People are living longer than ever before. Thanks to advancements in health care and an ever-increasing focus on wellness, many are living long enough to watch their great-grandchildren grow up. While this longevity is great news, it means that people now need more funds than they ever anticipated to retire comfortably. Bonds were once considered to be the way to go for cautious investors, but alternative investment ideas for boomers are starting to change traditional views on planning for the future.
Baby boomers are now reaching the age of retirement, and the numbers are in. Data from Fidelity’s 2020 Retirement Savings Assessment reveals that 34% of baby boomers do not believe they have enough money saved to live the lifestyle they desire in retirement. Many resort to pinching pennies. Countless boomers do not have enough in their retirement savings to travel, pursue hobbies or splurge on their grandkids. Some do not even have enough saved to meet their own basic needs. What’s the solution? Perhaps it’s time for a more creative retirement investment strategy.
Traditionally, most investing advice for boomers leading up to retirement includes investing in government bonds. Bonds have historically been considered a safe, conservative investment. Bonds almost ensure that the investment is protected. Unfortunately, they don’t consider inflation, and there are other disadvantages. And in today’s era of ultra-low interest rates, the future of bonds is uncertain.
Greg McBride, senior Vice President at Bankrate.com, recently told the Huffington Post, “There is a ton of risk in the bond market, concentrated among long-term bonds. And a lot of investors that went into bonds under the guise of safety could get a rude awakening if interest rates rise and the value of those long-term bonds plunges…You are getting very little in the way of income, and you’ve got a risk of significant downside volatility at this point.”
Does that mean you should ditch bonds? Not necessarily. As the experts tell HuffPost, hanging on to short- and medium-term bonds and lightening up on 20-year bonds allows you to increase the safety profile of your portfolio without losing much income.
Fortunately, boomers re-examining their current retirement plan for the future still have many options to supplement bonds.
Baby boomers nearing retirement age should rethink their retirement investment strategies when it comes to bonds. They should consider more aggressive approaches. Why? Measured risk in investments will help ensure that sufficient funds are on hand during the retirement years.
Before modifying any current investments, you should get the most up-to-date projection of your retirement income. Blackrock’s CoRI index retirement calculator is easy to use, and it considers bond and annuity prices in its estimate.Armed with a current retirement income number, boomers should explore nontraditional investment options:
The golden rule has long been to allocate 60% of your portfolio in stocks and 40% in bonds. This number should not be a hard and fast rule, and it does not apply to younger individuals who can afford an 80/20 mix. Daniel Hill, president and CEO of Hill Wealth Strategies, tells U.S. News & World Report: “The 60/40 portfolio is no longer a good option for investors to place their entire retirement in because people are living longer and should plan for 20 to 30 years of retirement. This has potential to be problematic because as inflation rises, so will expenses when they’re in retirement.”
One alternative investment idea is using the dollar-cost average strategy, suggested by Hill’s peers. The goal is to mitigate risk and weather market volatility by investing a set amount of your overall allotment to a certain asset (e.g., stocks) periodically, over time.
Coming up short for retirement but not yet retired? It may be necessary to add some measured risk to the stock portfolio. Be sure to consult a variety of reputable online resources for advice when considering changes. It’s also a good idea to seek the advice of a trusted and well-established financial advisor.
One of the biggest benefits of real estate is that its value is not linked to the stock market. If owning and maintaining residential or commercial property sounds overwhelming, there are two alternatives that you can implement into your retirement investment strategy: real estate equity funds and REITs.
A real estate equity fund allows accredited investors to pool capital and invest in a professionally managed real estate holding. These can either be equity or debt holdings. Michael McVickar, in-house counsel for Origin Investments, states, “[A] tax benefit of investing in private real estate is the ability to shield income generated by investment properties through depreciation. This allows real estate equity investors to take advantage of the long-term benefits of substantial cash flow with a low tax burden.”Real estate investment trusts, or REITs, are another way to invest in real estate without having to maintain a property. REITs can be traded like ETFs and allow baby boomers to invest in a group of properties managed by a professional, and they provide diversification and an additional stream of income.
Pensco Trust blogger Christopher Orr explains that investors can invest in private equity with their IRAs, either through a fund or directly into a company. There is a choice between private equity investments with a single focus and those with a commingled focus. Private equity investments also offer potential tax advantages, according to Orr. Yet, private equity returns can be counted as unrelated business taxable income.” It is key to review this investment strategy with a tax advisor for any potential tax consequences. 4. Stay in the Game
Maybe your retirement investment strategy is more of a semi-retirement strategy. Just as people remain physically healthy for longer, their mental acuity also remains vibrant. Boomers They may revisit an aspect of a previous business that they wish to pursue, or they may go off in another direction entirely. Is there a specialized personal interest or hobby that can be turned into a business?
This author’s Kansas-born “boomer” uncle did just that. “Uncle Tim” melded together his interest in cutting-edge drone technology and the needs of corporate farm owners and created a viable business. He was able to do this by leveraging his previously unused photography degree and his post-retirement interest in drones!
Bonds and other safe investments remain good options for those nearing retirement age. However, they cannot be relied upon to completely finance the Golden Years. As retirement approaches, considering alternative investment ideas and thinking outside the box may provide boomers with the financial means they need to live out their post-retirement years.
[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Goal-Based Investing—Planning for Key Life Events, Investing in Real Estate Through Equity Crowdfunding and Alpha, Beta & Other Key Concepts. This is an updated version of an article originally published on September 22, 2017.]
©All Rights Reserved. April, 2020. DailyDAC™, LLC d/b/a/ Financial Poise™
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