Market Wrap-Up for Sept.14 (MJN, PM, WLT, GWW, CMI, CAT, more)

The markets were able to shake off a late morning swoon to rebound strongly and finish the day with similar gains to the indices over in Europe. News of Greece perhaps staying in the EU and possibly avoiding a default lifted the spirits of investors.

Mead Johnson Nutrition (MJN) shares saw upside action as takeover rumors for the company continue to build. The stock’s dividend yield is below 1.50%, so you may want to be careful if a deal doesn’t get done. Traders tend to not stick around if deals aren’t announced within a short period of time following the initial rumors. Just look at Walter Energy (WLT), which was the takeover rumor du jour last week, rallying from $75 to open over $90 last Tuesday, and pulling back to the low $80′s earlier today. It certainly makes for great TV when the rumors are out there, but most of the time it tends to be pain for investors who make decisions based on rumor reports. In other news, Phillip Morris International (PM) bucked the early downtrend after the company announced a much better-than-expected 20% increase in its dividend payout this morning. There are several other companies reporting dividend increases today so be sure to check out tonight’s Dividend.com Premium post on all the day’s dividend payout changes. Elsewhere, buying in cyclical names picked up with nice gains for the likes of W.W. Grainger (GWW), Cummins Inc. (CMI), Joy Global (JOYG), and Caterpillar (CAT).

If you’re looking for new dividend names to put capital into, we upgraded one of our previous picks back onto our Recommended list today, so be sure to check out the article detailing the upgrade if you haven’t already.

Empty-Nesters Can Lose Their Discipline

I was reading an article on SmartMoney.com recently highlighting the fact that empty-nesters (parents who now have the house to themselves after their kids move out) can sometimes go overboard with spending. A lack of dependents living under their roof instills a sense of spending freedom parents haven’t felt since before they had children.

Anyway, the article pointed to a study from the Center for Retirement Research at Boston College, which found that when kids jump ship, parents increase their per capita consumption of nondurable goods by a rather startling 51% percent. Now don’t get me wrong, it could be that the money will be spent on those vacations or other dream purchases that parents sometimes plan and save up for. The danger comes in when couples forget to stop at the planned-for expenditures. In the same article, a study from AARP cited some 30 percent of baby boomers age 50 and older reported some difficulty limiting their spending. Now hopefully many of us build up enough income from our investments in income-producing assets that we have a strong cushion to absorb the costs of dream vacations, cars, etc.

All too often, people choose to spend rather than save, however. An Employee Benefit Research Institute report indicates that just over half of workers ages 45 to 54 claim savings and investments of less than $25,000 (before pension, social security or home equity), up from a just a third in 2007.

Outliving Retirement Savings a Fear for Many

It’s been a few years since my parents started collecting social security. Having been self-employed for most his life, my dad didn’t retire with a pension. My mom worked part-time for much of her life, so her social security take is fairly small. With their inclinations to save, however, my parents are fortunate that social security is not their only source of retirement income. Their lot is better than many other retired Americans, unfortunately. According to a recent study by the Employee Benefit Research Institute, nearly half (47%) of early baby boomers aged 56 to 62 are at risk of outliving their retirement savings. I’ve seen first-hand the “survivor” mentality that takes over in many retirees. It’s amazing to see some of my uncles who’d been bit more adventurous with spending in their day, have now taken to an age-induced frugality.

Certainly the biggest fear among retirees is potentially outliving their savings. If possible, I suggest that anyone approaching retirement should really think about delaying their social security payments. Keep in mind that taking benefits at age 62 locks in payments that are only 75 percent of what they would be at the retirement age of 66. Delaying benefits at age 66 will raise them by 8 percent a year until age 70, after which benefits do not increase with age.

The social security program is also becoming a greater and greater burden for U.S. taxpayers. At last count, more than 53 million people receive Social Security, with the retirement benefits averaging $1,100 a month. Our population is also getting older, which will onlu add to the number of benefit recipients: life expectancy in the United States has reached a record high of 77.8 years, up from 70.8 in 1970, according to the U.S. National Center for Health Statistics. Factoring in further health gains, the U.S. Census Bureau projects life expectancy will reach 79.2 years by 2015.

How Much Can I Spend During Retirement?

Many financial advisors tend to use a 4% annual withdrawal rate when discussing retirement savings withdrawals. With this approach, investors withdraw 4% of their retirement balance in the first year of retirement, or let’s say $20,000 from a $500K portfolio. The dollar amount of the withdrawal could be adjusted each year to keep up with inflation. So whether you are deriving income from dividend-paying stocks, bonds, bank CDs, or other sources, you can at least have a starting point (4% withdrawal rate) to factor from.

I would recommend anyone who needs further guidance on this to set up a free consultation with several certified financial planners to get their opinions on what your finances look like, and what the best plan for you should be.

The best thing we can do as individual investors in the meantime is look for opportunities where we receive consistent income sources (dividends) from the companies who can best weather the economic storms ahead. You can count on Dividend.com to be your guide in that arena. As always, you can find all of our current recommendations on our industry-leading Best Dividend Stocks List.

Thanks for reading, and I’ll see you tomorrow! P.S. Please pass this e-mail on to someone you think can use some financial motivation as well as being kept in the financial news loop that could affect them. Thanks again!

Be sure to visit our complete recommended list of the Best Dividend Stocks, as well as a detailed explanation of our ratings system here.

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