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Retirees Desperately Need to Take These 3 Steps

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There's simply no escaping it: The financial collapse of 2008 and the current near-zero interest rate environment have changed the investing landscape, and unfortunately, too many people near retirement age are taking all the wrong steps when it comes to getting back on track. Despite having less money, fewer pension opportunities, and a malfunctioning Social Security system, people are still shockingly confident about their futures.

Let me provide you with three simple steps that I think could greatly improve your chances of a comfortable retirement.

Simple steps you don't have to pay for

  1. Save more money. Although this seems like the most rudimentary of tasks, not enough people take this easy advice. With dwindling options for pensions, retirees can't depend on Social Security like they used to. The 2010 federal deficit was $1.3 trillion, the second-highest in terms of percentage of GDP in more than 60 years, and this year was the second in a row where Social Security payments didn't get a cost-of-living boost. (Today, I opened my mom's mail from the government -- no increase in her payments, only an increase in what she owed for Medicare.) What's worse is that a recent Wells Fargo retirement survey found that 72% of middle-class Americans ages 25 to 69 expect to work through their golden years. Mostly this is because the average respondent in the survey (ages 50-59) had saved only $29,000. This is obviously nowhere near enough. The bottom line is that you need to save more, and you need to start today. No amount is too small, so stop procrastinating and put away as much as you can.

  2. Don't be afraid to take some risk. If you're like the majority of people, you probably don't have enough saved. That means you need money in the stock market, and it can't all be locked in defensive stocks or big blue chips. Allocate a small amount of your portfolio to small caps or international stocks, places where, if you invest wisely, you can see larger gains than if you stick to the S&P 500 or to more traditional companies. For instance, Sirius XM (Nasdaq: SIRI  ) and Las Vegas Sands (NYSE: LVS  ) have brought gains of around 150% and 200%, respectively, over the past year. Both companies had their fare share of naysayers and had to overcome enormous obstacles, but those who took the risk were well-rewarded. I'm not saying to go out and buy these companies today; Sirius has a competitive landscape and a heavy balance sheet, and Las Vegas Sands certainly carries a hefty price tag. But maybe check out small-cap Gaming Partners (Nasdaq: GPIC  ) , a company that has a reasonable P/E of 9.9 and should benefit from an eventual resurgence in gambling; or Wal-Mart (NYSE: WMT  ) , a safe company that has tons of exposure to emerging markets. Our own Global Gains advisor Tim Hanson thinks it's the best way to gain international presence for 2011.

  3. Invest in dividend-paying stocks. There's simply no overstating the importance of stocks that pay dividends. They give investors a chance to earn income (which will help them pay bills and stay liquid) while also providing the potential for capital appreciation. In the portfolio that I manage for my mom, who is 65, I have about 80% of her stock allocation in dividend stocks. Three that I happen to really like are Waste Management (NYSE: WM  ) , Sasol (NYSE: SSL  ) , and Exelon (NYSE: EXC  ) . All three pay dividends of 3.5% or more and are inherently defensive in their nature. Stocks like Exelon and Sasol have the ability to jump up as well because of their ties to oil and natural gas. Or, if you're looking for broader diversification, check out the SPDR S&P Dividend ETF, which includes many of the S&P dividend aristocrats.

It's easier than you think
Only one-third of respondents in the Wells Fargo survey said they had a written retirement plan, an awful statistic to consider when we imagine how many people don't have nearly enough for the retirement they've always dreamed of.

But getting back on track is easier than you think. Take a pencil to some paper and outline how you can save a bit more money each month, even if it's just $50 or $100; look at the savings you have and start to take some calculated risks like the ones mentioned above; and put the rest of your stock allocation toward dividend-paying stocks.

If you have questions about retirement or how you can get started, please feel free to leave a comment below. Even better, get started today by taking advantage of The Motley Fool's new free report, "The 7 Secrets To Salvage Your Retirement Today." Click here to make sure you can have the retirement you've always imagined.

Jordan DiPietro owns shares of Waste Management, Sasol, and Exelon. Exelon, Waste Management, and Wal-Mart are Motley Fool Inside Value selections. Wal-Mart is a Motley Fool Global Gains recommendation. Sasol and Waste Management are Motley Fool Income Investor selections. Motley Fool Options has recommended writing covered calls on Exelon and writing a covered straddle position on Waste Management. The Fool owns shares of Wal-Mart and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (41)

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.

