comparison shop before you decide on a particular company.
If You Want To Stay In The Game With Reduced Risk, Greater Diversity, and Placed On Auto-Pilot
If you decide to continue investing but want to keep it very streamlined and simple let me suggest these investment vehicles for you to research:
From this valuable article:
The best dividend ETFs to buy now:
Review the noted article for all you need to know about each ETF. Some investors will decide on just a few and some more aggressive investors will decide to have something in each. These funds are professionally managed, very inexpensive, and could offer you the diversification as well as ease of investing that given your health and age circumstances you might be seeking.
My Bottom Line
Many of you have expressed an interest in a portfolio for us older retired folks and I have given it a lot of thought. There IS a path for everyone, and rather than just suggesting an investment in AT&T (T) and a few Treasury Bonds, I felt I would lay out some simple plans for us "geezers" in various financial situations. The truth is that none of us will live forever and having our priorities in order will make life easier as we age and/or face health issues.
I truly hope this particular article, while a bit unorthodox, helps some people think about what the future might hold!
On another note, I have been having chemo for the last 3-4 months for stage 4 cancer and my first PET scan has come back better than I could have prayed for. While I still need to continue treatments, my scan shows that I am currently cancer free... I have been blessed with having all of you as my extended family, and your well wishes have been an enormous help to me personally! God bless you all.
Additional disclosure: Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author used in his past worked for him, and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author used in his past worked for him, and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.
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