How to Live Long and Prosper
“Live long and prosper.” That’s the famous Vulcan blessing associated with Mister Spock.
I hate to break it to Trekkies, and all of us, but achieving both is increasingly difficult.
In fact, to retire in comfort today you’ll need more money than did any generation in history.
It’s not fair, I know. But two powerful trends are conspiring to make retirement a higher hurdle then ever – certainly harder than it was just a generation ago.
Those trends are longer lifespans and low interest rates.
Americans are living longer than ever before, thanks to medical advances, as well as better guidance about health and fitness.
(By the way, if your sensibilities tend toward the macabre, check out this website to see how causes of death today compare with causes of death at the turn of the 20th century. We’ve got our problems, but at least none of us is wasting away from tuberculosis.)
The average life expectancy for a 65-year-old has grown to 19.3 more years, versus 17.2 in 1990 and 15.2 in 1970. Anecdotally, we’ve all noticed that more and more relatives, friends and acquaintances tend to be healthy and active into their late 80s and 90s. And the number of centenarians is skyrocketing, up 44% since 2000.
It’s great news that folks are living longer, of course. But there’s a downside: if you retire at 65, you may need to generate sufficient retirement income for another 30 or 40 years. Or more!
And that leads to the second downside: low interest rates. In the past, generating income was easier. Part of your portfolio could be invested in fixed-income securities or mutual funds that generated moderate income without too much downside risk. You could even keep some cash in money market funds and count on a few percentage points of annual yield.
But that was then, this is now. Money-market yields are a joke. Short- and medium-term government or high-quality corporate bonds provide only a nominal yield. There are certainly plenty of opportunities to invest in bonds, but rarely in ways that combine preservation of capital with a handsome yield.
And there’s little relief on the horizon. The Fed may raise interest rates in the coming quarters, but as we’ve discussed it’s hardly a slam dunk in the short run, and major rate hikes don’t seem likely, period. We’re in a low-interest-rate environment for the foreseeable future.
What to do?
First, make sure you save more than enough for retirement (easier said than done, right?), and if you’re able, consider working longer than the traditional retirement age, at least part-time, to keep building your nest egg rather than depleting it.
Second, keep investing in appreciating assets while you’re retired. Over longer terms, the returns from more-volatile investment classes, such as stocks, far outweigh the downside risk.
Third, don’t rely solely on conservative bonds and bond funds for income. We can show you how to generate higher income from a variety of sources, including master limited partnerships, options, Canadian stocks and utilities.
Maybe Mister Spock’s blessing is attainable after all.