How to Make Your Money Outlive You

Marc Lichtenfeld By Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Dividend Investing

Last week, I told you how you can get a raise every year in retirement. That sparked a comment by reader M.D., who stated:

“Hard to talk about long-term income when you’re 69. My best friend died last week after 4 days of illness.”

First of all, I’m so sorry for your loss. Losing a friend or family member often makes one think seriously about the present and future.

But at 69, you should be thinking about long-term income.

The average life expectancy in the United States is just short of 79. But a 65-year-old man has a 41% chance of living to 85 and a 20% chance of living until 90.

Meanwhile, a 65-year-old woman has a 53% chance of living to age 85 and a 32% chance of living to 90.

And, of course, if you maintain a healthy lifestyle, your odds go way up.

For both men and women, at age 65, your life expectancy on average is another 19.2 years.

Retirement is Lasting Longer

Researchers at the Pacific Health Research Institute found that men who avoided smoking, heavy drinking, obesity and high blood pressure had a 69% chance of living until at least 85.

And naturally, family history comes into play.

If your parents, grandparents, siblings, aunts and uncles lived a long life, your odds improve, as well.

So at 69, you could very well have 20 or more years where you’ll need income.

But here’s a very scary statistic from the Government Accounting Office: Nearly half of those near retirement will outlive their money.

And the majority of investors ruined their futures by sitting on the sidelines during the bull market of the last three and a half years… 87 million households in the United States actually saw their investable assets decline – simply by sitting on their hands, panicked by volatility.

You can’t be one of those people. Don’t let yourself fall into that trap.

So even if you don’t expect to live a long time, it’s important to consider that you could be wrong. My grandmother was convinced she was dying starting around the age of 40. She passed away a couple of months after her 96th birthday.

That’s why it’s extremely important to take steps to make your money last longer in retirement.

You already know the obvious ones – save as much as you can for as long as you can, delay taking Social Security, draw down your nest egg at less than the traditional 4% per year if possible, etc.

But the strategy I described in the article M.D. commented on – investing in Perpetual Dividend Raisers (stocks that raise their dividends every year) – should be a part of your plan, too.

Don’t Let Yourself Outlive Your Money

There is a caveat, however: Don’t risk any money in the stock market that you’re going to need in the next few years.

For example, if you have a $500,000 nest egg and plan on drawing down 4% – or $20,000 per year for living expenses – consider leaving at least $100,000 in secure, guaranteed assets like a CD, or Treasuries, etc.

That’s not money that should be put at risk.

However, for the money that you won’t be touching for a while, by investing in Perpetual Dividend Raisers, you’re generating a strong yield that should increase every year.

And if you’re worried about risking your long-term funds in the stock market, consider that since 1937, the market has risen 91% of the time over 10 years.

And during those 10 years, while your money is in the market, you’ll collect more and more income as your dividends get raised, eventually hitting double-digit yields if you’re in the right stocks.

For example, Brookfield Infrastructure Partners (NYSE: BIP) is a stock currently recommended in The Perpetual Income Portfolio, which is included in The Ultimate Income Letter.

Brookfield currently pays a 4.3% yield and has raised its dividend every year for the last five years at an average increase of 14.3%.

If the company is able to maintain that level of dividend growth, an investor who bought shares today would achieve a yield of 7.37% in five years, 11% in eight years and 14.37% in 10.

Year

Estimated Annual Dividend

Dividend Yield Based on Current Price

1

$1.50

4.32%

2

$1.72

4.94%

3

$1.96

5.64%

4

$2.24

6.45%

5

$2.56

7.37%

6

$2.93

8.44%

7

$3.34

9.62%

8

$3.82

11.00%

9

$4.37

12.58%

10

$4.99

14.37%

In fact, in The Ultimate Income Letter, our current yield based on our entry price in December 2011 is already 5.8% – a full 1.5% higher than Brookfield’s current dividend yield of 4.3%.

And if you think this type of income projection is a little optimistic, then consider that if you had bought Brookfield shares in February 2008, your current dividend yield would be 7.19%

So, even if you’re at an advanced age and 10 years sounds like a long time, if you don’t need the principal soon, it’s well worth your while to consider a Perpetual Dividend Raiser like Brookfield. Because if you’re around in 2020, chances are it’s not going to be easy to find a quality investment with a double-digit yield.

Anything can happen. You could be tragically struck down by a sudden illness like M.D.’s friend and be gone in days or weeks. You could be hit by a bus crossing the street. Or, with a little bit of luck and with help from the ever-advancing medical field, you could live well beyond your expectations.

Make sure your money will, too.

Put some of it into Perpetual Dividend Raisers, and you’ll increase your odds that the funds will be there years from now when you need them.