Staying Afloat Up to – and Through – Retirement

Steve McDonald By Steve McDonald
Bond Strategist, The Oxford Club

Two-Minute Retirement Solution

The boomers’ rules for investing in retirement are a world apart from their parents’… and it’s all thanks to the “longevity bonus.”

The no-brainer preservation of capital through CDs and savings that our parents used worked only because they didn’t live long enough to worry about the effects of inflation over 25 or 30 years.

But even the 10 and 15 years of exposure to inflation the previous generation had in retirement still ate into their money. Over just 10 years, 3% inflation reduces the buying power of a retirement income of $60,000 by $16,000.

You just dropped to $44,000 of buying power.

We boomers will have to fund 30 years of retirement and, in many cases, more. This number may seem crazy, but over those 30 years, you’ll need $150,000 per year to replace just $60,000 in buying power.

As you know, our medical expenses skyrocket to a total of about $250,000 per couple in our later years. And that number is increasing annually.

The fact that we will live longer than any previous generation has – into our 90s will be common – requires us to move our investment time horizons out far enough to meet the new, longer life expectancies.

Unless you know of some pot of gold you can tap into when the need arises, I’d start thinking about how you can prepare for those extra years. And that means growing your money.

The solutions to this so-called longevity bonus aren’t that difficult to manage. A portfolio of dividend-paying stocks, ones that have a long history of not just paying their dividends but increasing them as well, and a diversified portfolio of high-quality corporate bonds will do the job.

Yes, I know that also means more risk. But it’s either a little more risk or a guaranteed trip to the poor house. You choose!

The combination of above-average market returns from your bonds and growing dividends from the stock portion of your portfolio can and will put you over the inflation hurdle. They’ll also provide the income and the growth necessary to pay your bills and have a little breathing room as well.

We have to change our thinking about time and money now – before the inflation curve overtakes us and we spend our later years in poverty.

Good investing,


P.S. Is fighting inflation really the retirement you imagined or deserve? The good news is there’s an alternative… one without restrictions or employers. And best of all, it will take less than four hours of your time a week. My colleague Chief Income Strategist Marc Lichtenfeld calls it the “Perfect Retirement Business.” Click here to learn more.