MONEY retirement planning

How to Keep Risk From Draining Your Retirement Savings

Maurice Greer
Maurice Greer wants to be on the final sprint to retirement. Peter Bohler—Peter Bohler

An overly aggressive investing strategy threatened to derail Maurice Greer's retirement plans. Here's how he can get back on track without blowing his timeline.

Maurice Greer, 53, was a late starter in saving for retirement.

After a decade in the Air Force and eight years in retail—during which he’d saved $10,000 in a 401(k) but spent it when a sports injury threw him out of work—he de­cided in 2000 to start taking classes toward a certification in information technology. “I didn’t like the idea of getting old and having no money, so I had to catch up,” he says.

At age 40, newly minted with the tech credential, he moved to the Washington, D.C., area for an entry-level IT job with a Pentagon contractor. Thirteen years and five government jobs later, he earns $103,000 a year helping run the FBI’s computer systems. Along the way, he’s piled up $261,000 for retirement and $43,000 in the bank.

His aggressive investing style (80% in stocks) and savings plan (20% of pay) have brought him far. Now he wants to up the ante.

Greer, who has the government’s second-highest security clearance, has grown weary of the demands of the job, not to mention the polygraph tests and intrusive security checks the FBI requires. “My work is very stressful,” he says. “Life is short, and I want to enjoy it.” To travel more and pursue his photography passion, Greer wants to retire in seven to 10 years—the sooner the better.

In hopes of growing his money faster and making his dream a reality, Greer is considering buying individual stocks, perhaps big brand names like Coke and McDonald’s.

Investment adviser Riyad M. Said of TA Capital Management in Washington, D.C., doesn’t think that’s wise. With such a short time horizon, Greer should dial back (rather than crank up) the risk in his portfolio, Said says. “If he were 20 years from retirement, I’d say fine, stay aggressive,” he notes. “But when you’re seven to 10 years away, there’s a big risk that your portfolio could take a huge hit right when you want to take money out.”

The Advice

Reduce risk: Said suggests Greer turn down his equity exposure to 60% of his portfolio, with 40% in domestic and 20% in international funds. A quarter of Greer’s portfolio should go into fixed income, with 15% in U.S. bonds through MetWest Total Return METROPOLITAN WEST TOTAL RET BD M MWTRX 0.2727% and 10% international through SPDR Barclays International Treasury Bond ETF SPDR SERIES TRUST BARCLAYS INTL TREAS BD ETF BWX 0.552% . Another 10% should go into alternatives—Said suggests Baron Real ­Estate Fund BARON REAL ESTATE RETAIL BREFX 0.0765% and ­Alerian MLP ALPS ETF TRUST ALERIAN MLP ETF AMLP -0.4611% —and 5% in cash.

150121_MAK_PedalBack
Money

Aim for a target: Greer’s ex­penses are modest: With a mortgage payment of $900 on his condo and no other debt, he spends only about $2,700 a month. At that rate, he’ll need $800,000 to retire in seven years or $730,000 to retire in 10, assuming that he takes Social Security at 63. To reach these goals, he will need to save $44,000 or $24,000 per year, respectively, based on a 6% to 6.5% average return.

Invest tax-efficiently: A disciplined saver, Greer sets aside $20,000 a year in his 401(k)—on which he gets a $2,000 match—and $10,000 a year in a savings account.

Rather than sock away so much in the bank, he should take full ­advantage of 401(k) catch-up provisions for those aged 50-plus to contribute a total of $24,000 a year to that account. Then he should put the remaining $6,000 in a new brokerage account invested in an index fund or ETF of dividend-paying stocks (the tax consequences will be modest, and he can reinvest the dividends). One option: PowerShares S&P 500 Low Volatility ETF POWERSHARES ETF II S&P 500 LOW VOLATILITY PORT SPLV -0.4527% . These steps will let him save enough to retire in 10 years and get him started toward an earlier quit date.

Greer currently overpays $425 a month on his mortgage; if he stops doing that, he can free up $5,100 more a year. Additionally, he will earn his bachelor’s degree in cybersecurity soon, which would qualify him for positions that could increase his salary by 30%. Making a job change and putting all his extra earnings in the dividend fund should allow him to save enough to retire in seven years—though a new position could be more stressful than his current one. “If that would increase my chances of retiring early,” Greer says, “the trade­off would be well worth it.”

