Beyond Bulls & Bears

Saving for Retirement Stage 3: Making Retirement Funds Last as Long as You Do

So you’re finally ready to retire. You’ve worked hard. You’ve planned. You’ve saved. You’re ready to toss the business section and flip to the travel pages. You hope the investment decisions you’ve made have positioned you to meet your future needs. You may be retired, but your money has to keep working, and luck, as they say, tends to favor the prepared. In this third installment of our “Saving for Retirement” series, we take a look at some considerations and strategies for those fortunate folks beginning or living in retirement.

Some key takeaways:

  • Consider creative solutions to generate income.
  • Being retired doesn’t necessarily mean you should stop investing in equities altogether.
  • Don’t retire your relationship with your advisor.

The Retirement Nightmare: Running Out of Money

One of the biggest fears nagging future retirees is the prospect of running out of money. Nearly a third (31%) of Americans polled in the 2011 Franklin Templeton Retirement Income Strategies and Expectations (RISE) survey 1 cited this as a top concern. Almost half of all respondents (47%) said they would keep working if their retirement funds didn’t reach anticipated goals; not a bad idea, but not necessarily possible, either.  And over a quarter (27%) worried over late-life healthcare expenses.   

How do you avoid running out of money? That’s the $64,000 question. The recent slow-growth, low-rate environment has made it more challenging to generate income. Traditionally, many older investors moved their assets into the most conservative of vehicles, such as money markets or Treasuries, as a strategy to reduce risk as much as possible. However, until interest rates start ticking back up, creative solutions may be the ticket to generate needed income.

To illustrate, say you held $10,000 in a money market account for one year, ending September 30, 2012. Your earnings from that not insignificant investment would have earned about $3, or about the cost of a medium latté at your favorite coffee shop. Parking your money in a CD would have yielded around $17, about the cost of a night at the movies (if you skip the popcorn). Meanwhile, the 10-year Treasury would have earned approximately $172 over that time period, 2 or approximately the cost of a trip to the grocery store. In each case, it’s just not a lot of bang for your investment buck.

Retiring Outdated Investment Ideas

Maybe it’s time to think differently about investing in retirement. Franklin Templeton’s Gail Buckner, CFP®, notes that a lot of folks are still clinging to retirement investing notions that may no longer hold water.

“One of the biggest mistakes I see today is that people are so scared of stocks they are running to things like CDs and money market accounts.  Historically, CDs and money markets have never kept up with inflation and, to me, one of the biggest threats to retirees today is inflation. You need to be diversified in terms of income sources.”

Baby Boom, Meet Retirement Boom

At the beginning of 2011, the oldest members of the Baby Boom generation started turning 65, and it’s been estimated that every day since then, some 10,000 members of this iconic generation celebrate this milestone birthday.3 The Baby Boomers represent about 26% of today’s total U.S. population, so if you are in this group, you are in good company!

Don Taylor, portfolio manager for Franklin Rising Dividends Fund, challenges his Baby Boomer peers to think differently about their investments given the current economic climate, where income seems so hard to come by. He suggests that they challenge the traditional thinking that retirees should move out of stocks.

“We are currently in a low-growth, very low interest rate environment and I really don’t think that’s going to change too much anytime soon. Dividends and dividend yield in the equity market matter a lot more than they did before.

Importantly, at this point in time, the Baby Boomers  should probably be thinking more and more about the income component of their portfolios. Just when they really need it in their portfolios, they’re having difficulty getting yield from traditional fixed income investments. So we are starting to see how that is affecting the valuation of stocks, and I think that partly explains why there has been a lot more interest in dividend-paying stocks. The demographic need for yield and the ability of stocks to potentially provide that kind of yield is really a key change in the marketplace over the last couple of years.”

Retire Your Job, Not Your Advisor

Entering retirement doesn’t mean you get to put your investments on autopilot. As market shifts challenge your savings’ ability to match your funding needs, your relationship with your advisor may be even more valuable than it was in the run up to retirement.  Buckner suggests you consider your advisor as an investment partner who can help you navigate these potentially choppy investment waters. Managing through market cycles, determining appropriate asset allocation, periodically rebalancing your portfolio, and managing your withdrawals are all considerations in the retirement planning process.

Ready to take charge of your retirement planning? Read “Living in Retirement” for tips on assessing your expenses in retirement, matching them against possible investments and more!

Important Legal Information

All investments involve risks, including possible loss of principal.

Franklin Rising Dividends Fund’s investments in dividend-paying stocks involves risks. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Companies cannot assure or guarantee a certain rate of return or dividend yield; they can increase, decrease or totally eliminate their dividends without notice. A fund’s investment return and principal value will fluctuate with market conditions, and it is possible to lose money.

Value securities may not increase in price as anticipated or may decline further in value. While smaller and midsize companies may offer substantial opportunities for capital growth, they also involve heightened risks and should be considered speculative. Historically, smaller- and midsize- company securities have been more volatile in price than larger company securities, especially over the short term. These and other risks are detailed in the Franklin Rising Dividends Fund’s prospectus.


1. Source: 2011 Franklin Templeton Retirement Income Strategies and Expectations Survey (RISE). The survey was conducted online among a sample of 2,046 adults comprising 1,020 men and 1,026 women 18 years of age or older. The survey was administered between September 15-18 and 19-21, 2011 by ORC International’s Online CARAVAN®. 

2. Sources: Money Market Accounts and 1-year CDs: BanxQuote; 10-year Treasuries: The Federal Reserve H.15 Report. Copyright © 2012 BanxCorp. All Rights Reserved. BanxQuote® is a registered trademark and servicemark of BanxCorp.

Calculation based on average yields as of 9/30/2012.

3. Source: © Pew Research Center, Social and Demographic Trends Project. “Baby Boomers Reach 65 – Glumly. December 2010.

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