8 Investments That Keep Baby Boomers From Becoming Poor in Retirement
Written by
Jordan Rosenfeld
Edited by
Joe Evans
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Retirement is often lauded as a time when life gets easier since you’re no longer working and can finally indulge in a life of greater leisure.
However, if you haven’t planned financially for retirement, you may find your dreams of a simpler life are more like a nightmare. It’s even possible to fall into poverty, as your expenses outpace whatever income you have set up.
To ensure that you don’t find yourself poor in retirement, here are eight investment ideas that can keep baby boomers financially sound at this crucial stage of life.
Balance With Equities
For baby boomers already retired or nearing retirement, it is important to maintain a balanced investment strategy that includes equities, according to R.J. Weiss, CFP and CEO of the personal finance site The Ways to Wealth.
Equities are just another word for stocks, but they speak more to the equity you hold in the company whose stocks you buy.
Weiss said, “Equities, particularly low-fee index funds, still play a significant role in ensuring growth in a retirement portfolio.”
Though some experts recommend shifting toward more conservative investments as retirement approaches, Weiss suggested, “It’s important not to decrease exposure to equities excessively. They offer the necessary growth potential to prevent your portfolio from stagnating.”
Invest in Bonds
Bonds have a promising long-term outlook, due to the recent rise in interest rates, Weiss pointed out.
“This timing is advantageous for baby boomers looking to add stability to their portfolio,” he said.
While short-term investments such as CDs or high-yield savings accounts may seem appealing due to their recent interest rate hikes, Weiss cautioned that rates can decrease as fast as they have increased.
“So, it’s wise to take advantage of high bond yields now,” he said, “rather than risk holding your investments into short-term products.”
Convertible Bonds
Another form of bond is the convertible bond, which John Browning, a financial advisor and founder of Guardian Rock Wealth, calls “a hidden gem.”
He explained that these financial instruments offer the best of both worlds, both steady income and the potential for capital appreciation. Imagine a bond that can transform into stock when the market is doing well. Look for companies with convertible bonds in their portfolios, especially those in industries with promising growth prospects like renewable energy or tech.
Explore Closed-End Municipal Bond Funds
Other options are closed-end municipal bond funds, which Browning calls “the unicorns of the investment world — rare but magical.” These funds trade on the stock exchange.
It’s a good idea to buy them when they’re trading at a discount, Browning said, “so you not only get a tax-efficient income stream from municipal bonds but also the potential for capital gains when the market corrects its pricing.”
Treasury Inflation-Protected Securities (TIPS)
Another investment option is Treasury Inflation-Protected Securities (TIPS), a type of U.S. Treasury bond designed to help protect against inflation, Weiss explained.
“As inflation rises, so does the value of TIPS, ensuring your investment’s purchasing power,” he said. “They provide a fixed interest rate, but the principal adjusts with inflation, measured by the Consumer Price Index.”
For example, Weiss said, if you invest $10,000 and inflation is 2%, your principal grows to $10,200, and you earn interest on this new amount as well.
Dividend-Paying Stocks
Investing in companies with strong track records of paying dividends is a great strategy for boomers, according to Jeff Rose, CFP and founder of Good Financial Cents, because they not only offer regular income but also the potential for capital appreciation.
“For instance, well-established companies like Johnson & Johnson or Procter & Gamble have consistently paid and increased their dividends for decades,” Rose pointed out. “These stocks can be more stable than growth stocks and provide income even in volatile markets.”
Fixed Annuities
Annuities, which are investments that insurance companies offer, also can be great tools for securing stable income in retirement, Rose said.
“For example, a fixed annuity might offer a guaranteed interest rate over a specific period,” Rose explained. “Let’s say you purchase an annuity for $100,000 with a 3% annual return. This would provide a predictable and steady income, often monthly, for a set number of years or even for life.”
These investments offer a reliable way to ensure a consistent income stream, especially for those concerned about outliving their savings.
Dabble in Direct Participation Programs (DPPs)
A last investment opportunity that not many people know about is Direct Participation Programs (DPP), Browning said. DPPS involves multiple investors putting money into long-term projects.
“These are investment opportunities that allow you to participate directly in cash flow and tax benefits of underlying assets, often in real estate or energy projects,” Browning said. “Think of it as an exclusive backstage pass to the investment concert.”
Real estate DPPs, for instance, can offer consistent returns and tax advantages that might just give your portfolio the edge it needs, he said.
The best strategy is to dip your toes into as many investment opportunities as you can as soon as you can to build up the income you need to live a good life in retirement. As always, you should consult a professional financial advisor to determine the best approach for you.
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