How Will You Get Your Money Out in Retirement?

We’re in the thick of the real estate game now. Our home is on the market, which means it’s much cleaner, and more spare, than usual. When we have showings, we vacate the premises, and of course need to take the dog. That’s more of a challenge than we’d thought, but she’s gotten used to sitting with us in the car at the nearby Sonic, and the crew on roller skates thinks she’s adorable. I hope they wash their hands after petting her.

All of this comes out of our talks about where, and what kind of life, we should live. The house is fabulous, but big, and on open water in a flood prone area. With taxes and flood insurance moving higher, the cost of carry is on a one-way train uphill. In our early 50s, this looks like a good time to sell while there are still buyers for this sort of property.

This hits on a theme Harry has written about for a while

The Millennial problem…

Not enough Millennials being in a position to buy the housing stock that Boomers want to sell as they move to the next phase of life. It’s something that could dramatically reduce the equity Boomers think they’ll pull out of their homes, and thereby reduce what they can put toward their retirement.

But it goes beyond real estate. What happens in the investment world?

I was in Baltimore earlier this week, finishing up some loose ends regarding my about-to-be-launched trading service, Fortune Hunter. While there, I had the opportunity to meet with my editor, and the discussion turnrned to our parents and in-laws. We talked about one of the biggest frustrations I see with aging Boomers in my world isn’t a lack of savings but that there’s often no plan on how to turnrn the nest egg into a revenue stream.

This leaves older investors looking at their accounts, full of growth stocks that have done well, wondering how to turnrn shares of Netflix (Nasdaq: NFLX) into mortgage or health insurance payments. Do you sell the shares a bit at a time? Sell all the shares and buy income-producing stocks? Move to annuities?

What if you simply wait? Will there be enough buyers of stocks in the future, essentially Millennial investors, to pick up the slack as the Boomers try to get out of the markets?

The move…

This move from the accumulation phase to the distribution phase can’t be overstated, and yet it seems to be underserved and under-discussed.

We need to have these conversations, at the dinner table, at family gatherings, and in these pages.

Charles attacks this problem head-on in Peak Income, giving subscribers a way to build streams of income that beat the pants off of traditional bond investments or dividend stocks. It’s great work that can help you build a steady stream of mailbox money that pays the bills.

But don’t be scared away from alternrnative streams such as annuities. I’ve written about them from time to time, although we don’t cover them consistently. In their simplest form, annuities move the risk of longevity, or running out of money, from the investor to the insurance company. They send you a check for as long as you’re still on the planet, and can come with a rider that makes sure you or your estate gets back at least what you put in, just in case your stay on the planet is shorter than anticipated.

There’s no free lunch here…

Deferred income annuity payments work out to about a 3% annualized returnrn if the recipient passes at the average age in the IRS mortality tables. That’s about what you’d get from 30-year Treasury bonds.

But you get a check, every month, for the rest of your life. Guaranteed. You no longer worry about equity market returnrns or think about when to sell. You cash the checks.

I’m not shilling for any annuity company, I’m trying to make the point that the distribution phase of life will be just as complicated, and just as fraught with danger for the Boomers as was the accumulation phase. We should be addressing this issue regularly to make sure there are no surprises, and come up with the plans that fit our situations the best.

Maybe it’s cobbling together a mixture of stocks, bonds, and annuities. Maybe it’s rental properties and closed-end funds. Whatever the resulting plan, keep in mind the goal. Few people want to have the most Amazon stock as they age. What they want is an increasing ability to do what they want and remain independent. For that, you have to know how you’ll turnrn that Amazon stock… or big house… or private business… into spendable dollars.

Rodney