Read more Retirement Money Makeovers:
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MONEY retirement planning

Why Women Are Less Prepared Than Men for Retirement

Women outpace men when it comes to saving, but they need to be more aggressive in their investing.

Part of me hates investment advice specifically geared towards women. I’ve looked at enough studies on sex differences—and the studies of the studies on sex differences—to know that making generalizations about human behavior based on sex chromosomes is bad science and that much of what we attribute to hardwired differences is probably culturally determined by the reinforcement of stereotype.

So I’m going to stick to the numbers to try and figure out if, as is usually portrayed, women are actually less prepared for retirement—and why. One helpful metric is the data collected from IRA plan administrators across the country by the Employment Benefit Research Institute (EBRI.) The study found that although men and women contribute almost the same to their IRAs on average—$3,995 for women and $4,023 for men in 2012—men wind up with much larger nest eggs over time. The average IRA balance for men in 2012, the latest year for which data is available, was $136,718 for men and only $75,140 for women.

And when it comes to 401(k)s, women are even more diligent savers than men, despite earning lower incomes on average. Data from Vanguard’s 2014 How America Saves study, a report on the 401(k) plans it administers, shows that women are more likely to enroll when sign up is voluntary, and at all salary levels they tend to contribute a higher percentage of their income to their plans. But among women earning higher salaries, their account balances lag those of their male counterparts.

It seems women are often falling short when it comes to the way they invest. At a recent conference on women and wealth, Sue Thompson, a managing director at Black Rock, cited results from their 2013 Global Investor Pulse survey that showed that only 26% of female respondents felt comfortable investing in the stock market compared to 44% of male respondents. Women are less likely to take on risk to increase returns, Thompson suggested. Considering women’s increased longevity, this caution can leave them unprepared for retirement.

Women historically have tended to outlive men by several years, and life expectancies are increasing. A man reaching age 65 today can expect to live, on average, until age 84.3 while a woman can expect to live until 86.6, according to the Social Security Administration. Better-educated people typically live longer than the averages. For upper-middle-class couples age 65 today, there’s a 43% chance that one or both will survive to at least age 95, according to the Society of Actuaries. And that surviving spouse is usually the woman.

To build the portfolio necessary to last through two or three decades of retirement, women should be putting more into stocks, not less, since equities offer the best shot at delivering inflation-beating growth. The goal is to learn to balance the risks and rewards of equities—and that’s something female professional money managers seem to excel at. Some surveys have shown that hedge fund managers who are women outperform their male counterparts because they don’t take on excessive risk. They also tend to trade less often; frequent trading has been shown to drag down performance, in part because of higher costs.

Given that the biggest risk facing women retirees is outliving their savings, they need to grow their investments as much as possible in the first few decades of savings. If it makes women uncomfortable to allocate the vast majority, if not all, of their portfolio to equities in those critical early years, they should remind themselves that even more so than men they have the benefit of a longer time horizon in which to ride out market ups and downs. And we should take inspiration from the female professional money managers in how to take calculated risks in order to reap the full benefits of higher returns.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.

Read next: How to Boost Returns When Interest Rates Totally Stink

MONEY Social Security

The Best Way to Claim Social Security After Losing a Spouse

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q. My husband recently passed away at age 65. I’ll be 62 in July, and I’m working full time. I went to the Social Security office and was told I could file for survivor benefits now, but would lose most of the income since my salary is about $37,000 a year. They told me to wait as long as possible to start collecting. My own Social Security benefits would be about $1,200 per month at 62, but since I’ll keep working, I will forfeit most of it. I don’t want to give up most of the benefits. But if there’s money I can collect until I turn 66, I’d like to get it. —Deanna

A. Please accept my condolences at the loss of your husband. I am so sorry. As for your Social Security situation, let me explain a few things that I hope will make your decision clearer.

First off, it’s true that the Earnings Test will reduce any benefits you receive before what’s called your Full Retirement Age (66 for you). However, these benefit reductions are only temporary—you do not forfeit this income. When you reach 66, any amounts lost by the Earnings Test will be restored to you in the form of higher benefit payments.

The real consequence of taking benefits “early”—before your FRA—is that the amount you receive will be reduced. There are different early reduction amounts for retirement benefits and widow’s benefits.

That said, you can file for a reduced retirement benefit at 62 and then switch to your widow’s benefit at 66, when it will reach its maximum value to you. This makes sense if you are sure that your widow’s benefit will always be larger than your own retirement benefit; more on that in moment.