  • Report this Comment On December 22, 2010, at 11:53 AM, acbill wrote:

    I have been saving all my life and have, or at least had, a fairly comfortable nest egg. But the way the FED is debasing the currency I don't believe saving paper with green ink makes much sense today and will likely be a worse proposition as time goes by. Stocks are too risky as the game is certainly rigged these days. How can I compete with the guys flash trading on the super computers in the basement of the NYSE. It's not your parents stock market anymore, open call is gone, things move too fast with the high frequency trading programs today and the techies at the Golmans of the world have that game in hand. As a small private investor the deck is stacked against you and you have a better chance of winning in Vegas. I know the media spin is geared to get everyone back in the market to support a Wall Street recovery but when the states begin to default like Califonia, Illinois and others are poised to do in the near future I wouldn't want to be exposed to the potential crash. I would say it's OK to be a fool but shame on you if you act foolish. Beware the advise of FOOLS!

  • Report this Comment On December 22, 2010, at 12:05 PM, Observero0 wrote:

    [Save more money. ] ==============================

    Given rising expenses (e.g., the Medicare premiums cited in the article) & no SS COLAs folks should make sure they have multiple plans for retirement including continuing to save/invest in their retirement.

  • Report this Comment On December 22, 2010, at 12:19 PM, TMFPhillyDot wrote:

    @acbill,

    I do agree with you that this is not our parents stock market, but I will have to respectfully disagree that you can't beat the market b/c of flash traders and Wall Street. As an individual investor, you have many advantages over Wall Street; you're not confined to just following the big name tickers, you dont' have to pump out buy/sell recs all the time, and you can focus more on the long-term than they can.

    Do you know how many analysts are following GPIC, mentioned above? Zero. It's because it's a $50M company that no one cares about. If you do careful research and look in places that seem uninteresting or boring, I strongly believe you have a chance to beat the market.

    Just my opinion obviously.

    Thanks for your comment!

    Foolishly,

    Jordan (TMFPhillyDot)

  • Report this Comment On December 22, 2010, at 5:03 PM, 2Suns wrote:

    If one wanted to buy a dividend stock, let's say 50.00/share and hope to keep it till 2020, how many shares of a given stock would one buy to make it worth while? Thinking of building the PF for the retirement time frame.

  • Report this Comment On December 22, 2010, at 6:31 PM, pete163 wrote:

    SiriusXM is a good stock for people that need to build up! However if the talk on the street keep's going on about a reverse split, this stock is going to DROP LIKE A ROCK.

  • Report this Comment On December 22, 2010, at 8:52 PM, peters46 wrote:

    2Suns. To make it worthwhile? That would depend on the commission you pay. If you are using an overpriced full-service broker you may pay a commission of $100 or more per trade - that would work out to a dollar per share on a round lot (100 shares). A discount broker instead will cost less than ten cents per share for the same trade. And generally, the commission stays the same regardless of the number of shares. The economical way to buy stock is with a discount broker and buy as many shares as you can afford for that portion of your (diverse) portfolio). And ten to twenty percent of your portfolio should be in cash to enable you to take advanyage of special buys. Whatever your age keep pumping money into your account (with cash going into money market) until you have a minimum value of $100,000., and spreading it among eight or ten diverse stocks along the way. Don't toss the first year's dividends away on commission.

    Pete163. Splits (reverse or otherwise) have little if any effect on the value of your holdings. Whether it is ten shares worth $16, or one share worth $16. Except in the case of penny stocks. Many people like me have a rule about not investing in penny stocks (defined as stocks under $5/share. A reverse split then opens up that stock to more potential investors, possibly raising the demand for that stock. Many companies used to split their stock before the price got too high, so that newbies would not feel outpriced.

  • Report this Comment On December 22, 2010, at 9:51 PM, Sadalmelik wrote:

    "How can I compete with the guys flash trading on the super computers in the basement of the NYSE. ... As a small private investor the deck is stacked against you and you have a better chance of winning in Vegas."

    acbill:

    As a small investor - less than $10K in trading accounts - I would first point out that nobody has to beat the guys trading on the NYSE, just figure out a way to make more money than you were before, and you're ahead. Most dividend paying stocks will do that for you in today's low interest environment. Just take a look at some big companies you already know to be strong - WalMart, Coca Cola, Proctor Gamble, and you will earn more in dividends than in any bank account.

