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Four things baby boomers can do to make our retirement years more financially secure.

In my last column I wrote about the fact that many baby boomers are facing retirement with less than they hoped for in retirement savings.  We are also facing record-low interest rates so funds allocated to bonds are generating very modest returns.  So what can we do about it?

Saving a bit more or spending a bit less is always a good idea.  Unfortunately we don’t have that much time left in our working careers, so small changes in savings and spending rates now will have a relatively small impact on our life styles during out retirement years.   Are there any things we can do that will have a bigger impact?  I have a few ideas.

The simplest idea is to work a few extra years at your current job.  This has a big impact.  Every extra year that you work, is also a year that you do not take any income from your savings.  So it’s a double win.  If you are between 62 and 70 and your earned income allows you to defer the start of taking social security, it also increases the amount of your future social security checks by about 6% for each year you defer. 

Even if you do not want to stay in your current job you might be able to accomplish this work extension by thinking in terms of an “encore career”. Perhaps it means working 3 or 4 days a week so it will feel like a half-step into retirement.  Making  $20,000 or $30,000 per year for the first five years of your “retirement” is equivalent to having an additional $100,000 to $150,000 in savings.   It’s hard to save that amount in a few years, but you might be able to earn that amount over five years in an encore career.

Current bond yields present a real challenge to folks who are looking to live off the income from their investments.  When bond yields were at more normal levels (6%-8%), it was common to advise people in their 60’s to allocate 50% or more of their portfolio to bonds.  This generated a nice chunk of income and kept half of their principal away from the risks of the stock market.

Unfortunately for the retiring baby boomers interest rates are close to record lows.  The current yield of a ten-year US Treasury bond is a measly 1.8%.   This looks depressingly close to 0% to me.  To make matters worse, when interest rates go back up, as they inevitably will, the market value of that bond will drop.   So if you need to sell your bonds before maturity you will experience a loss of principal. 

Consider buying income-producing real estate as an alternative to bonds.  Yes, it’s more work, but what the heck, you’re going to be retired and you might be looking for something to do.  When it comes to real estate, record low interest rates are your friend.  You can buy a two or three family home in Portland right now and rent it out and achieve a 6-7% current yield after expenses.  Your total return will be even higher if real estate prices climb over the time you own the property.

My third suggestion is to not give up on stocks.  Yes they are volatile over the short term, but over every twenty-year period since 1934 they have out performed risk-free returns like CD’s and money market funds.  And chances are, you are going to be around for the long term.  A 60 year old today has a life expectancy of at least 25 more years.   Your expenses will go up over that time period so you need to see some growth of your principal.   Even if you have only 20% or 30% of your assets in stocks it will lower the risk of your outliving your money.  And with the relatively low exposure you will be able to psychologically handle the occasional down drafts in the stock market.

My last idea?  Travel to a developing country, meet new people, learn a new language, while serving your country and adding to your retirement savings. How? Join the Peace Corps.  You will have the experience of your life.  And as long as you are healthy, they welcome volunteers at any age.  In my next column I will show how joining the Peace Corps could generate a $100,000 plus swing in your financial circumstances.  Stay tuned.