One caveat: if you take your retirement benefits early, the restoration of Earnings Test reductions probably will be lost to you once you switch later to a widow’s benefit. But if the widow’s benefit is larger anyway, this should not bother you.

To find out more precisely what you’ll get in retirement benefits, set up an online account at Social Security—you’ll see the income you’ll receive at different claiming ages. To get the comparable values of your survivor’s benefit as a widow, however, you will need to get help from a Social Security representative.

Once you see those numbers, it could change your thinking. For example, what if your own retirement benefit is larger than your widow’s benefit? It could happen, especially if you defer claiming until age 70 and earn delayed retirement credits. In that scenario, you would do better to claim your widow’s benefit—and perhaps even take it early if you need the money. You can then switch to your retirement benefit at age 70.

These claiming choices can be very complicated. Economist Larry Kotlikoff, who is a friend and co-author of my new book on Social Security, developed a good software program, Maximize My Social Security ($40), which can take all your variables and plot your best claiming strategy. But I’m not trying to sell his software, believe me; there are other programs you can check out, which are mentioned here. Some are free, but paying a small fee for a comprehensive program may be worth it, when you consider the thousands of benefit dollars that are at stake.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: What You Need to Know About Social Security Survivor’s Benefits

MONEY retirement planning

Money Makeover: Freelancers With a Toddler, No Plan, and No Cash to Spare

The Larsons
With 30-plus years to retirement, David and Ashlene Larson can afford to take more investing risk. Peter Bohler

Managing new businesses and a new baby left one young couple with little to save for retirement. Here's the advice they need to get their finances on track for the future.

David and Ashlene Larson know how important it is to save for retirement. The problem is they don’t have much cash to spare, as they are new parents—daughter Rosalie is 18 months—who are both starting new businesses. David, 33, took his sideline ­video-production company full-time in June, and Ashlene, 32, left her job at a PR firm in July to freelance.

The Larsons have more stable income than many self-employed workers, with $9,000 coming in monthly from two regular clients and twice that in a good month. But after payments for a mortgage, day care, car lease, and $25,000 in student loans—and after plowing some profits back into David’s growing business—they can put only $200 a month in Ashlene’s Roth IRA and $100 in a 529 savings plan for Rosalie’s college. Total savings rate: 3%. “It’s nerve-racking,” David says.

Meanwhile, they don’t know what to do with the $27,500 they’ve saved for retirement. Nor do they have any idea how to deploy the pile of savings bonds—worth $42,000 and earning 1.49%—that David’s grandparents gave him as a kid. “Our investments are all over the place,” says Ashlene.

Matt Morehead of Greenspring Wealth Management in Towson, Md., says that the Larsons’ overall allocation for retirement—73% stocks, 27% fixed income—is a tad conservative for their ages. But worse, Ashlene inadvertently has $15,000 in an old 401(k) invested in a 2025 target-date fund that will move to 50% bonds in 10 years, hampering its growth potential. Another concern: They have no cash in the bank. “The Larsons are stuck in the ‘foundation phase’ because they have debt and not enough emer­gency funds,” says Morehead. “They need to take care of those issues before sinking money into retirement.”

The Advice

Build in a shock absorber: Since they’re both self-employed, the Larsons should keep a reserve fund of at least nine months of expenses to prevent them from having to tap retirement funds if business slows, says Morehead. With basic costs of $6,000 a month, that’s $54,000.

David’s savings bonds are a good headstart, since these can be redeemed anytime without penalty—though taxes will drop their value to about $39,000. To make up the difference, the Larsons should redirect their $300 monthly retirement and college savings to a savings account. Plus, 40% of any monthly earnings over their base pay of $9,000 should go to the cash stash (another 35% to student loans, 25% to taxes).

Consolidate with the right target-date fund: David should open a Roth IRA for himself at a low-cost brokerage; Ashlene should move her accounts there too. Morehead suggests they go all in on Vanguard’s Target Retirement 2045 Fund time-stock symbol=VTIVX]. This bumps their stock stake to about 89% and gives them broad market exposure. Plus, the fund automatically rebalances until reaching a 50%/50% mix in 30 years. “This is a great way to invest for a young couple who don’t have time to monitor their portfolio,” Morehead says.

