I know it might be hard to believe, but not everyone reads Seeking Alpha and even fewer have a clue about a retirement plan of any kind. Actually, only about 50% of the population invest and among those who do, 80% of the wealth is held by about 10% of the population. Just as bad are the average retirement savings of those that are now heading into the sunset. Here is some good news, though:
If you have even $1 saved for retirement, it might surprise you to know that you’re doing better than a lot of other Americans. A recent Federal Reserve report found that nearly a quarter of working Americans don’t have any retirement savings at all. This problem was worst among adults 18 to 29, with 42% saying they hadn’t started saving, but perhaps more concerning is the 13% of Americans 60 and older who said they had no money to fall back on in retirement.
Let’s paint a short hypothetical profile of a typical couple in this conundrum:
- The couple qualify for about $30,000 in Social Security benefits.
- Both have no pensions.
- After putting the kids through school they have a grand total of $150,000 in savings to support their retirement.
- The couple are frugal and spend the average of $58,000 net per year in total expenses. (Based on a 20% effective tax rate, $45,757 is equivalent to $57,195 a year in gross income.)
- This couple have lived in their family home for 40 years and have $250,000 in home equity.
- They have never invested and their savings are in a bank savings account paying .01% interest.
- Their mortgage is virtually paid off.
- This couple has about a $28,000 gap between their Social Security income and money needed to keep paying the bills.
We all know people like this and as much as we’ve tried to educate them, they are now facing crunch time and finally realize that they are going to have a problem.
Here are some suggestions that just might help them move forward just a bit easier:
Pick out a spot under a bridge on the highway.
Source: Unsplash/Sofiia Sveshnikova
Move into the home the Unabomber left behind.
Source: Unsplash/Caroline Kohn
The Arctics are looking for hearty souls.
Become a silent monk and live quietly.
Obviously those are jokes – unless, of course, any one of those strikes your fancy!
Alternatively, you can stop being a pawn of the proletariat. You can put on your “big person pants,” grab the bull by the horns, accept the fact that risk is a big part of your future and start thinking unconventionally! At least for this article and maybe even for some strong-willed folks to actually take action. Of course, all is not lost and you just might do better than you thought!
Closing The Gap Quickly
In this article we are discussing folks that have done little to nothing in the way of retirement planning. That means that the hypothetical $30,000 needs to become $58,000 sort of immediately. Here is what I would suggest you consider:
- Sell the house, and take the equity of $250,000 and add it to your savings of $150,000. That would come to about $400,000.
- Reduce expenses by getting rid of one car and keeping the other. That reduces your insurance as well as your vehicle maintenance.
- Cut “the cord.” Get rid of cable and start streaming one or two streaming services. That should save you about $100/month.
- Reduce your cell phone bill and opt for the less expensive plans now available, or threaten to cancel your current service (they will listen) if they do not reduce your monthly payments.
- Pay cash for everything unless you have a no-fee credit card that pays you cash back for all purchases. Keep in mind that you must pay the bill in full each month and not incur interest charges.
- Consider moving to a state that has no state taxes – such as Florida!
- Invest in two dividend aristocrats to start with. If you do well, you can expand that.
- Keep at least six months’ wroth of savings for emergencies (in this case, about $30,000).
I am certain that the Seeking Alpha community can come up with hundreds of other suggestions, so let’s hope we have a strong comment stream.
Dividend Growth Investing Strategy Still Applies
Keep in mind that as a new DGI’er, the basics still apply:
- Make sure the company has a good balance sheet.
- I prefer stocks that are dividend aristocrats and kings because of their reliability over decades of paying and increasing dividends.
- There still are risks with ANY dividend, so be aware of the fundamentals.
- Do not sell unless the dividend is cut deeply or stopped (less of a problem with aristocrats and kings).
- Once you start receiving dividend increases, save the extra money and start expanding your portfolio.
- If you add more, make sure the price is within the “buy zone”.
Have some fun with this, although remember your goal: more income!
Here Are My Two Dividend Aristocrats To Invest In Right Now
It is my belief that there are currently two stocks that have strong balance sheets, great cash flow, and pricing power – AT&T (T) and Altria (MO). Yes, I know all the arguments about how Altria is going out of business and AT&T has too much debt. Guess what: They both have enough cash flow to keep paying you to hold the stock and the savvy to move their business ahead, and right now it’s all about income. You have to pay the bills!
- AT&T: Current Yield – 7.19%: $28.93/share price: 36-year record of paying and increasing its dividend.
- Altria: Current Yield – 8.63%: $39.84/share price: 50-year record of paying and increasing its dividend. Yes, that’s right folks, this one is a Dividend King!
Why I Like These Stocks Right Now
These two companies have navigated difficult environments successfully. T has always stayed on top of its debt burden, and MO has dodged the bullets of many legal battles. What I like now is that the pandemic is not a huge part (if any) of the current issues. Both stocks have reasonable P/E ratios, and both are relatively inexpensive so your dollar goes further in terms of number of shares!
Pretty high yields and pretty low share prices. Let’s see how they got there:
Both of these stocks fall into my personal “buy zone,” actually. That’s when the share price is at least halfway between its 52-week high and low.
That is my simple way of evaluating whether to buy or wait. It’s worked for me for four decades!
OK, so your next step is to purchase an equal number of shares of each of these stocks. That would give you a portfolio yield of 7.91%. The amount you would now have invested to “save” you from a fate worse than death, right now is $370,000 (less the $30,000 emergency fund).
This will pay you annually, (not including the annual increases) roughly $29,000.
You have just covered your new retirement immediately. Obviously you need to keep on top of these stocks so you can be nimble if something changes with the dividend. Keep in mind you can always jump into Anally (NLY) and AGNC Investment Corp (AGNC) for a total yield of yield of over 10% with more risk. I am not suggesting that, but they are out there!
Oh, and one more suggestion – learn how to sell covered calls from time to time on T and MO for a few extra bucks every few months. Maybe you can buy a big screen TV if everything works out!
I realize this is a “tongue in cheek” article, but everything stated is absolutely true! This can be done and you do not need to find a bridge under I-95.
My Bottom Line
There is always something that can be done to have a more secure financial future. Just remember to spend less than you have coming in, forever.
Not To Bore You, But…
Knowledge is power, and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something.
My work here will remain free to all of my followers (unless it is an Editor’s Pick! Then the article will be openly available for only 24 hours or so. But I have no Marketplace service). My hope is that I’ll give you some of the things that took years for me to learn myself.
One final note: The only favor I ask is that you click the “Follow” button and become a real-time follower to receive emails that my articles have been published, and so I can grow my Seeking Alpha friendships. That is my personal blessing in doing this and how I can offer my experiences to as many regular folks as possible who might not otherwise receive it.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author used in his past worked for him, and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance. One more thing…I have no equities since I divested everything about 2 years ago due to very serious health issues and my personal circumstance.