How to Make Your Retirement Savings Last

Steve McDonald By Steve McDonald, Bond Strategist, The Oxford Club

Two-Minute

Many baby boomers will be retired almost as long as they were in the workforce – 30 years will not be unusual. That’s a long time to be unemployed.

With that in mind, a recent MarketWatch article listed five things that must be addressed – or they can turn into big surprises during that long retirement. One in particular can turn your golden years into a nightmare.

The five were:

  • Live within your means before and during retirement.
  • Don’t expect expenses to go down in retirement.
  • Healthcare costs.
  • Inflation.
  • Half of us, whether we want to or not, will not be able to work during retirement.

But the one that will have the greatest effect on the success of our later years is inflation.

Slowly Eating Away at Your Retirement

30 to 40 years of not working gives inflation a very long time to take its annual deduction from our spending power. Time is your enemy in this case.

The bite will show up as higher prices on everything, and there doesn’t have to be a major disruption in the economy for it to gut your accounts.

$1 million worth of goods and services in 1982 – that’s just 30 years ago – now costs $2,341,875! 2.3 times as much! If you hadn’t planned for it, you now have less than half of what you started with.

Yes, I know there was some horrendous inflation in the early ‘80s that could be skewing this number to the upside. But consider what future effect all the money printing that is going on now will have on our spending power 10, 20, 30 years down the road. It will take time to surface, but it has to register and it is as certain as the sun rising.

To make a 30-40 year retirement work you have to address growth in retirement as well as before, and there are very few investments that are suitable for retired persons that will do that.

Your options:

  • Dividend-paying stocks that have a history of increasing their dividends.
  • A certain type of corporate bond that pays an interest rate high enough to beat the inflation curve.
  • Annuities that have an inflation kicker.
  • Certain well-managed growth and income funds with an annual planned withdrawal that provides income and some growth.

If you don’t plan for the effects of inflation, plan on not having enough money to pay your bills.

Editor’s Note: As Steve mentions, companies with a long history of increasing dividends are one of the best ways to fight inflation. In fact, Marc Lichtenfeld believes it’s THE best way.

That’s exactly why he wrote his best-selling book, Get Rich with Dividends, and his follow-up newsletter, The Oxford Income Letter. Since his first issue of the Income Letter back in April, Marc’s portfolios have generated a handful of double-digit gains for his subscribers. Keep in mind, these are supposedly “boring,” safe income stocks.

His latest research has pointed him toward the inevitable crash in the bond market. Those who prepare properly will see a one-time windfall of up to 164% when interest rates finally reach their tipping point. Better yet, these “spread trusts,” as Marc calls them, are already churning out double-digit yields.

To learn how you should prepare yourself, click here.