Last week, the Dow Jones industrial average closed above 13,000 -- its highest point since December 2007. This looks like good retirement planning news for those of us who are trying to figure out how best to finance our retirements with income from investments.
In light of last week's news, Black Rock, the largest asset-management company in the U.S., offered these five suggestions for maximizing retirement income.
- Expand your investment horizons. According to a United Nations population survey, a 65-year-old couple in the U.S. has a 50 percent chance that one of them will live to age 92 and a 25 percent chance that one of them will reach age 97. With that kind of timeline, investing for the long term makes sense.
- Don't leave it all in cash. When the market was at its worst, many investors put their money in cash. The good things about cash investments include predictable returns and reservation of capital. But at a 3 percent inflation rate, cash will lose 50 percent of its purchasing power over a 20-year retirement. If you have most of your nest egg in cash, now is the time to put it to work.
- Seek income in new places. Consider U.S. and international dividend-paying stocks, U.S. and international real estate investment trusts, master limited partnerships, U.S. preferred stocks, emerging market debt, and closed-in funds. Black Rock says these are the new safe havens.
- Consider alternatives. Black Rock recommends adding alternative investments to the mix, including selling long and short, commodities, and real estate. These will help diversify a retirement account and can be managed relatively easily through mutual funds and exchange-traded funds.
- Blend active and passive investments. Owning only index funds is a simply approach, but it doesn't always get you the best returns. Judiciously consider more expert investing.