    And second, as a small time gambler, I can also tell you that the odds are much better in the stock market. Stocks up 45% for me in two years, and the casinos have kept nearly 100% of my money after entertaining me a few hours. In fact, I am up over 300% on SIRI. Best bet I ever made.

  • Report this Comment On December 23, 2010, at 6:02 AM, kmacattack wrote:

    Sadalmelikm I agree with much of what you say. The banks are bigger thieves than the las vegas casinos. I remember the good old days when bank robbers made their living from the OUTSIDE of the bank, now the robbers are managing the bank, getting paid millions to steal from their customers at every opportunity.

  • Report this Comment On December 23, 2010, at 6:11 AM, kmacattack wrote:

    I forgot to mention that I've had the best two years of my life investing in the stock market, I'm up about 60 percent since Nov. of '08, and up about 60 percent on SIRI since I bought it about 8 mos. ago. SIRI may well beat my all time HOME RUN that was repurchased by Ford a couple of months ago, I bought KVU which was a bond, at $4.25 in Dec. of '08 and it was paying a 49 PERCENT DIVIDEND at that price, with the first dividend due to me about 2 weeks later. I sold KVU for an almost $25,000 gain on a $4,250 investment. I think SIRI has the potential to beat KVU's performance.

  • Report this Comment On December 23, 2010, at 3:58 PM, vriguy wrote:

    If you are an investor the fastest trading algorithms and computers hold no terrors for you -quite simply trading and investing are two very different games.

  • Report this Comment On December 24, 2010, at 11:34 AM, Sadalmelik wrote:

    Well said, vriquy.

    My WORST investment so far is Microsoft, up "only" 17% since purchase, not counting the dividends. I bought it, and SIRI, because my dad owned them, and after his death, an "advisor" talked my mom into selling all equities and mutual funds in favor of annuities and a private investment company whose performance can't be tracked. Ugh. I wanted to prove that advisor wrong, and make up the money my dad lost on SIRI while the merger with XM dragged out for years. I've been fortunate to do both, but not by luck, but by carefully studying and then taking the risk. I expect more and more of my investments in the future to be equities. I have a stash of emergency cash in I-Bonds paying 3-6%, and a decent 401K with a nice sum invested each payday.

    I agree with all three major points - 1. Save more money, 2. Take a little risk, and 3. Invest in dividend paying stocks.

  • Report this Comment On December 24, 2010, at 2:18 PM, Anysimplefool wrote:

    acbill:

    Not sure why you even spend time reading this stuff if you believe what you say. You can find some kindred spirits over at the metals and mining board. Doom, gloom, and fear, all part of the philosophy " life's a b@itch then you die". At least the gold bugs think they've found a way to cope.

    Simple.

  • Report this Comment On December 26, 2010, at 11:50 PM, majac3356 wrote:

    i'm retired and saving money... i take out 80% of the earnings from my pension account. i also have a personal online account which is open to a bit of risk... it's my play money and it's doing quite well. and i'll take a look at the dividend stocks... which i was doing before i retired but i've not been doing lately. thanks!

  • Report this Comment On December 27, 2010, at 2:11 PM, INoFoolin wrote:

    The market may be rigged, but if you actually do your homework and in particular focus on the stocks listed in the Fool Advisor you can beat the big boys. Fundamental analysis and reading the fine print in the 10Q is hard work but you must learn to do it.

    Diversification is also critical.

    If you only consume and do not save you are doomed.

  • Report this Comment On December 27, 2010, at 3:35 PM, INoFoolin wrote:

    The market may be rigged, but if you actually do your homework and in particular focus on the stocks listed in the Fool Advisor you can beat the big boys. Fundamental analysis and reading the fine print in the 10Q is hard work but you must learn to do it.

    Diversification is also critical.

    If you only consume and do not save you are doomed.

  • Report this Comment On December 30, 2010, at 4:25 PM, fuzzylou wrote:

    Great article, good advice.

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