Over the past decade, retirees and other income investors have been pushed out of Treasuries due to insufficient yields. For most of the 2010-2020 period, interest rates were hovering around 1%-3%, which after inflation and taxes, isn’t sustainable for most retirees:
Data by YChartsIt forced retirees to invest into higher-yielding instruments that carry greater risks. Good examples include MLPs, BDCs, utilities, and REITs.
Unfortunately, those were some of the worst performers in the last market crash:
- MLPs (AMLP) are down 42%.
- BDCs (BIZD) are down 36%.
- Utilities (XLU) are down 21%.
- mREITs (REM) are down 57%.
- eREITs (VNQ) are down 29%.
Data by YChartsA lot of dividend cuts already have been announced. More will follow. And unfortunately, some of these higher-yielding companies may never recover.
Think for instance about lower quality mall REITs, which are closed down and quickly losing market share to Amazon (AMZN). Maybe they will recover, but "maybe" is not good enough for retirees who rely on steady income to fuel their retirement.
We believe that most of these higher-yielding companies are uninvestable for retirees in this uncertain environment. Risks are high and you need to be more selective than ever before to sustain maximum income in this crisis.
You shouldn’t shy away from taking risks, but these risks should be carefully vetted and diversified with other income sources. At High Yield Landlord, common equity investments such as REITs are just one component of our Retirement Portfolio.
Below we discuss the three core asset classes that allow us to generate safe maximum yield in retirement:
Safe Income Component #1: Blue-Chip REITs
REITs own properties that are leased on a long-term basis and generate steady rental income. It's a defensive business model that has historically provided nearly 2x better downside protection and income stability during recessions:
However, this does not mean that every REIT is suitable for retirees. Many of them are either overleveraged, poorly managed, or they operate in a risky property sector such as hotels or malls.
Retirees should stay away from those and look instead for large, well-established REITs that enjoy investment grade credit ratings, steady fundamentals and a strong track record of steady dividend payments. That's exactly what we target with our Retirement Portfolio:
Source: High Yield Landlord Retirement Portfolio
Finding a high-quality REIT is not very difficult. What's difficult is to find high quality at a deep discount to fair value. Such opportunities are very rare, but if you want to lock in a high yield, you need to get a good deal on your purchase.
In a universe of 200 REITs, there are only ~20 of them that would pass our selection criteria.
What would be a good example of a retiree-friendly REIT?
Federal Realty Trust (FRT) is one of the best retiree-friendly REIT investment opportunities in the current marketplace. It's one of the bluest blue chips in the REIT market with an A-rated balance sheet, high-quality assets, and a 52-year track record of rising dividends.
FRT has never cut its dividend in over half a century. Not even in 2008-2009 when most other REITs were slashing dividends.
Today, FRT is going through a temporary crisis with tenants missing rent payments due to store closures. It will cause a hit to FRT’s results in 2020, but rent payments will resume as soon as we open up the economy and FRT’s A-rated fortress balance sheet should allow the company to maintain its dividend.
Right now, FRT is priced at an even lower valuation than in 2008. It's offered at a 50% discount to net asset value and pays a 6% dividend yield that is safely covered at a 69% payout ratio. As valuations normalize, the company has ~100% upside potential, which is quite exceptional for a company of this quality.
Our Retirement Portfolio includes nine similar blue-chip REIT investment opportunities to generate safe income and protect us against long term inflation.
Safe Income Component #2: Discounted Preferred Shares
If there's one downside to common equity investments, it's that they can occasionally become extremely volatile and the yield level is generally below 6% for high quality companies.
Our Retirement Portfolio invests in preferred shares in order to achieve three things:
- Lower the volatility of the portfolio
- Boost its yield
- Increase the income safety
Preferred shares generally do not have as much as upside potential. However, their yield is often greater and also safer because it must be paid ahead of the common dividend.
We are especially interested in preferred shares that are backed by real assets that generate steady contractual income. From our experience, they provide the best risk-to-reward for retirees. They are very rare to suspend preferred dividends, even in times of crisis.
A good example of a preferred share opportunity is the series D preferred shares of UMH Properties (UMH.PD). It yields 7% and has an additional 15% upside potential to par value.
We believe that the income is very safe because it's backed by a diverse portfolio of manufactured housing communities. Affordable housing always is in great need, and especially so in times of crisis. The company has low leverage and resilient fundamentals. The 7% yield must be paid before even a penny can paid to common shareholders. The management owns 11% of the equity, and therefore, they are very motivated to pay the preferred in full and on time.
Our Retirement Portfolio includes six similar preferred share investment opportunities to boost the average yield of the portfolio and stabilize its value.
