Welcome to today's live chat about investing for income in retirement!
Hello, everyone. Looking forward to your questions.
We look forward to taking your questions.
To get started, can you tell us -- with interest rates at “exceptionally low levels,” is it still possible for retirees to squeeze enough income from investments to cover living expenses?
Absolutely. Clearly, this is a tremendously challenging environment for income investors. But investors can still find decent yields by casting a very wide net and diversifying among corporate bonds, emerging market debt, closed-end funds, dividend paying stocks and other holdings.
That said, it's important to keep in mind that money to cover near-term living expenses really must be kept in the safest holdings -- and generally they're yielding next to nothing. But even there, it's possible to find slightly better yields by looking at online savings accounts, high-yield checking, and other vehicles.
Thanks, Eleanor. Alright we have several questions in the queue, so let's get started.
Here's one from Robert: he wants to know if you recommend annuities.
In searching for higher yields, it's important, though, to remember the rule, the higher the yield, the greater the risk. So try to temper your expectations.
Hi Robert. That depends on a great many factors, including your time horizon, investment goals, and your current portfolio holdings. Since you mention annuities, you may be interested in a guaranteed stream of income. You may want to consider one of the simplest types of annuities, an immediate fixed annuity. You invest a lump sum and immediately start getting a guaranteed income stream.
It depends on what other assets you have, your retirement goals and your age. We never advocate placing all of your money into one pot. So if you're in your 60s and want to make sure you have enough money to cover certain fixed costs, consider an immediate annuity for just part of your assets. If you have a pension, you may not need an annuity.
Robert, you need to be careful about other annuity products. Deferred variable rate annuities have many costs and other moving parts associated with them. They're fine under certain circumstances, but you need to understand what you are buying.
Thanks, Susan and Eleanor. That's certainly an important point to make -- be careful about placing all your eggs in one basket.
Alright, ready for our next question from Xanthippe?
That is really tough. Your parents could consider some dividend-paying stocks with some of the safest, soundest companies, such as Johnson and Johnson and General Mills. Steer clear of financial companies for now. But, of course, with reward there is some risk.
Hi Xanthippe. If this is money they'll need for living expenses within a couple of years, your parents will have to remain extremely conservative. But if they won't need the money for a couple of years, they might consider a fund that holds agency bonds such as Ginnie Maes. These are backed by the U.S. government and tend to yield more than comparable Treasuries.
One solid fund in this category is Vanguard GNMA (VFIIX), which yields nearly 3%.
A couple of agency bond funds we like are Vanguard GNMA and Fidelity GNMA.
Some great suggestions, all. Thanks!
Here's our next question from Cathy
Hi Cathy. One of the easiest ways to buy gold is through an exchange-traded fund such as SPDR Gold Shares (GLD) or iShares Gold Trust (IAU). These investments are backed by physical gold.
Thanks, Susan. Great suggestion.
To piggyback on Susan's last comment, local community banks and credit unions are also worth taking a look at to find a good deal.
We would not recommend that you buy actual gold. We really don't know how to sort out the reputable companies from the non-reputable ones. Many advertise on the radio,
Also, keep in mind that gold is taxed as a collectible, so any gains are subject to a maximum 28% rate, no matter how long you hold it.
Another important caveat to point out, Susan. Thanks.
For better diversification among commodities, you might consider a broader fund such as Harbor Commodity Real Return (HACMX).
Thanks, Eleanor. Some great advice for Cathy.
Here's a quick question related to our comments earlier about dividend-paying stocks.
In this low-interest rate world, many small investors are taking on greater risk in a quest for ever-more-elusive yield. Investors in or near retirement, however, can’t afford to follow this risk-taking crowd. Nor can they afford to hide out in Treasury bonds, which deliver negative returns after factoring in inflation. Nonetheless, it is still possible for retirees and preretirees to keep the income stream flowing.
