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The Importance of Income in Retirement

The Importance of Income in Retirement
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By Friday, 19 January 2018 02:07 PM Current | Bio | Archive

The primary pressing need for retirees is to develop some sort of income. Without a steady paycheck coming in each month, you’ll be on your own to come up with the money you need to pay for housing, food, and medical bills. That’s why it’s important to start planning for retirement decades in advance rather than finding out once retirement is just around the corner that you have no way to support yourself.

Live Off Savings, Or Keep Working?

If you haven’t saved enough money to live on comfortably in retirement, you may be forced to continue working in order to have enough income to survive. That’s something that more and more retirement-age Americans are doing. The labor participation rate of 65- to 74-year-olds is expected to hit 32 percent by 2022.

Many more older Americans are working full time than ever before, with millions more continuing to work part time, either to make ends meet or just to provide fulfillment in their lives that they lacked after retiring. But if you’re going to continue working after you reach retirement age, that’s a decision that you should be able to make on your own, not something that you’re forced to do because you haven’t saved enough money.

Asset Allocation As You Age

Conventional investment wisdom has always been to move from more aggressive investment assets when you’re young to less aggressive assets as you age. Traditionally that has meant heavily investing in stocks to start out, with a lesser investment in bonds and cash. As people age, their percentage of investments in stocks slowly is decreased while their bond and cash-equivalent investments increase. The idea is to grow assets quickly early on, then maintain those assets while reducing risk as you grow older.

But what about income? Conventional strategies often assume that you’ll use up your principal in retirement. That requires you to figure out how much money you’ll spend per year, predict how long you’ll live post-retirement, and reach a net present value of retirement funds that will allow you to use your calculated amount of principal each year of retirement.

However, there are other strategies that try to maximize income without having to dip too much into principal. Those include investing in dividend stocks and high-yield bonds. Stocks that pay dividends are often those of older, well-established, financially sound enterprises. Their stock values aren’t going to shoot up in price any time soon, but the dividends they pay could provide you with extra income in retirement so that you don’t have to sell off your holdings of principal.

High-yielding bonds could be risky if you invest in junk bonds, and the bond market has experienced historically low interest rates for the past decade, so it has become more and more difficult to find bonds that offer both security and a decent yield. However, if you believe that interest rates are set to increase in the future from their current lows, then there could be an opportunity in the future to make bond interest income a viable part of your retirement income plans.

How Can Gold Help Your Retirement Portfolio?

Conventional investment strategies often overlook alternative assets such as gold. Their focus is purely on financial investments such as stocks, bonds, CDs, or cash, all of which are dependent for their returns on the performance of Wall Street. Gold isn’t bound by any company’s balance sheet or by the performance of the economy in general. Its ability to protect wealth continues year after year.

Gold is significantly less volatile than stocks, too, and it doesn’t see the same bubbles and crashes that equity markets do. Yes, the price does rise and fall over time, but the increases and decreases are much more gradual. Many financial advisers like to point out that the current price of gold is significantly less than its all-time high. Yes, that’s true, but gold isn’t an investment that is made for short-term asset appreciation, it is made for long-term asset protection. If you bought gold at its all-time high price then, yes, you would have suffered a paper loss for now. But where will you be 10, 20, or 30 years from now?

Since the US government closed the gold window in 1971, gold’s annual performance exceeds that of stocks. Gold’s price since then has increased at an average annual rate of 7.7%, versus 7.5% for the Dow Jones Industrial Average and the S&P 500. And consider, that’s with gold still down nearly $600 from its all-time high and with stock markets currently in the midst of a record-breaking bubble. That should make gold’s ability to provide asset growth and income readily apparent.

Then consider the example of two identical portfolios, one invested 100% in assets that try to match the S&P 500 and the other that’s 70% invested in S&P 500-matching investments and 30% in gold. If both portfolios had been equal in value at the height of the housing bubble-era stock market, the 70/30 portfolio would have been worth 57% more at the worst part of the financial crisis and would still be worth more today. And again, that’s with gold well off its all-time highs and stocks currently at their all-time highs.

Gold provides a measure of portfolio diversification that can help retirees maintain a steady flow of income throughout retirement. It protects assets against declines in stock prices and maintains its value against inflation. When stocks perform well, gold stays steady, but when stocks decline then gold very often increases in price. And with a gold IRA, you can invest in gold with the same ease and tax advantages as a traditional IRA.

If you have to sell assets in retirement in order to gain income, a portfolio invested in stocks and gold can allow you to sell stocks when they’re high to maximize your income. Then whenever stocks start to decline and gold increases you can sell some of your gold to keep from having to take losses on your stocks. Making sure that you have that diverse portfolio of assets can be the key to maintaining a healthy level of income in retirement.

Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.

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The primary pressing need for retirees is to develop some sort of income. Without a steady paycheck coming in each month, you'll be on your own to come up with the money you need to pay for housing, food, and medical bills. That's why it's important to start planning for...
retirement, IRA, portfolio
Friday, 19 January 2018 02:07 PM
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