Safe Income Component #3: Property-Backed Loans
Finally, the third component of our Retirement Portfolio is private property-backed loans. They serve two main purposes:
- They boost the average yield of the portfolio.
- They diversify the portfolio away from publicly traded equities.
In other words, it allows us to earn greater income with lower overall volatility.
But what are these loans and how risky are they?
First of all, you must understand that these are private investments and therefore they do not enjoy the same liquidity as common or preferred shares.
On the flip side, the yield is generally much greater at 8%-12% depending on the risk of the loan. Each loan is backed by a property and the loan-to-value is generally below 65%, which leaves good margin of safety in case of trouble. This also means that if and when the property is foreclosed, it can be sold to recoup the principal and possibly even more.
Importantly, the duration of these loans is very short, generally just 12 months. It allows us to quickly get our money back to then reinvest in REITs or preferred shares if and when new opportunities come available. Otherwise, we can just reinvest in another loan.
To be clear, these are not risk-free investments. We have had several cases of foreclosures and delayed payments, but because the LTV is below 65%, the first 35% loss is taken by equity investors. It provides margin of safety for us and results in a lower risk profile than most stocks.
Ever since we started investing in these loans, our average yield has been a steady 10% per year. We use two different crowdfunding services to access these investments and discuss them in great detail at High Yield Landlord.
Our Retirement Portfolio invests roughly 20% of its assets into such opportunities to boost yield and lower volatility through diversification.
Bottom Line
Not all high-yield portfolios are created equal. If you are heavily invested in MLPs, BCDs, CEFs, and riskier REITs, you are likely to suffer many dividend cuts in the coming weeks and months.
Our Retirement Portfolio strategy is not looking for homeruns or >10% yields on risky equities. Instead, we are more strategic in the risks we take and aim to generate maximum safe income in this environment.
Today, the average yield of the portfolio is 6%, but this is income that comes from blue-chip REITs, solid preferred shares, and property loans, which are safer than traditional equity investments.
Is the portfolio immune to losses? It sure isn’t, but we are very confident that it will outperform most other retirement portfolios and pay more consistent income. It's structured with this goal in mind.
Launch of Retirement Portfolio!
At High Yield Landlord, we recently launched our Retirement Portfolio to target undervalued blue-chips with sustainable dividends. It currently yields 6% and has up to 50% upside potential.
- We are the #1 rated service on Seeking Alpha with a perfect 5/5 rating.
- We are the #1 ranked service for Real Estate Investors with 1600 members.
Start your 2-Week Free Trial today and get instant access to all our Top Picks, 3 Model Portfolios, Course to REIT investing, Tracking tools, and much more.
We are offering a Limited-Time 28% discount for new members!
FAQs
What is the 7% rule for retirement? ›
Assuming that you have $100,00 in your retirement savings account, you should withdraw 7%, which is $7,000 every year. Suppose the market gets volatile in the future, and your portfolio value falls to $82,000; the $7,000 withdrawal limit will represent 8.5% of your present portfolio value.
What is the average 401k balance for a 65 year old? ›Many U.S. workers retire by the time they reach 65. Vanguard's data shows the average 401(k) balance for workers 65 and older to be $279,997, while the median balance is $87,725.
What is the #1 safest investment? ›For example, certificates of deposit (CDs), money market accounts, municipal bonds and Treasury Inflation-Protected Securities (TIPS) are among the safest types of investments.
Where is the safest place to put retirement money? ›The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.
What investments give a 10% return? ›There are several investment vehicles that have historically generated 10% annual returns: stocks, REITs, real estate, peer-to-peer lending, and more.
What is the 80/20 retirement rule? ›Ideally, most of the money should go to retirement investments, since financial planners commonly recommend putting at least 10 to 15% of your paycheck away for retirement. The remaining 80% goes toward needs and wants, including food, rent and entertainment. But how you choose to spend that money is up to you.
Can I retire at 62 with $600,000? ›Say that you plan to retire at 62 with $600,000 saved. You expect to withdraw 4% each year, starting with a $24,000 withdrawal in Year One. Your money earns a 5% annual rate of return while inflation stays at 2.9%. Based on those numbers, $600,000 would be enough to last you 30 years in retirement.
What is the 90 10 rule of retirement? ›How Does It Work? A typical 90/10 principle is applied when an investor leverages short-term treasury bills to build a fixed income component portfolio using 10% of their earnings. The investor then channels the remaining 90% into higher risk but relatively affordable index funds.
What is the average Social Security check? ›For those who are collecting Social Security at age 65, the average payment in 2022 was about $2,484 a month, according to the Social Security Administration. That's based on the agency's estimate that the average annual benefit was $29,806 for Social Security recipients who are age 65.
Is it better to take Social Security at 62 or 67? ›You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.
