Here’s What Baby Boomers Are Investing in for Retirement

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Baby boomers are the largest generation to retire. However, a Stanford Center on Longevity study found that the median amount boomers have in tax-advantaged plans is $290,000 for early boomers born between 1948-1953 and $209,246 for mid-boomers. 

Considering the rising cost of living, the generation is in search of investment strategies that can safely grow their retirement account balances. Here’s what baby boomers are investing in for retirement.

1. Target-Date Funds

Target-date funds are relatively low-cost, professionally managed investment vehicles designed to align with an individual’s expected retirement date. They automatically adjust asset allocation over time, becoming more conservative as retirement age approaches, making them a popular choice for those looking for an automated, hands-off approach.

Brokerages such as Vanguard offer funds with an average expense ratio of 0.08%. Retirement target dates are typically available in five-year increments between five and 50 years and even offer funds for individuals already in retirement.

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2. Cash and Cash Equivalents

The current bearish market may be an opportunity for investors willing to “buy the dip.” However, such a strategy may be best for long-term investors. For individuals who are currently retired (or about to be), cash or cash equivalents such as money market accounts, high yield savings accounts or CDs may be the wisest choice to preserve capital. 

Cash and cash equivalents like money market funds or certificates of deposit provide baby boomers with liquidity and a safety net for short-term expenses and emergencies. High yield savings rates and CDs with longer terms are currently hovering around 5%.  

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3. Stocks and Equities

Baby boomers may maintain a portion of their portfolio in stocks and equities, albeit with a more conservative approach to avoid unnecessary risk. Dividend-paying stocks and established blue-chip companies are often favored for their stability and income potential. 

Some baby boomers use dividend reinvestment plans (DRIP) to grow their wealth gradually. DRIPs allow investors to automatically reinvest dividends into additional shares of the same stock, compounding wealth over time. Some may also consider index funds and exchange-traded funds (ETFs) to diversify their equity holdings. 

4. Bonds

Fixed-income investments like bonds and bond funds are attractive to baby boomers for their stability and income generation. Many opt for a mix of government bonds, corporate bonds and municipal bonds to balance risk and return. 

Bonds can provide a steady stream of income, making them an essential component of a retirement portfolio. For example, iShares TIPS Bond ETF consists of Treasury inflation-protected securities with a five-year return of 9.99%. A 10-Year Treasury Note is currently yielding 4.69%.  

5. Real Estate

Real estate, including rental properties and real estate investment trusts (REITs), are a popular choice for baby boomers seeking to generate passive income and diversify their investments. However, REITs are truly passive while being a landlord requires work. 

Real estate can offer both appreciation and rental income, making it a valuable asset class in retirement planning. However, managing rentals can be labor-intensive (collecting rent, property maintenance, potentially having to evict unsuitable tenants, etc.) unless boomers hire out a management company to oversee rentals.

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6. Annuities

Annuities are financial products that provide regular payments over a specified period or for life. Immediate annuities, in particular, can offer a predictable stream of income in retirement. However, it’s essential to carefully evaluate the terms and fees associated with annuities.

7. Social Security Optimization

Maximizing Social Security benefits is crucial for many baby boomers. The current full retirement age is 67 years old for people attaining age 62 in 2023. Delaying benefits can result in larger monthly payments, and strategies like spousal benefits and file-and-suspend options can further enhance income during retirement. Choosing to receive benefits as early as 62 can reduce the benefit by as much as 30%.  

8. Precious Metals

Some baby boomers invest in precious metals like gold and silver as a hedge against inflation and economic uncertainty. Precious metals can provide diversification and stability to a retirement portfolio.

9. Long-Term Care Insurance

As baby boomers age, long-term care insurance becomes a crucial consideration. This insurance can help cover the costs of nursing homes, assisted living and in-home care, reducing the financial burden on retirees and their families. 

However, much like life insurance, for such coverage to make sense, it would be best to purchase early while premiums are lower or before conditions (such as Alzheimer’s or cancer) arise that could affect eligibility.

Tips for Baby Boomers Preparing to Retire

The key to ensuring that your hard-earned dollars stretch in your retirement years is to set aside as much money as possible and diversify investments to weather changing market and economic conditions. Some other tips to consider include:

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Consult With a Financial Advisor

Unless you’re extremely financially literate, an expert may be helpful in weighing your options and keeping your retirement funds balanced. Many baby boomers seek the guidance of financial advisors to create customized investment strategies and retirement income plans. Advisors can provide professional insight, manage risks, and help maintain a balanced and diversified portfolio. 

However, not all financial advisors necessarily look out for your best interests. Non-fiduciary advisors make money on the products they sell you and may be acting on behalf of the best interests of the investment or financial company they are recommending. Fiduciary advisors are a better option since they are bound to look out for your best interests over the financial institutions.

Estate Planning Is Essential

If you have assets that could be willed to others, estate planning is an essential aspect of retirement preparation. Baby boomers often work with estate planning professionals to ensure their assets are distributed according to their wishes, minimizing probate, tax liabilities and legal complexities.

Have a Withdrawal Strategy in Place

Baby boomers may adopt withdrawal strategies such as the popular 4% rule, which recommends withdrawing a maximum of 4% of their portfolio’s value annually. Doing so balances your income needs with preserving the principal. 

If you’re still not at retirement age and the 4% rule doesn’t cover your target retirement budget, you may need to lower your expenses or stay in the workforce longer to build up your portfolio’s value.

Are You Retirement Ready?

The Takeaway

Baby boomers approaching retirement have a multitude of investment options at their disposal. It’s important to reevaluate and rebalance financial goals, risk tolerance, and time horizon as retirement age gets closer. Diversification, income generation and tax considerations are key principles that can help them navigate the complexities of retirement investing. Ultimately, seeking advice from financial professionals and staying informed about changing economic conditions is essential for securing a comfortable and financially stable retirement.

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