Beef up retirement savings: When their reserves are established, that 40% of additional income can go to their IRAs. Once they max out these regularly (each can put in $5,500 in 2015) or exceed the income limits ($193,000 modified AGI for couples filing jointly), Ashlene can open a SEP-IRA and David can start a 401(k). Only when they’re saving 15% of pay should they return to funding Rosalie’s 529. “You can always borrow for college,” says Morehead. “But you can’t borrow for retirement.”

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MONEY Second Career

Why the New Boomerang Workers Are Rehired Retirees

hand holding boomerang
Dragan Nikolic—iStock

How to go back to work in retirement where you had a full-time job.

You’ve no doubt heard about boomerang kids who return to their parents’ homes in their 20s (maybe you have one). But there’s a growing group of boomerangers who are typically in their 60s: retirees who return to work part-time or on a contract basis at the same employers where they formerly had full-time jobs.

If you’ll be looking for work during retirement, you might want to consider avoiding a job search and becoming one.

Employers That Rehire Their Retirees

A handful of employers have formal programs to rehire their retirees. The one at Aerospace Corp., which provides technical analysis and assessments for national security and commercial space programs, is called Retiree Casual. The company’s roughly 3,700 employees are mostly engineers, scientists and technicians, and Aerospace is glad to bring back some who’ve retired.

“With all the knowledge these people have, we get to call on them for their expertise,” says Charlotte Lazar-Morrison, vice president of human resources at Aerospace, which is based in El Secundo, Calif. “The casuals are part of our culture.”

The roughly 300 Aerospace casuals (love that term, don’t you?) can work up to 1,000 hours a year and don’t accrue any more benefits (the company’s retirees already get health insurance). Most earn the salary they did before, pro-rated to their part-time status, of course.

Why Aerospace Corp. Brings Back ‘Casuals’

The “casuals” program lets Aerospace management have a kind of just-in-time staffing system. “It allows us to us to keep people at the ready when we need them,” says Lazar-Morrison.

Ronald Thompson joined Aerospace’s casuals in 2002, after retiring at age 64. He’d worked for the company full-time since 1964, in program management, system engineering, system integration and test and operations support to the Department of Defense. “It’s a really good way to transition to retirement,” he says. “You need both the physical and mental stimulation to keep you young.”

Thompson worked up to the 1,000-hour limit for the first couple of years. Now that he’s in his mid-70s, he’s cutting back to about 10 hours a week, mostly mentoring younger Aerospace employees. I asked Thompson when he planned to stop working. “I guess my measure is when people won’t listen to me anymore,” he laughed. “That will happen.”

At MITRE Corporation, a not-for-profit that operates research and development centers sponsored by the federal government, about 400 of its 7,400 employees are in an optional, flexible “part-time-on-call” phased retirement program. These part-timers can withdraw money from MITRE’s retirement plan while they’re working.

Why Some Employers Don’t Have Rehiring Programs

Why don’t most employers do what Aerospace and MITRE do?

For one thing, it takes a considerable investment in resources to set up a program for former retirees. So the ones who can most afford it are those with skilled workforces who offer customers specialized knowledge.

For another, some employers are wary of getting trapped by complex labor and tax rules. For example, the Internal Revenue Service generally requires firms with retirement plans to delay rehiring retirees for at least six months after they’ve left.

But benefits experts believe boomeranging can make a lot of sense for retirees and the employers where they had worked full-time.

“I think this is really logical away to go back to work, so there is a lot of potential growth if it is made easy,” says Anna Rappaport, a half-century Fellow of the Society of Actuaries and head of her own firm, Anna Rappaport Consulting. “The legal issues need to be clarified and made easy.”

Outsourcing to Bring Retirees In

A growing number of companies are outsourcing the task to bring in some of their retirees. The independent consulting firm YourEncore, created by Procter & Gamble and Eli Lilly, acts as a matchmaker between corporations looking for experts to parachute in and handle pressing problems and skilled “unretirees” wanting an occasional challenge and part-time income. YourEncore has more than 8,000 experts in its network; 65 percent with advanced degrees.

Blue Cross/Blue Shield of America’s “Blue Bring Back” program lets managers request a retired former employee if there’s a project or temporary assignment requiring someone who knows the company’s culture and procedures. Kelly Outsourcing and Consulting Group manages the program.

Tim Driver, head of RetirementJobs.com, plans on getting into the business of making it easier for employers to re-employ their retirees. His research shows that this type of program works best for companies needing ready access to talent with unique, hard-to-find skills and flexible schedules, such as insurance claims adjusters. When a storm hits, Driver says, insurers need to quickly dispatch trained property-damage adjusters who are knowledgeable about their claims processes and policies.

