Surviving The Marathon Of Retirement Savings

Summary

• Retirement saving needs to be viewed as a marathon, not a sprint.
• Don't lose focus of your goals and your needs.
• Many will fail, you can succeed.
• I do much more than just articles at High Dividend Opportunities: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Photo by SWKrullImaging/iStock Editorial via Getty Images

Co-produced with Treading Softly

Marathons are a pretty unique spectacle. It's not often you can convince so many people to trudge such a long distance. They do it for various reasons: Bragging rights, the cool shirt, personal confidence or the shiny medals.

Over the course of many miles, some runners give up, other runners lose hope, and some will persevere to the end. Did you know that every marathon has a winner? Often it seems we forget this fact because anyone who has completed a marathon treats it as a badge of honor regardless of placement. It's the completion of the marathon that matters to the runners, not the placement.

As humans, we have a built-in drive to want to succeed. Some of you may argue this is not the case for specific individuals, but your need to be right is proof that you have a need to succeed in proving others wrong. It only takes a few minutes of reading through the comment section on Seeking Alpha to see that some people simply love to criticize. They read a detailed analysis, decide ahead of time that they don't like it, and comment accordingly. We get our fair share of critics too. It's just part of offering analysis for free, yet still, we get many happy readers. Our big motivator is helping those who really want to be helped. And this is exactly what we continue to strive to do.

Perspective on Retirement

Your journey to retirement is less of a 100-meter dash and more of a life-long marathon. Many people prepare for years to be financially stable in their later years. Others don't think about it until it's fast coming on the horizon.

Everyone has an opinion on how best to prepare. We use our unique Income Method and have personally seen thousands of investors turn into retirees who enjoy a comfortable retirement.

In our highly competitive culture, you need to forgo the idea of winning or "placing first" in retirement. Why? Because Jeff Bezos of Amazon (AMZN) or Bill Gates of Microsoft (MSFT) have long beaten most investors already. Instead, as "income investors," we strive to adopt the mindset of a marathon runner. Finishing and reaching retirement in a state that will best meet our goals is a "success." We have seen many investors burn out and toss in the towel on their personal marathons because they can't "win."

As an investor, your portfolio doesn't have to beat every nameless, faceless Joe on the Internet who claims to be an investment God with no proof to back it up. Your portfolio simply needs to meet your goals or exceed them so you can relax in retirement. The need to "be the best" is often the ultimate flaw in most investment methodologies. It causes you to be drawn to get rich quick schemes of investing and gambling on no-name growth penny stocks with the hopes of a quick turnaround win.

We take a long-term view by investing in immediate income securities (or high-dividend stocks). We are "value investors" targeting cheap dividend stocks or value opportunities that sometimes take a long time to fulfill their capital potential. In the meantime, if you throw in the towel, you will feel the sting of defeat. You'll be tempted to go to greener grass only to find it's not really any better to meet your goals.

But if you are a "value income investor" and a patient one, you get to achieve both, the high income you need and the potential for large capital gains. As we have seen over the past six months, value has been trumping growth, and this trend is set to continue.

This is how the market works. It's cyclical, and sectors outperform or underperform in cycles. What's not cyclical is the income in the pocket of investors. This is why we are income investors, and in particular value investors in solid companies that have the ability to pay us dividends regardless of the cycle.

Understand Your Goals

Investing is only a means to an end. It should not be an end in itself. What I mean by this is that you invest in the market to enable you to do something and achieve your goals.

Answer this question: "If I had $5 million, I would spend my time doing..."

Most likely, if you honestly answered the question, you choose something meaningful to you. Like a hobby, traveling, working for a charity, or something along those lines. Your retirement investing methods must line up with enabling that goal.

Often we get distracted in the process and focus solely on the running and not on the finish line. When this occurs, three months suddenly becomes your "long-term view" and you get frustrated at short-term movements in the long-term game of chess. I always like to remind investors:

Investing is a tool. How you invest is a method. Where you invest is determined by the other two.

So, determine your goal, how much income do you need to meet your goal. Can you live comfortably off of $50,000 annually or do you need $100,000? Knowing this will help make realistic goalposts to work towards.

Get a Better Understanding of Wealth

In my years of investing and running High Dividend Opportunities I have consistently seen a misunderstanding of wealth. People want to "be rich" or get "wealthy" but never seem to have a solid idea of what that means.

