Protect Yourself From a Frightening Financial Future

Imagine yourself forcibly retired years before you were really planning to or could really afford it. Now consider what that would probably mean to you and what happens to the three key drivers of your retirement income:

  • Social Security: Permanently reduced by both the $0s in your earnings record and by taking it before reaching your full retirement age in order to make ends meet.
  • Pension (if you get one at all): Permanently reduced by having fewer years of service than you expected.
  • Personal investments: Inadequate to cover your costs because you had fewer years to compound and were expecting more from your pension and Social Security.

On top of all that, imagine you get the news that your Social Security check -- already too small to begin with -- will be slashed by 25% because the program's Trust Fund has run out of assets.

It's not all that far-fetched...
Sounds a bit scary, doesn't it? But according to a couple of government reports from earlier this year, it's an ugly reality that's already in motion now. An April report from the Government Accountability Office mentioned that "the number of workers age 55 and over experiencing long-term unemployment has grown substantially since the recession began in 2007." That same report noted that a majority of the unemployed people in its focus group who were eligible for early Social Security benefits took them. 

The news gets really ugly when you combine that with the Social Security Administration's annual Trustees Report, which forecast that Social Security's Trust Fund will run dry in 2033. When the Trust Fund runs out, the program will only be able to pay out about 75% of its scheduled benefits.

Or in other words: The critical elements of that horror story are already in place. And if you don't do anything to protect yourself from that frightening future, it's one you may very well find yourself facing, woefully unprepared, in the not-so-distant future.

What can you do about it?
Of those three key drivers of your retirement income, the only one you have any real control over is your personal investment portfolio. By kicking it up a notch -- investing more now, while you can -- you're doing your future self an incredible favor. And that's true practically no matter how your investments perform.

  • If you outperform your expectations: You can retire earlier or more comfortably than you had originally anticipated.
  • If you meet your expectations: You cover the gap created by Social Security's troubles and the risk to your pension and Social Security payment levels from being forcibly retired early.
  • If you underperform your expectations: You're still very likely to be much better off than had you not invested at all.

Those all seem like pretty reasonable outcomes, especially when compared with the frightening future that comes from doing nothing at all.

The best protection is a growing income stream
With that in mind, remember that what you're trying to do with these investments is to close the income gap between what you'll get from other sources and what you'll need to cover your costs. By investing from the very beginning with an eye toward building that income, you're laying a solid foundation for when your paychecks stop and your savings need to cover your costs.

One of the best places to invest to build a growing income stream is in the stocks of companies with a history of paying and routinely raising their dividends. If, in addition to their histories, you have good reason to believe that the companies will continue their trends, you can build yourself a fairly diversified portfolio of stocks that will provide you with that growing income stream. Take a look at the following companies:


Years of Consecutive Dividend Increases

Reasons to Believe the Trend Will Continue



  • Market leader in the fast-food industry
  • 53% payout ratio is easily covered



  • Dominates discount retail
  • 32% payout ratio is easily covered



  • Huge player in the vital energy industry
  • 22% payout ratio is easily covered



  • Very strong position in uniforms and business services
  • 23% payout ratio is easily covered

Automatic Data Processing


  • Leader in human resources outsourcing
  • 56% payout ratio is easily covered

Dividend increase data from Payout ratio data from Yahoo! Finance as of Nov. 29, 2012.

They're all leaders in their industries, with multi-decade-long histories of raising their dividends and payout ratios low enough that they're still able to reinvest for future growth. Could any one of them cut their dividend? It's possible. Will they all cut their dividend at the same time? That's unlikely, because they operate in different industries.

With an entire portfolio built around companies like that, you can build to the point where your investment income covers the gap between what you get elsewhere and what you need to spend. Best of all, during the time you're still building that portfolio, you can reinvest (rather than spend) those dividends in other such companies, helping you build that income-generating nest egg all that much faster.

While there are still no guarantees in investing, following a plan like that will go a long way toward protecting yourself from the very frightening financial future that's already starting to unfold.

After making investors rich in 2011, McDonald’s has been one of the worst-performing blue chip stocks this year. Our top analyst on the company will tell you whether you should be worried by this trend, and he’ll shed light on whether McDonald’s is a buy at today's prices. Click here now to read our premium research report on the company.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2134279, ~/Articles/ArticleHandler.aspx, 10/27/2016 3:15:56 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 5 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
ADP $87.19 Down -0.31 -0.35%
Automatic Data Pro… CAPS Rating: ****
CTAS $106.61 Down -0.12 -0.11%
Cintas CAPS Rating: ****
MCD $112.11 Down -0.61 -0.54%
McDonald's CAPS Rating: ***
WMT $69.59 Up +0.23 +0.33%
Wal-Mart Stores CAPS Rating: ***
XOM $87.09 Up +0.37 +0.43%
ExxonMobil CAPS Rating: ****