“It’s an attractive approach for companies that want to have people accessible but not on their books [as full-time employees],” he says.

The option of participating in an formal outsourcing arrangement is likely to grow with the aging of the baby boom population and their embrace of Unretirement. In the meantime, this kind of work deal “will be mostly ad hoc,” says David Delong, president of the consulting firm Smart Workforce Strategies.

How to Get Yourself Retired in Retirement

How can you get a part-time gig with your former employer when you retire?

Delong recommends broaching the topic while you’re still on the job. (My dad always used to say that six months after you leave an employer, people start forgetting you; they’ve moved on and have figured out how to get along without you.)

“Raise the idea with the boss,” says Delong. “Don’t assume they wouldn’t be interested in having you back part-time. The worst they can do is say, ‘no.’”

Taking a job with your former employer in your Unretirement can be a win-win situation for you and your once-and-future boss. After all, you have the knowledge and the skills to do the job well and the employer knows who you are and what you can do.

I suspect this kind of boomerang arrangement will become a bigger slice of a boomer movement toward flexible, part-time work in retirement.

Chris Farrell is senior economics contributor for American Public Media’s Marketplace and author of the new book Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life. He writes twice a month about the personal finance and entrepreneurial start-up implications of Unretirement, and the lessons people learn as they search for meaning and income. Send your queries to him at cfarrell@mpr.org or @cfarrellecon on Twitter.

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Why Phased Retirement May Arrive Where You Work

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MONEY retirement planning

Why Obama’s Proposals Just Might Help Middle Class Retirement Security

150122_RET_ObamaHelpRet
U.S. President Barack Obama delivering the State of the Union address to a joint session of Congress at the Capitol in Washington, D.C., U.S., on Tuesday, Jan. 20, 2015. Andrew Harrer—Bloomberg via Getty Images

Congress probably won't pass an auto IRA, and Social Security is being ignored. But the retirement crisis is finally getting attention.

Remember Mitt Romney’s huge IRA? During the 2012 campaign, we learned that the governor managed to amass $20 million to $100 million in an individual retirement account, much more than anyone could accumulate under the contribution limit rules without some unusual investments and appreciation.

Romney’s IRA found its way, indirectly, into a broader set of retirement policy reforms unveiled in President Obama’s State of the Union proposals on Tuesday.

The president proposed scaling back the tax deductibility of mega-IRAs to help pay for other changes designed to bolster middle class retirement security. I found plenty to like in the proposals, with one big exception: the failure to endorse a bold plan to expand Social Security.

Yes, that is just another idea with no chance in this Congress, but Democrats should give it a strong embrace, especially in the wake of the House’s adoption of rules this month that could set the stage for cuts in disability benefits.

The administration signaled its general opposition to the House plan, but has not spelled out its own.

Instead, Obama listed proposals, starting with “auto-IRAs,” whereby employers with more than 10 employees who have no retirement plans of their own would be required to automatically enroll their workers in an IRA. Workers could opt out, but automatic features in 401(k) plans already have shown this kind of behavioral nudge will be a winner. The president also proposed tax credits to offset the start-up costs for businesses.

The auto-IRA would be a more full version of the “myRA” accounts already launched by the administration. Both are structured like Roth IRAs, accepting post-tax contributions that accumulate toward tax-free withdrawals in retirement. Both accounts take aim at a critical problem—the lack of retirement savings among low-income households.

The president wants to offset the costs of auto-IRAs by capping contributions to 401(k)s and IRAs. The cap would be determined using a formula tied to current interest rates; currently, it would kick in when balances hit $3.4 million. If rates rose, the cap would be somewhat lower—for example, $2.7 million if rates rose to historical norms.

The argument here is that IRAs were never meant for such large accumulations; the Government Accountability Office (GAO) looked into mega-IRAs after the 2012 election, and reported back to Congress that a small number of account holders had indeed amassed very large balances, “likely by investing in assets unavailable to most investors—initially valued very low and offering disproportionately high potential investment returns if successful.”

The report estimated that 37,000 Americans have IRAs with balances ranging from $3 million to $5 million; fewer than 10,000 had balances over $5 million.

Finally, the White House proposed opening employer retirement plans to more part-time workers. Currently, plan sponsors can exclude employees working fewer than 1,000 hours per year, no matter how long they have been with the company. The proposal would require sponsors to open their plans to workers who have been with them for at least 500 hours per year for three years.