What is a good amount to have in 401k to retire? ›
By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary. So, for example, if you're earning $75,000 per year, you should have $750,000 saved.
What is the safest investment for seniors? ›What is the safest investment for seniors? Treasury bills, notes, bonds, and TIPS are some of the safest options. While the typical interest rate for these funds will be lower than those of other investments, they come with very little risk.
What are 3 very risky investments? ›While the product names and descriptions can often change, examples of high-risk investments include: Cryptoassets (also known as cryptos) Mini-bonds (sometimes called high interest return bonds) Land banking.
Where should a 65 year old invest? ›- 60/40 portfolio.
- Bond ladders.
- Certificates of deposit (CDs).
- Options collar.
- Low-volatility stocks.
- Series I savings bonds.
- Preferred stock.
“U.S. Treasury securities, such as Treasury bills, notes and bonds, are considered to be among the safest investments because they are backed by the full faith and credit of the U.S. government,” Boothe said.
Where should a 60 year old invest? ›Some good investments for retirement are defined contribution plans, such as 401(k)s and 403(b)s, traditional IRAs and Roth IRAs, cash-value life insurance plans, and guaranteed income annuities.
How can I double my money in 5 years? ›As a rate of return, long-term mutual funds can offer rates between 12% and 15% per year. With these mutual funds, it may take between 5 and 6 years to double your money. Kisan Vikas Patra (KVP): It comes under the Post Office Small Saving Scheme.
What is a better investment than 401k? ›An IRA is a good first choice
Like a 401(k), savings grow tax-deferred, which means you don't pay income taxes on the earnings as long as the money is in the account. Currently, you can contribute up to $6,000 a year to an IRA (with a $1,000 catch-up for those 50-plus). That would be a good start to your savings.
In some cases, it can decline for months or even years. As a result, some retirees like to use a 3 percent rule instead to reduce their risk further. A 3 percent withdrawal rate works better with larger portfolios. For instance, using the above numbers, a 3 percent rule would mean withdrawing just $22,500 per year.
What is the golden rule of 90? ›The rule of 90 is a formula for determining when a teacher can draw a normal pension without penalty. This rule is satisfied when your age + years of service = 90. The table below is for the purpose of clarifying what this change means in practical terms to different groups of teachers affected by it.
What is the 60 40 rule for retirement? ›
Retirement planners typically tell Americans to invest 60% of their retirement funds in stocks and 40% in bonds. But that time-tested strategy fell apart this year as poor performance in many financial markets wiped out many workers' savings.
What is the highest Social Security check? ›The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2023, your maximum benefit would be $3,627. However, if you retire at age 62 in 2023, your maximum benefit would be $2,572. If you retire at age 70 in 2023, your maximum benefit would be $4,555.
What is a good amount of money to retire with at 62? ›If you're looking to retire comfortably and still have a good lifestyle, you'll need to save some money. Experts typically recommend having at least $500,000 saved up before you retire.
How much does the average American have saved for retirement at age 62? ›The above chart shows that U.S. residents 35 and under have an average of $30,170 in retirement savings; those 35 to 44 have an average $131,950; those 45 to 54 have an average $254,720; those 55 to 64 have an average $408,420; those 65 to 74 have an average $426,070; and those over 70 have an average $357,920.
What does Warren Buffett recommend for retirement? ›What is Warren Buffett's retirement investment advice? Buffett recommends a long-term portfolio allocated 90% to S&P 500 index funds and 10% to diversified short-term bond funds for most investors.
What is Warren Buffett's golden rule? ›1 – Never lose money. Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said “Rule No. 1 is never lose money.
How much is Social Security going up in 2023? ›Social Security benefits and Supplemental Security Income (SSI) payments will increase by 8.7% in 2023. This is the annual cost-of-living adjustment (COLA) required by law.
What changes are coming to Social Security in 2023? ›The most impactful change in 2023 is the 8.7% cost of living adjustment, or COLA, which takes effect this month. For instance, if you receive $2,000 a month from Social Security, the monthly payout will rise to $2,174 per month.
How much does the average American retire with? ›On average, Americans have around $141,542 saved up for retirement, according to the “How America Saves 2022” report compiled by Vanguard, an investment firm that represents more than 30 million investors.
At what age do you get 100 of your Social Security benefits? ›If you start receiving benefits at age 66 you get 100 percent of your monthly benefit. If you delay receiving retirement benefits until after your full retirement age, your monthly benefit continues to increase. The chart below explains how delayed retirement affects your benefit.
What is the best age to retire? ›
The normal retirement age is typically 65 or 66 for most people; this is when you can begin drawing your full Social Security retirement benefit. It could make sense to retire earlier or later, however, depending on your financial situation, needs and goals.
