Retirement

Surviving Retirement in a World Without Safety Nets

By Charles Sizemore  |  September 26, 2019

Retirement today is a brave new world.

Pensions are gone, as are most traditional streams of income.

Even if you were responsible enough to save for retirement, good luck surviving on bond yields of less than 2%. On a million-dollar portfolio, that’s less than $20,000 per year.

Now and then, I’ll have readers write in and ask me questions about retirement. And while I’m not allowed to give individualized investment advice, I enjoy offering help to the extent I can.

Mark M wrote in to say:

Dear Charles,

I have been employed by the same company for over 21 years, giving them my loyalty. Even when I had been offered some other opportunities, I elected to stay. A few weeks ago, my position was eliminated and I was forced into early retirement when I was not ready. I am 59 1/2 years old and have two 11 year old identical twin sons, with autism, and now with no medical insurance to cover their needs. I have a family to support, as well as a mortgage and the high property taxes of Illinois.

I am sure you can appreciate my situation and with the $1MM I have in retirement savings (401k & IRAs both Traditional and Roth), I need to figure out how to invest to generate good monthly income. I am writing you for any guidance or suggestions you can offer me. I know you cannot tell me what to do, however, any guidance or situational examples would be appreciated. 

My family and I are in desperate need of any prayers and any help we can get, not sure which type of company will be looking for a 60-year old professional employee. It may be difficult to get a position at the level in which I was employed. 

Mark, I feel for you.

At 59, you’re in the prime of your career. But unfortunately that experience comes at a price that a lot of companies don’t want to pay. And worse, in the eyes of a large, soulless corporation, you’re not really a person. You’re a budget line item.

So much for loyalty…

More Distinguished Than the Competition

The good news for you is that, frankly, your competition is terrible. A lot of companies are realizing that, while Millennials workers are cheaper, you get what you pay for: A generation of workers more interested in candy walls, dog-friendly campuses, and craft beer in the breakroom than on actually advancing their careers.

I suspect that you’ll find a job in short order, particularly given how tight the labor market is. My recommendation would be to talk to a few recruiters, also known as headhunters. It’s their job to find you a job, and they’ll be straight with you on salary expectations. If you have to take a modest pay cut, that’s a bitter pill. But having a slightly less lucrative job is better than no job at all.

As for how to invest your savings, I have a few general comments.

Steer Clear of Yields

First and foremost, do not reach for yield. It’s the single most dangerous thing you can do. That extra percent or two in yield won’t matter if the payer hits the skids and defaults.

Investors today are completely ignoring risk in the fixed income space, and that’s dangerous. So, avoid taking large positions in junk bonds. Small positions in junk bonds, particularly those with only a few years to maturity, might be fine. But avoid taking large positions and avoid long-term bonds for the time being.

I’m a little less wary of dividend-paying stocks at the moment. It’s too early to say, but it’s looking like we may be in the early stages of a rotation from growth stocks into value stocks. So, allocating a piece of your portfolio to the high-yield stocks I write about in Peak Income is probably a good idea. But even here, don’t overdo it.

My rule of thumb is to never put more than about 3% to 5% of your portfolio in any single stock. There’s just too much that can go wrong.

Think of it like this: If you have a 5% position blows up on you and loses half its value, the hit to your total portfolio is a manageable 2.5%; if you had 20% of your portfolio in a single stock that lost half its value, that’s a 10% hit to your portfolio. It might not kill you, but it’s certainly going to hurt more.

A Few More Comments on Investing

I think allocating a portion of your portfolio to active strategies also makes sense if you have the time and temperament to manage it.

Buy-and-hold strategies work great in bull market. But they are brutal during bear markets. By keeping your trading horizon shorter, you can avoid taking large, devastating losses.

As an example, my Peak Profits strategy holds a concentrated portfolio of 10 stocks and has a monthly holding period. It’s a more aggressive strategy for sure, but historical returns have been solid. And it tends to be minimally correlated to the S&P 500 over time. Active strategies like these can add diversification to your portfolio.

Finally, don’t be afraid to hold a little more cash than usual. If you may be out of work for a while, you’ll want to have enough cold, hard cash on hand to cover 6-12 months of expenses at a minimum.

As an alternative to cash in the bank, you might also consider U.S. government T-bills. Four to eight week T-bills currently yields around 2%. You’re not getting rich at that yield, but at least it’s a respectable return on your cash.

In short, the best thing you can do is to manage your money and invest wisely. As I said, if you have the time and temperament to manage an active strategy, that’s likely going to have a better payoff. And a strategy like Peak Profits  is certainly a viable option.

And today is the last day that you’re able to get in with a limited-time pricing. Click here to learn more…

No matter which path you choose, I think you’ll do just fine.

Best of luck, Mark.

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Charles Sizemore

Income and Retirement Strategist, Charles Sizemore, CFA specializes on dividend-focused portfolios and building alternative allocations by finding value opportunities outside of the mainstream stock market.

Charles is the executive editor and portfolio manager for Dent Research's premium newsletters, Peak Income and Peak Profits.

He is also a frequent guest on CNBC, Bloomberg TV, Fox Business News and Straight Talk Money Radio, and has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post. He is a frequent contributor to Forbes, GuruFocus, MarketWatch and InvestorPlace.com.

Charles holds a master’s degree in Finance and Accounting from the London School of Economics in the United Kingdom and a Bachelor of Business Administration in Finance with an International Emphasis from Texas Christian University in Fort Worth, Texas, where he graduated Magna Cum Laude and as a Phi Beta Kappa scholar. MORE FROM AUTHOR