Do you determine being rich or wealthy by the assets and cash that you own?

1. So if you have a net worth of $5 million, are you wealthy?
2. Or is it by income? Having an annual salary of $100,000 that makes you wealthy?

Some of you answered yes to both or no to one of the two options. How you answered will often determine how you invest.

I like to divide my view of wealth into two subsets.

1. Static Wealth is the value of assets and cash. Essentially your personal liquidation value. If you were to sell everything and just have cash. This is your Static Wealth.
2. The second is Functional Wealth. It's the income that you personally generate and that your assets create.

I do not consider someone with a high Static Wealth to be wealthy. Why? Because life does not often have static expenses. You don't eat once and never hunger again. You don't pay your electric bill once. Expenses are recurring, often monthly, and don't stop. So having a large pile of cash that does not see inflow and only outflow means you must be very frugal and strict on how much flows out. Otherwise, you'll run out of cash before you run out of air.

Instead, I see the individual who has a large cash flow coming in as wealthy. If you have more money coming in than going out, your cash pile is growing. So over a length of time, you will be growing your Static Wealth, and if you keep putting it to work, your Functional Wealth will continue to grow as well.

Historically, we viewed wealth through a Functional lens, but in the past number of years and with the help of banks and brokerages that benefit from you having a large idle pile of cash, the focus has shifted.

Imagine the relaxation of only needing to finish the race. I mean not having to worry about placing your investments in stocks that are hot today but not tomorrow. Year after year before retirement you can reinvest your dividends and keep your portfolio growing rapidly without worrying about finding the next Netflix (NFLX) or Facebook (FB). We often see high-flying stocks lose a lot of their value during a market correction due to high speculation. This is why we avoid speculative stocks.

So Where Do You Start?

It's a valid question we must ask. With our Income Method you start by building a portfolio that produces high immediate income. It will be designed to get dividends in the door so you can use them.

We also currently emphasize moving higher into the capital stack as that creates additional safety. Our investment community enjoys weekly top picks and a Model portfolio targeting 9%-10% yields.

Start by getting some solid monthly payers. Choices like PIMCO Dynamic Credit Income Fund (PCI) and PIMCO Corporate & Income Opportunity Fund (PTY), yielding 9.2% and 8.4%, respectively. These two funds have long been part of our income portfolio and give excellent monthly payments.

Looking towards REITs, consider using Aberdeen Global Premier Properties Fund (AWP) which yields 8.0% and which also is a monthly payer.

With an average yield of 8.5%, these three choices could generate $708 per month (or $8,500 annually) from a portfolio of $100,000. While we're not suggesting only holding three securities in your portfolio, they clearly highlight the strong possibilities out there to do so. Our members have access to our entire model portfolio of great picks to create a large income-producing portfolio.

Conclusion

"Retirement preparation" is the marathon you will have spent most of your life running, or you will be spending most of your time occasionally sprinting and wearing yourself out trying to make quick gains. Some of you need to readjust how you view your race so you can find reduced stress and find more happiness in the process.

Studies show that 90% of those who trade frequently suffer large losses during unexpected downturns. Don't let these downturns hit you with losses. Instead, buy dividend stocks that you will profit from in both upturns and downturns by cashing in on dividends. Every dividend you receive will help you put one foot in front of another as you run the course of your marathon. You run yours and let others run theirs. No need to compare. That's stress relieving.

By investing in income-producing securities, you can create the Functional Wealth needed to sustain your lifestyle in retirement. Determine how much annual income you think you'll need and make it a goalpost to work towards. You'll be amazed and surprised at how quickly your portfolio helps you get there when it starts throwing off large amounts of Functional Wealth from your investments.

Lastly, considering sharpening your tools. Keep reading, researching, and growing as an investor. We use our Income Method and routinely release reports on how we view different aspects of the market and current trends through our lens of investing.

For those who wish to keep chasing after high flyers, they can keep doing so. From our side, we'll keep helping you focus on your monthly cash flow stream to make it to the finish line.

Analyst’s Disclosure: I am/we are long AWP, PCI, AND PTY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Treading Softly, Beyond Saving, PendragonY, and Preferred Stock Trader all are supporting contributors for High Dividend Opportunities. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members.

