Another morning of economic data points brought further proof consumers are scraping the bottom of the barrel to keep spending away what little they have. The latest numbers show that disposable income continues to decline. Meanwhile, consumer savings rates are barely over 3% these days. Some may point to Hurricane Sandy’s effect as the basis for the latest data, but that excuse is already the trend has not been favorable nonetheless.
Yum Brands (YUM) was one of the biggest movers on today’s tape. The stock plunged 10% lower after the company, citing a slowdown in China’s economic activity, slashed its outlook. Fast food chains are certainly not immune to spending slowdowns regardless of price. McDonald’s (MCD), which has struggled this year, is considering adding more items to its dollar menu in an effort to boost sales. Elsewhere, shares of Tiffany & Co. (TIF) and Stanley Black & Decker (SWK) were down following cautious Wall Street analyst commentary.
Most retirement worries center around a few key issues. Near-retirees fear whether their employers will be able to meet pension obligations. Another common fear is whether Social Security benefits will eventually run out, as concerns mount around the potential insolvency of the system. Finally, most retirees worry they are behind in their retirement savings objectives, wondering if they can really afford to call it a career (not to mention what happens if they are let go from their existing position).
Delaying Social Security payments is one of my first thoughts as to how someone can get the most of the system. 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. This strategy, along with staying in the workforce as long as possible, could help maximize your income.
If you are already retired, you need to use a smart strategy regarding the money you withdraw from your accounts to cover everyday living expenses. 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.
Doing the bare minimum (for example, saving a set amount each month to invest, but never pushing harder to raise the amount you invest over time) will likely leave many short of an enjoyable period later in life. Some may think that their current financial obligations will eventually wind down, and then they’ll really begin to stockpile away money for their golden years. Unfortunately that is almost never the case. Too many unforeseen events can happen (divorce, a family death, getting laid off, etc.), and you can’t afford to lollygag when you could be doing more — all the while still enjoying life’s finer moments as well.
Building wealth requires you to aside funds and invest them in income-producing assets (dividend-paying stocks is our immediate focus, but it can be investing into growing your business even more, or buying a property that can be cash-flow positive). If you are already retired, it may mean coming back in the work force part-time to ease the amount of money you are withdrawing from your savings (if you are unable to work because of a disability, there can be work you do from home possibly) or not being gun-shy when it comes to staying active as an investor. Regardless, taking charge of your financial profile is paramount to getting the most out of your later years.2013 Dividend Stock Guide Coming Next Week!
We just wanted to let everyone know that we are working hard on a new 2013 Dividend Stock Guide, loaded with our thoughts on what to expect in the coming year for dividend stocks. Again, this is only available to Dividend.com Premium members for download, so be sure you are signed up to receive the guide once it’s released! Last year’s Beat the Market with Dividend Stocks eBook was a smash success, and this year’s version will be even better. We anticipate releasing the new guide sometime next week.Looking Toward Next Week
Looking ahead to the next week for stocks, we will see earnings results from the likes of Toronto-Dominion Bank (TD), Bank of Montreal (BMO), and Men’s Wearhouse (MW), just to name a few. Throw in the latest economic data and fiscal cliff updates, and investors will have plenty of news to absorb as usual.