Investius
With more and more Baby Boomers retiring, the demand for income producing investment strategies is on the rise. Leo Acheson, an analyst at Morningstar, is with us. Leo, how big is the Boomer segment and how urgent is the need for investment income?
Leo Acheson, Morningstar
There are roughly 75 million Baby Boomers currently. So that’s about one-fourth of the U.S. population. And the oldest of those Boomers are turning 71 right now. So the need for income is pretty high at this time. And it’s really important for them to come up with a robust income solution.
Investius
At present how do Boomers generally pursue income in their portfolios? What’s out there that attracts their interest? And what are they possibly overlooking?
Acheson
So there are a variety of ways that investors in retirement are pursuing income. A pretty common approach is to use a strategy that invests in dividend paying stocks, for instance, and some bonds where they are able to find some yield… And use that income to live off of. However, one thing that they could potentially be overlooking is that they don’t need to constrain themselves to an income-producing portfolio. They could actually invest in a portfolio that looks attractive from a risk-return perspective on a forward-looking basis… try to maximize returns in that way and then just take regular withdrawals from that portfolio, whether it’s in the form of income or capital gains.
Investius
What poses the greatest threat to Boomer nest eggs?
Acheson
I think that the biggest threat is the current market environment. You’re seeing a time where valuations on equities and bonds are above average, yields are below average… So it’s hard to think that the returns you’ve seen in the recent past will be repeated here in the near future. So, many investors are predicting meeker returns in the near term. So, as a result, it’s made for a somewhat challenging environment. And it’s important to work with an advisor that can put together a good plan for you, as well as partnering with a good investment manager.
Investius
Summing up… So many Boomers, so little time to fortify their portfolios for the long term. What are your parting suggestions?
Acheson
I think that coming up with a really good plan is very important. It makes sense to begin by estimating what kind of expenses you think that you’ll have in retirement on a yearly basis… And then coming up with an investment solution that can provide for that, while also considering things like Social Security and a pension that you might have access to is a very important thing.
