A lot of retirement guidance I have read lately continues to treat baby boomers the same as the rest of the investor public. Even after the first six months of 2022, when the traditional 60/40 stock/bond portfolio sank more than 20%.
I may not dispute the traditional approach for investors who are 25, 35 or 45 years old and accumulating savings for retirement or the kids’ college education. As we know, markets historically rebound, and younger investors with time to recover from market corrections have the benefit of dollar cost averaging.
But boomers entering or already in retirement have different needs than all the “Gens” that have come after them: They may not be able to wait around for their depressed accounts to grow again. For boomers, income is the important consideration — income that stays steady and grows over the decades of retirement.
Where to find income
Economic downturns always provide winners along with the many losers, and annuity payment contracts (also called income annuities) — which with rising interest rates have increased the payouts on new contracts — are the current winners. As of August 15, 2022, new purchases of income annuities at certain ages are providing 20% to 50% (depending on the income start age) more than at the beginning of the year, and that could go up even further. They’re almost the mirror image of mortgage interest rates, which are also going up.
How much do you think a 20% increase in annuity payments is worth? Just imagine that your starting Social Security benefit you could claim next year went up from $3,000 to $3,600 per month. Would that get your attention?
Yet, most financial pundits are still talking only about investment assets, not about income. Maybe because it’s easier — not because it’s better — to lump these boomers in with everyone else.
Another Type of Allocation is Needed for a Retirement Income Plan
While a 60% stock/40% bond allocation may not be appropriate for boomers, a different type of 60/40 allocation may be: one that includes a mixture of stocks and bonds along with income annuities. We call that a Go2Income plan.
When you build a Go2Income plan for retirement income, you may start with 60% of your retirement savings in investment portfolios and 40% in income annuities. But that allocation is different than the 60/40 referred to above.
- It is based on output and not input, and in a Go2Income plan you might end up with splits of 67/33, 75/25 or another allocation.
- The split will change over time, with an increasing allocation to income annuities — to assure lifetime income.
- Most importantly, the split is designed to meet your personal objectives and priorities and not your …….