The Stocks You Need to Know About Now to Protect Your Retirement
The dream of retiring comfortably is a mirage for the vast majority of Americans. According to the National Institute on Retirement Security (NIRS), the retirement savings shortfall in the U.S. is worse than anyone thought. But it’s not an impossible dream for wise investors.
After the U.S. markets crashed in 2008, many Americans saw the value of their hard-earned nest egg evaporate. While the S&P 500 and Dow Jones Industrial Average have been on a five-year bull run, this hasn’t trickled down to the average American. In fact, unemployment remains high, a record number of Americans receive food stamps, wages are stagnant, and personal debt is up.
All of that makes it difficult to set aside money to save for retirement.
And we are now bearing witness to the number of Americans who are sorely unprepared for retirement. In fact, the NIRS study found that roughly 45%, or 38 million, working-age households do not have any retirement account assets. (Source: “The Retirement Savings Crisis: Is It Worse Than We Think?,” National Institute of Retirement Security web site, June 2013.)
More specifically, when all working-age families are accounted for, the typical family has just $3,000 saved for retirement. Those nearing retirement don’t fare much better, with only $12,000 in the bank.
On top of that, 80% of working families have retirement savings less than one times their annual income. As a result, the U.S. retirement savings deficit has ballooned to between $6.8 and $14.0 trillion.
Even at the best of times it can be difficult to plan for retirement. After two recessions (2001 and 2008), even the most optimistic can give up hope.
Over the years, private sector employers have shifted away from traditional defined benefit pensions to defined contribution plans.
So instead of paying into a system that provides a stable source of income that lasts through retirement (and is managed by professionals), a large number of Americans now need to rely on individual investment accounts, like 401(k) plans.
What this means is that most Americans are now wholly responsible for their own retirement planning; knowing how much to set aside, diligently contributing, changing asset allocation, and other jobs that used to be handled by professionals.
That kind of work can be difficult for even the most seasoned investors. And it is profoundly complicated for individuals with no real investing experience.
Based on self-directed retirement plans like 401(k)-type accounts and individual retirement account (IRA) balances, 92% of working households do not meet conservative retirement savings targets for their age and income. Even when counting their entire net worth, two-thirds (65%) still fall short.
Where can those looking to boost their retirement income turn for the short and long term? It may sound like I’m beating the same drum over and over, but one of the best places to turn is to high-yield defensive stocks.
Consumer goods company Altria Group, Inc. (NYSE/MO) and health care provider Johnson & Johnson (NYSE/JNJ) are excellent examples of defensive plays that have a long history of providing both strong share price appreciation and a strong dividend yield.
The point here isn’t just that they pay a dividend—it’s what you do with the dividend. Instead of cashing it in each quarter, reinvest it. If you have a stock that pays out five percent annually, by reinvesting it, you are essentially building your retirement portfolio with found money. Reinvesting dividends also means your retirement portfolio will grow at an even greater pace.