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.
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.
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%.
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.
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:
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.
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.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
