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What do you people do for low risk retirement income?
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shotzongoal asks,

What do you people do for low risk retirement income?

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There's no such thing as "low risk". Traditional low risk investments like CDs or US Treasuries have interest rates so low that you're losing ground to inflation after taxes.

With any kind of an annuity, you get raped with fees and hidden costs.

There's no where to turn.

intersct
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The best you can do is probably a diversified portfolio. Many own a smattering of blue chips. And many rely on dividend paying stocks for income while interest rates are so low.

The traditional TMF advice is to hold five years of living expenses in a laddered maturity bond portfolio. Each year when one matures, you sell stocks to fund another five year bond, and then live off the interest income and the proceeds from the maturing bond.

This gives you a buffer against stock declines which usually recover in three years or less. If the market is down you live off the bond portfolio and defer replacing the bonds until it recovers. Hence, you are not forced to sell in a down market to cover living expenses.

With interest rates so low, this is more theoretical than practical. But it does provide a guide on what to do as interest rates rise to more normal levels.
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Got some REITS and GNMA in poortfolio and some high yield and international bond funds. 70% stocks, many dividend payers and good chunk SP500.
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<<There's no such thing as "low risk". Traditional low risk investments like CDs or US Treasuries have interest rates so low that you're losing ground to inflation after taxes.

With any kind of an annuity, you get raped with fees and hidden costs.

There's no where to turn.

intersct >>



I agree. As soon as you save $1.00, there's risk involved no matter what ----even if you put it under your mattress. The only way to avoid risk is to spend it now!

Rather than trying to eliminate risk, consider what your aims are for this money ---- what do you want it to do for you --- be available for an unexpected emergency or feather your retirement nest 30 years from now? Or whatever.


The answer will help define how you save or invest this money reasonably and prudently.



Seattle Pioneer
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With respect, "low risk income" is an oxymoron.

Let me suggest things most retires should be concerned about:

Loss of money -- as is buy high and sell low
Loss of purchasing power -- as in earning a x% returns (which usually are taxable) when inflation is x+y %

My approach to avoiding the second concern is invest a large (for us that is 65%) of our portfolio in equities - things like an S&P index fund.

My approach to avoid the first concern is more nuanced. A portion of our fixed income is in a money market. Those funds generally are in the amount equal to 12 to 18 months of spending. We also have another hunk of our fixed fund in short term bonds. A third hunk of fixed in corporate bonds.

The last paycheck we had was May 1, 2008. The above approach meant we did not have to sell any equities in 2008 or 2009. That meant the "risk" from the great recession had past as measured by the S&P. I plead guilty to accepting the idea a financial panic/meltdown like 2008/2009 is unlikely to happen very often.

From Investopia:
Risk involves the chance an investment's actual return will differ from the expected return. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.
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"What do you people do for low risk retirement income?" - shotzongal


I saved up a chunk of money and I plan on paying myself an income with it after my wife retires and I have to pay for my own health insurance. I'm gonna leave it sit there till I need it.

So far so good.

Art
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<<The last paycheck we had was May 1, 2008. The above approach meant we did not have to sell any equities in 2008 or 2009. That meant the "risk" from the great recession had past as measured by the S&P. I plead guilty to accepting the idea a financial panic/meltdown like 2008/2009 is unlikely to happen very often.
>>


I sold off my furnace repair business and retired in May, 2007. I've lived off my assets since then, dividends and rental income mostly.

After living off my assets for nearly ten years, the change in my net worth has been about +50%. That's mostly due to those "risky" stock investments, and that includes going through the recession, of course.

I started investing in the stock market in the late 1970s, when the Down Jones average was about 750 and had been struggling for more than a decade to stay above 1,000.

These days, of course, the Dow Jones Average is struggling to stay above 20,000, and that doesn't include generous and increasing dividend payouts, either.


Seattle Pioneer
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Retired 17 years ago. Spent at least 900,000 bucks. Still have nice nest egg. Getting even more money with RMD. Life is good. 80F and sunny in TX.
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With respect, "low risk income" is an oxymoron.