How much is the average Social Security check at age 67? ›The amount you are entitled to is modified by other factors, most crucially the age at which you claim benefits. For reference, the average Social Security retirement benefit in 2023 is an estimated $1,827 a month.
What is the average 401k balance for a 70 year old? ›The average balance for those 65 and older is $203,000; the median is $55,300.
How much does the average 60 year old have in their 401k? ›| Age | Average 401(k) balance | Median 401(k) balance |
|---|---|---|
| 45-50 | $123,686 | $33,605 |
| 50-55 | $161,869 | $43,395 |
| 55-60 | $199,743 | $55,464 |
| 60-65 | $198,194 | $53,300 |
One rule of thumb is that you'll need 70% of your pre-retirement yearly salary to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office good-bye.
What is the best retirement portfolio for a 70 year old? ›Bonds. As previously mentioned, many fund managers would recommend having a portfolio heavily invested in bonds in your 70s. Bonds are a good investment class when you're in your 70s as they help preserve capital while also earning interest.
What is the safest investment with highest return? ›- High-yield savings accounts.
- Series I savings bonds.
- Short-term certificates of deposit.
- Money market funds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
If you have no family, no money, you become a ward of the state or county. The state assigns a guardian to you, and that person makes the decisions about your living situation, your health care, your finances.
Where is the safest place to put your retirement money? ›The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.
What investments should I avoid? ›- Subprime Mortgages. ...
- Annuities. ...
- Penny Stocks. ...
- High-Yield Bonds. ...
- Private Placements. ...
- Traditional Savings Accounts at Major Banks. ...
- The Investment Your Neighbor Just Doubled His Money On. ...
- The Lottery.
Where should I invest my money to get highest return? ›
- Saving Account.
- Liquid Funds.
- Short-Term & Ultra Short-Term Funds.
- Equity Linked Saving Schemes (ELSS)
- Fixed Maturity Plans.
- Treasury Bills.
- Gold.
The U.S. stock market has long been considered the source of the greatest returns for investors, outperforming all other types of investments including financial securities, real estate, commodities, and art collectibles over the past century.
What is the highest yield investment? ›What investment has the highest yield? Investing in the stock market has historically offered the highest investment returns over time. This is especially true if you have a longer time horizon and can remain invested for at least five years, but ideally longer.
Where should I put my money for highest return? ›- High-Yield Savings.
- CDs.
- Money Market Accounts.
- Treasury Bonds.
- TIPS.
- Municipal Bonds.
- Corporate Bonds.
- S&P 500 Fund.
Stocks, bonds, and mutual funds are the most common investment products. All have higher risks and potentially higher returns than savings products. Over many decades, the investment that has provided the highest average rate of return has been stocks.
Where should I invest to get 5% return? ›- Checking. A transactional account that allows for numerous withdrawals and unlimited deposits. ...
- Savings. A bank account that keeps your money safe and secure, while paying you interest.
- MMA. ...
- CD. ...
- 401K. ...
- Brokerage. ...
- REIT. ...
- Robo Advisor.
- High Yield Savings Accounts.
- Short-Term Certificates of Deposits.
- Short-Term Government Bonds Funds.
- S&P 500 Index Funds.
- Dividend Stock Funds.
- Real Estate & REITs.
- Cryptocurrency.
Fixed Deposit
A fixed deposit is a financial instrument provided by banks or NBFCs which offers investors a higher rate of interest than regular savings accounts until the given maturity date. Considering 9% returns, an investment of Rs 50,000 can fetch you Rs 2,80,220 in fd in 20 years.
- Varo: 5% up to $5,000.
- UFB Direct: 4.55% on your entire balance.
- Current: 4% up to $6,000.
- NetSpend: 5% up to $1,000.
- Digital Federal Credit Union: 6.17% up to $1,000.
- Blue Federal Credit Union: 5% up to $1,000.
- Mango Money: 6% up to $2,500.
Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts. Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance.
What is the best performing asset class of all time? ›
The best performing Asset Class in the last 30 years is US Technology, that granded a +13.03% annualized return. The worst is US Cash, with a +2.19% annualized return in the last 30 years. Asset Classes can be easily replicated by ETFs.
What are the safest bonds to invest in? ›U.S. Treasury bonds are widely considered the safest investments on earth. Because the United States government has never defaulted on its debt, investors see U.S. Treasuries as highly secure investment vehicles. “Treasuries have become less attractive recently because of their low yields,” says Matthews.
What is a better investment than real estate? ›You can easily add stocks to tax-advantaged retirement accounts, such as a 401(k) or IRA, to grow your money tax-free. Over the long term, stocks have outperformed other investment options, such as bonds and real estate.