Comments

[ALLDAY1]

Well I am at the stage of my life both financially and age, and knowing that like everyone our time will end. I have 1 son who currently has a mortgage free home with 3 children and a 3 bedroom house and so rather than give the money to Uncle Joe with his forward plan of eliminating the in kind step-up basis of my estate should I die . I have initiated a plan to start the gifting program and while there is a 15k yearly gift limit one still does not pay a gift tax and is misleading as there is also a lifetime exemption of $11.58 million and if one exceeds the yearly limit still no tax is imposed until the higher number is achieved, however they keep a record. So my son is building a new home and I told him that when he sells his current house and applies it towards the mortgage of the new house that I would gift him the mortgage payment each month. This way he would still get the interest deduction on his taxes and move into a house where he is not so crowded. That Process started yesterday and in 6-7 months will move into his new house. When I pass he gets it all anyway including my house which is also paid for with a value of 400k. So what happens if Uncle Joe does not get his wishes passed, nothing but if I plan on the Just In Case happens I am covered.

Allday

[PendragonY]

@ALLDAY1

Sounds like a prudent plan.

[drjoanv]

RIDA what do you think about the possibility that PDI, PCI etc will reduce distributions soon?

[PendragonY]

@drjoanv

The last 5 distributions from PCI have had no ROC component and during 2020 only a small amount of the distribution was actual ROC. Over the last year NAV has increased 22%. And generated income has covered the full distribution in all but 2 of the last 12 months. The distribution looks safe to me.

cefdata.com/...

PTY has had ROC in only 5 of the last 12 months and the lowest level of income is 10.5 cents of the 13 cent monthly distribution. NAV is up 26% in the last year. The distribution looks reasonably safe to me.

cefdata.com/...

[Rida Morwa]

@drjoanv I believe it is unlikely. The NAV on these funds has been improving, which indicates that their total return has been greater than their distribution. They realized some losses, mostly on hedges, over the past year which negatively impact their UNII report, which reflects realized losses but not unrealized gains. PIMCO opted not to reduce the distribution when things were bad last year. So while they always could change their mind, I don't see it as necessary.

With a CEF, distributions are coming straight out of NAV, so if they do choose to reduce it in the future, then NAV grows faster. Choosing to keep it higher means that NAV grows slower. So the distribution policy usually comes down to what management views as creating the best total return, it isn't like the earnings disappear.

[PendragonY]

@Rida Morwa

I agree. Plus, when a lot of funds are cutting distributions your fund does pay as much of a penalty for cutting the distribution. But now a cut would stand out far more. So I see it as less likely.

[Alternative Investing]

Very important to understand ones needs/goals in both accumulation and retirement phases. Depending on ones other income sources (work, pension,SS, roth, tira, taxable accounts etc etc) only then can one put a pencil to filling their "personal" gap.

Could be income, could be growth or a blend of both!? And never forget income can also be generated from growth (not depended on, cause TR on ones $ is all that really counts)...just ask the folks who are sitting on shares of HD,LOW,MSFT,AAPL,AMZN, SCHD,VIG,VUG,QQQ.
Even in retirement one can still be in the accumulation phase (if they chose). >>And make sure you put the right holdings in the right type of accounts to minimize the taxman!<<

[Rida Morwa]

@learning to be patient with mr mkt I agree with you that it is very important to understand ones needs and goals in all phases of the retirement process.

[Ickert]

Thank you very much for the good investment ideas, they help me a lot to build up my dividend portfolio.
I will continue down this path, your articles are exciting and informative. Best regards from Germany.

[Rida Morwa]

@Ickert Thank you for your readership, I'm glad we can be of assistance.

[whaleshrimp]

My experience tells me this article outlines a big truth about retirement investing. At 71, I spend more time learning about investment products than ever before. After a life time of outdoor adventures around the world, I have turned this into an indoor adventure for old people, not a burden. Happy Trails

[PendragonY]

@whaleshrimp

Sounds like you have a good plan in place to carry you forward.

