A Retirement Income Strategy

Many retirement or pre-retirement investors are re-evaluating their retirement plan options and income strategies after the devastating drop in stock values in the fall of 2008. They are asking themselves," How should I invest my retirement assets?" First, they need an investment strategy that will pay them dividends, interest or a total return that will enable them to continue living their current lifestyle. Second, the most important aspect of retirement assets is how to derive a steady income with limited and well-defined risk.

How Should I Invest My Retirement Assets

This group of retirees are used to having a large appetite for risk, therefore being risk tolerant is something they understand and can deal with effectively. Why? They have run businesses, worked for entrepreneurial start-ups and changed jobs every five years on average. It has been their way of life for thirty to forty years. They are well versed in handling and profiting from well-defined risk.

This is the first generation that doesn't look at retirement as a time to play and wait for the sunset of their life. They believe it's a time to follow their dreams and intend to work well into there 80's, both to supplement retirement income and to achieve results for the better good of society.

All of this leads back to "How should I invest my retirement assets in order to support myself?"

Invest with a Long Term Perspective

If you are invested in stocks as a part of your investment allocation, you need to maintain a long-term perspective on your investment strategy.

Right now a lot of retirees have endured as much as 25-50% losses in stock values. Some have recovered almost half of that loss as the markets recover, but are holding on for the economic recovery that the government has promised, which should raise their stocks to new highs. They know this could take a few years.

Meantime, retirees are back to the question of how to maintain financial support. Waiting on total returns (dividends plus increase in stock price) to enable a cash flow for retirement will take a while as these crazy recessionary times see saw back and forth.

A better strategy is to take a stated percentage out periodically - monthly or quarterly. If you borrow that stated percentage on margin, then you enable the full force of your investments to recover with a small interest rate in payment for the privilege. Stock dividend returns are easily 4-8% for most large cap companies right now.

How to Invest During the Recession

Everyone in the civilized world is well aware of the domestic and global economic recession and its impact on our lives. If you turn on a news channel you can hear today's distressed conditions coupled with an ugly economic outlook as to what we can expect in the future.

Historically, we go through these economic cycles every six to seven years. Those of retirement age should be used to it by now. The good news is that everyone is aware of the recession, stocks have already been discounted for the doom and gloom and prices are at an all-time low.

This continues to be a great time to invest in companies with strong balance sheets and a good track record of paying dividends. The reason is that the dividend returns on these stocks are 4%-8%. Dividend rates are at a high because stocks are at lows.

So what kinds of stocks should we target for this strategy?

How Government Policy Effects the Stock Markets

It is time to invest, but to invest wisely. The government is finally moving forward on health care. Almost forty-six million Americans are without healthcare and the Obama administration is looking to change those horrible statistics.

First, they want to wring out inefficiencies in the system. Overpricing on equipment, services and pharmaceuticals are first up to bat. Second, they want to use technology to help lower overhead or administrative cost that have choked the industry for years by replacing legacy computer systems that were outdated before the millennium.

A well-diversified portfolio with stocks from the Health Care and Information Technology sectors would be good long term buys if what they represent are what the Obama administration is trying to change. Allocating twenty percent of a portfolio to this strategy would be an aggressive strategy for this market.

Direct investing in stocks of these sectors, as a portion of your portfolio would be an excellent but aggressive strategy because you could withdraw a stated percentage each month (5-10%). Total returns should for the next 4-6 years remain at least in the 15-20% range for these sectors.

This is but one strategy a retiree can implement as a means of steady income. Before investing or using this strategy, consultant an investment advisor, to discuss all the risk involved in investing in stocks during retirement.

As a means of disclosure the author has a small but limited investment in the health care sector as of the date of this article.