But of course, FDIC insured CDs are very safe. So are Treasury bonds.

The yield is low, but if safety is your goal, safety is available.
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I saved up a chunk of money. . . I'm gonna leave it sit there till I need it.

In doing this you made choices about safety of your investments and returns adequate to your needs.

That experience continues to serve you to guide in future choices.
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What do you people do for low risk retirement income?

I won't claim low risk, but I'm comfortable with the risk -- I use the dividend champions. I've also started to use the SPHD ETF. It pays monthly dividends and invests in S&P 500 stocks that have high dividends and low volatility.

The focus is on income. Even if the market does drop, the dividend champions are less likely to reduce the dividends they are paying. So income might not take a hit at all.

And SPHD is focusing on low volatility, so might not take a big hit on a market decline.

Note the "might not" disclaimers there. :)
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What do you people do for low risk retirement income?

I didn't get around to retiring until 2013 when I was 68 and my wife was 66. So, my low risk retirement income is my Social Security retirement benefit, my wife's Social Security spousal benefit, and two small pensions from former employers. This more than covers our normal, annual living expenses.
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Municipal bonds. I've got a ladder of bonds most paying 5% and the interest is both federal and state tax free. That is a state and federal tax equivalent of 7.326% in a federal tax rate of 25%.
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I didn't get around to retiring until 2013 when I was 68 and my wife was 66. So, my low risk retirement income is my Social Security retirement benefit, my wife's Social Security spousal benefit, and two small pensions from former employers. This more than covers our normal, annual living expenses.


Same here. Hubby was in financial services in NY for most of his career but he had three lay offs between the age of 52 and 58. He was very lucky that he got another job at the age of 58 because he was able to sock away some money. With our combined SS and a very small pension from one of his jobs, we are doing OK. We retired to a small house four years ago in New England and we cut all of our expenses in half - mortgage, utilities, food.
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My wife monthly medical insurance premiums is over $100 more than my total SS check.
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My wife monthly medical insurance premiums is over $100 more than my total SS check.

My experience is this happens between age 60 and 65. Once she gets covered on Medicare, she will be ok, but until then medical insurance can be costly.

Health insurance rates rise with age and make a big jump when you turn 60.

This is one of the details that most seem not to know about when they do their retirement planning.

I wonder if Obama Care might offer cheaper alternatives.

For me it was company insurance offered to retirees at group rates that made the big jump. In the days of preexisting conditions, you could not change insurance companies. But those with few claims could. So you were stuck in a costly group made of people with expensive claims.
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pauleckler writes,

I wonder if Obama Care might offer cheaper alternatives.

That's certainly been my experience at age 60 if you do your taxes right.

http://boards.fool.com/a-very-pretty-obamacare-picture-32594...

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intercst
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My retirement income comes from equities invested in dividend bearing stocks. I also just invested in a muni that is state and almost all fed tax free. I do have some short term bond funds also, and some ETFs. I no longer own any mutual funds, other than ETFs.

My investments are in what would be considered "safe" stocks...otherwise, they don't sky rise up in value, but when the market falls, neither do they lose as much value as high flyers.

As probably mentioned, CDs, Bonds, etc. are not worth the investment as interest rates are practically nil.

And be very careful of annuities! They are often not exactly what they pretend to be.

Birgit
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Almost all of my retirement investments are in low-cost equity index funds. Looking for an income source with more diversity (beyond stocks and bonds) in late 2015, I invested $3K at Prosper.com in personal loans. (I actually invest through LendingRobot.com, which uses my criteria to buy shares of loans as I get payback from borrowers.) $3K allows one to buy $25 shares of 120 loans, which is recommended to reduce risk sufficiently.

So far, this experiment has been a success. My current balance is $3,354.73 and my estimated return is 15.17% (by LendingRobot and 19.7% by Prosper), but that rate will drop as my portfolio of loans ages. I plan to let this experiment run for another 18 months before I decide to commit more money to it.

I do not consider this low risk, but if risk is volatility (beta) then the risk is lower than my S&P500 fund, for example.

Regards,
Prometheuss
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