[ALLDAY1]

@whaleshrimp
It is just one more adventure that is added to those you currently participate in. It just happens in many cases that it happens indoors. It of course is not "old people adventures" but can be enjoyed by everyone willing to participate. Now you can associate it to old people as the many who have retired now have free time to devote to it. Many people that you consider to be "OLD PEOPLE" have many choices and while some may work the financial difficulties of retirement, I suggest the you go to an assisted living facility or nursing home and you will fine very little investing going on and it is devoted to Eating, Sleeping, Watching TV ( especially game shows) and the occasional exercise routines provided by the facility they are living in I am 76, my wife has passed and I have a girl friend because if one stays cooped up all day doing little , their quality of life disappears and soon also their life.
I enjoy the investing environment and did not start until the late 40's, but I also spend time doing other activities. Investing as I view it keeps the mind active and makes one more alert to the many activities around us..

My view.

Allday

[Rida Morwa]

@whaleshrimp I'm glad you're enjoying your new adventure!

[ALLDAY1]

Well I do no know so much about AWP as I do not own any .I have held Some of the Pimco funds for now going on 4-5 years and I am pleased that I do
Of course many will buy them for the possible specials that they throw off on a yearly basis usually in December but there have bee 2 years when the special amounted to ZERO.
Specials are a gift and one should not invest for the specials and there are some investors that will state that I own too much of the funds. Well maybe , but I seem to do OK with what I have and I have not received a dividend cut on any that I own and the pay monthly
I own 4 of them PTY 1350. PKO 3275, PDI a stock that I added 500 shares to in the last month now at 4164, and finally my largest overall holding PCI at 7671..
If a person invests they should invest for the monthly dividend and not the possible special that occurs in December. That being said I can only describe my success and make no recommendations. For me Good stocks to own.
But them I am only talking about my investments and not about yours.
I am still negative on Growth on PDI that suffered from covid, I am positive on PKO and PTY, Just barely but positive .

Wishing all great success.
wishing you all great success

[Rida Morwa]

@ALLDAY1 Thank you for sharing your thoughts. I am glad you are among the longs in PTY and PCI along side of myself. I have been treated well by the PIMCO funds I have held.

[2Reb]

Rida Morwa is almost a daily fountain of wisdom. I would only add one additional consideration. I am in full agreement with Thomas Jefferson's comment that the earth always belongs in usufruct to the living. By this he meant that no one "owns" their wealth; they only hold their wealth in custody for the next generation. They have an obligation to transfer as good as they got.

Retirees who design a portfolio that will last only as long as they do are not violating this principal, but investors lucky enough to have a portfolio that will outlast them, do, I think, have an obligation to make their investment decisions with the longest possible investment horizon.

[Rida Morwa]

@2Reb That you for sharing that idea from Thomas Jefferson. I am a firm believer in creating a portfolio that generates "generational wealth" so that you not only benefit yourself, but also your family line. Its an older idea thats rapidly vanished from today's wealth discussions.

[Longbottom]

@2Reb I thought the same thing myself. But when I went to have an actual conversation with my daughter about turning over all my securities when I die, she wanted nothing to do with them. I'm not sure the next generation understands what we're trying to do for them.

[Rida Morwa]

@Longbottom That is an interesting situation, did she not want the time to manage them or did not want the income from them?

[GreenguyMN]

Life and investing are both marathons, truer words have never been spoken. You were not the most able athlete or the prettiest girl in high school? Well, I am later in life now and will run circles around most of those jocks now. And I would not trade my wife for that homecoming queen, she looks great!

[Rida Morwa]

@GreenguyMN Very nice! I'm sure your wife appreciates that! I agree many things in life the classic story of the rabbit and the tortoise applies so accurately!

[usiah]

Am considering replacing some (not all) of the proceeds of a bond maturing soon in the IRA with either PCI or PDO. Would welcome your thoughts on this, Mr. Morwa/Treading Softly.

Retired income investor

[Rida Morwa]

@usiah That would be acceptable so long as you understand the risk profile difference and also maintain allocation guidelines. I am a big believer that no matter how great something is on paper or from experience that my allocation guidelines still rule the day.

[usiah]

@Rida Morwa

Thank you. Any preference between PCI or PDO? Any other CEF you would prefer?

[Rida Morwa]

@usiah I prefer PCI and PTY out of all the PIMCO funds.

[John R. Clark]

I know a lady who was utterly unfit to join a marathon, so she lost 100+ lbs. and ran one to the finish at age 44. Now ten years later she puts in 5 to 7 miles several mornings a week, at least.

