Attention Retirees Living Off Of Bond Yields: Here’s A Viable Alternative

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You’re retired, so the risk you’ll tolerate at this point is significantly lower than 20 years ago, right? When retirement came, you shifted your nest egg from equity to the ‘fixed income’ you’ve been programmed to acquire at this point. Thing is, very low risk bonds yield little more than 2-3%. Much more than that and your comfort zone gets pressed a bit. There are plenty out there willing to show you how to get a ‘safe’ 6% bond. Right about then a mental picture of Grandma pops up. She’s reminding you about the warning she gave you so long ago. You know the one — ‘If it sounds too good to be true . . .’

Here’s the million dollar question(s).

If the 10 year Treasury Bond yields 2% or so, how safe and reliable is a corporate bond offering double or triple that yield?

How much is the stability and reliability of your retirement income worth to you?

If something akin to 2008 happens, what will happen to your bond income?

Are you sick ‘n tired of listening to your neighbor down the street bragging about his real estate portfolio’s yield/income?

Are you ready to double to quadruple your bond income by ditchin’ them for far more stable and reliable real estate income?

It’s not been that long ago, when retirees based much of their lifestyle on the double digit yields on their bonds and CDs, back in the early 1980s. When Volker got the interest rates down by crushing inflation, the party was over for retirees. No more makin’ $12,000 a month on their million bucks. The lifestyle? Down in flames.

Incomes slashed virtually overnight. I knew some of these folks in San Diego. One couple, fortunately before they signed the contract, was about to buy a new RV. They saw the writing on the wall, and bailed. Good thing. In less than a year their income plummeted by nearly half. Over time it did end up around half of its peak. They were fine, but the cruises were drastically reduced in number, and there were a lot fewer trips back east to see grandkids.

The Takeaway

As soon as you’re able, move your capital from bonds to real estate. A reliable annual cash on cash return will easily be 50-400% higher than what you’re ‘enjoying’ now. Oh, did I forget to mention that much of that annual income will be tax sheltered for over 25 years?

Or how ’bout being able to leave far more to your heirs than you will now, while you’re so heavily into bonds? How ’bout an income that’ll be positively sensitive to inflation? Same with its value.

Tell me again why folks love bonds so much in retirement?

 

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.

4 Comments

  1. It’s all about controlling your investments and retirement. I’ll quote you that people have been “programmed” into how they are supposed to retire. People talk about how they have a great 401k plan and their employers match is high and they are diversified blah blah blah. The media controls the stock market these days with reports of a Greek default on its way, or a jobs report or another collapse of an economy.
    What if you controlled your own retirement by purchasing a nice piece of property and putting the tenant that you want in there? Or if you hold a mortgage on a property for someone to take the landlord part out of the equation? You shouldn’t stop making your money work for you in your retirement just cause you hit 65. Is it the worst thing in the world if you end up working part time for yourself to stay busy in your retirement so that you may have some peace of mind? Love it Jeff.

  2. Jeff Brown

    Hey Jim — What you suggest will begin becoming the norm, especially as Boomers approach retirement. Forget having a million bucks, 2-3% on half that is scary. 50% down payments would get them about $1 Mil in income property. The cash on cash yield would easily be in the 6-8% range or higher.

    I’ll be writing another post showing how long it would take for half of a million dollar 401k to generate a $70,000+ annual income. I ain’t rocket science, is it?

    Good stuff, Jim.

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