With investing, fitness, truth, beauty and all, it pays to read of worthy exemplars, not rotten ones. Notice how every piece on, say, facebook about thrift and saving draws complaints from people living "paycheck to paycheck" owing to trends dating back 40 or 50 years, our two- party system, and conditions etc. to which no one can possibly adapt, in their view.

That P2P stuff only means that people spend all they make. It tells nothing about anyone's work or money habits, although you could pretty well guess from their pay stubs plus bank and credit card statements. It's one thing to point out our society's flaws, but that soon turns into an excuse if it wasn't one already for not using the means you've got or trying any better. (I used to be a firsthand expert at this.) When you work at investing good and long enough, "Perseverance still is king/Time its sure reward will bring/Work and wait unwearying ..."

In retirement my wife and I are wealthier than ever. Later this month we're off on our first road trip since October 2019 through five other states. Once you have the means to travel often, it pays to have kept up friendships and family ties over decades past. One couple we're visiting are friends of 17 years from a casual meeting with no agency by family, neighborhood, work, church, or military service.

Thanks one and all for reading!

[Rida Morwa]

@John R. Clark Thank you for sharing your thoughts. That is a lot of devotion to run a marathon, but likewise we must be steadfast in our commitment to a great retirement.

[drjoanv]

Aren't you considered that the PIMCO CEF's might cut?

[Rida Morwa]

@drjoanv No I do not expect them to cut their distributions at this time.

[Phil in OKC]

Another aspect of retirement is "contentment." The Apostle Paul wrote to young Timothy that godliness with contentment is great gain. As I have aged, I find that in retirement my desire for earthly goods, which I used to think so essential to happiness, is no longer an emotion I feel. Instead I focus on how I have been blessed over my life, and fully realize a debt-free life, which includes a mortgage-free home that replaces "the BMW as the status symbol of choice." God knew what he was doing when he chose young couples to raise children rather than old. And he also removes the "keep up with the Joneses" desire in old age. Contentment is great gain and is true wealth and peace of mind.

[Rida Morwa]

@Phil in OKC Well said, finding contentment can be a lifelong journey for many, but once it is found, it should be guarded closely.

[F Wilson]

@Phil in OKC Amen, sir. Wise advice in your words. Patience, contentment, and gratitude are three tenets I live by.

Can't believe all the time and $ I wasted in my earlier years chasing "stuff".

[Bemylov]

@Phil in OKC Amen!!!

[jthomp14562&comcast.net]

GREAT ARTICLE VERY INSIGHTFUL.

[Rida Morwa]

@jthomp14562&comcast.net Thank you for your comment!

[caasi notwen]

I consider myself one of the lucky ones to have realized the advice in this article when I was still a young man. Friends of mine would laugh at my regular investments in companies they had never heard of but paying a growing dividend each year while they bragged about their Blackberry (Research in Motion) type investments. I'm retired; they aren't. Nuff said.

[Rida Morwa]

@caasi notwen I'm happy to hear you successfully retired. Yes many will crash into the reefs or shorelines instead of stay afloat on the way to retirement.

[Buyandhold 2012]

The best way to survive retirement financially is to keep right on investing even after you retire.

My 100-year-old mother still invests in the stock market.

She gave me a list of 25 stocks that she likes now.

"It's important that I keep on investing," she told me. "That way I'll have enough money when I get old some day."

[Rida Morwa]

@Buyandhold 2012 Good for her! Sounds like you come from good stock, you and your schnauzer

[McBifferton]

@Buyandhold 2012
Good for your mother! By the way, besides her stock list we’d all be interested knowing what’s on her vitamin list.

[Fordinvester]

How’s Phil liken the democrats now

[Rida Morwa]

@Fordinvester Why don't you ask him yourself?

[Clarity_Fund]

Genius! I have ~85 positions, avg starting yield of ~7%.

[Rida Morwa]

@Clarity_Fund Great! Without seeing your portfolio, I like the number of positions and yield.

[Carolanne1]

Rida ; your articles are incredibly insightful and intelligent. Very much appreciated. IMHO you are in the same category as "Regarded Solutions" who was kind, smart as hell, and I learned tons from him over the years. He recently passed and I will miss him terribly. Like him, I think you have the same integrity. Thank you & keep up the good work.
Carolanne

[Rida Morwa]

@Carolanne1 Thank you for your kindness. I will miss Regarded Solutions as well.