These ideas might seem dead on arrival in the Republican-controlled Congress. But the White House proposals add momentum to a growing populist movement around the country to focus on middle class retirement security.

As noted here last week, Illinois just became the first state to implement an innovative automatic retirement savings plan similar to the auto-IRA, and more than half the states are considering similar ideas.

These savings programs are sensible ideas, but their impact will not be huge. That is because the households they target lack the resources to sock away enough money to generate accumulations that can make a real difference at retirement.

Expanding Social Security offers a more sure, and efficient, path to bolstering retirement security of lower-income households. If Obama wants to go down in the history books as a strong supporter of the middle class, he has got to start making the case for Social Security expansion—and time is getting short.

Read next: Why Illinois May Become a National Model for Retirement Saving

MONEY alternative assets

How to Boost Returns When Interest Rates Totally Stink

People climbing over wall to greener yard
Mark Smith

With bond rates looking bare, income investors are eager to grab greener options. Higher payouts are out there, but watch your step: Some are riskier than others.

This is the first in a series of five articles looking at the most popular bond alternatives and the safest ways to use them to improve your income prospects when rates are low. Adapted from “Reaching for Yield” in the January/February issue of MONEY magazine.

Falling oil prices have sent shudders through the financial markets lately, but if you’re investing for income, this development could actually spell opportunity. Over the past few years, as rates shriveled on traditional bonds, yield-starved investors poured billions into higher-yielding alternatives, including dividend stocks, real estate investment trusts, energy partnerships, and new “go-anywhere” bond funds. That paid off handsomely if you got in early enough but has been problematic lately: All that money flooding in caused prices to rise sharply on bond alternatives, which sent yields plummeting. As a result, many of these securities by late last fall were paying out half as much as they usually do—or less.

That is, until recently. Jitters over what sharply declining energy prices might mean for the economy have ­prompted a rush back into government bonds and other “safe” securities. As a result, yields on some alternative assets are rising—and you can once again find payouts ranging from 4% to more than 6%, compared with the measly 1.9% rate on 10-year Treasuries.

To get to greener payouts, though, you have to climb a wall of risk. Historically, when market conditions turn sour, alternative assets lose more money, sometimes a lot more, than traditional fixed-income investments. That’s why financial advisers such as Mitch Reiner, chief operating officer of Capital ­Investment Advisers in Atlanta, recommend limiting the amount you invest in them to 5% to 25% of your portfolio, depending on how much income you need and whether you could let losses ride during market setbacks.

Also recognize that while these alternative assets can help boost your yield, the strategy isn’t a cure-all. Shifting 20% of a portfolio split fifty-fifty between stocks and traditional bonds into a mix of higher-paying alternatives might raise your yield from about 2% to 2.6% with little additional risk, says Geoff Considine, who runs the portfolio modeling firm Quantex. If you’re retired, that means you’ll still probably have to rely on principal and capital gains to fund at least some of your living expenses.

What follows is the first in a series of five articles looking at the most popular bond alternatives—in this case dividend stocks—and the safest ways to use them to improve your income prospects.

Dividend stocks: Go global and preferred

High-quality stocks that return a hefty portion of profits to shareholders via dividends are a favorite of income investors when bond yields are low. That’s been especially true over the past few years, when many blue-chip and even some tech companies were yielding as much as or more than Treasury bonds. The same payouts with real growth potential—slam dunk, right?

Not so much anymore. Yield-hungry investors have been bidding up prices on dividend payers since the financial crisis, and despite the market’s recent slide, they still look expensive relative to their earnings. For instance, the average stock in the SPDR S&P Dividend ETF, which tracks an index of companies that have boosted payouts consistently over the past 20 years, was recently selling at more than 18.6 times projected earnings. The price/earnings ratio for the Standard & Poor’s 500, which historically has commanded a higher multiple than slower-growth dividend stocks: about 16.

The more stock prices race ahead of earnings, the more likely they are to fall, warns James Stack, president of InvesTech Research of Whitefish, Mont.  “We are in the sixth year of a bull market,” he warns, adding: “A retirement portfolio can be destroyed reaching for yield.” And while high-dividend shares typically drop less than the average stock during downturns, their losses are still substantially more on average than you could expect with bonds.

Your best strategy: Rather than seeking out the highest yields, zero in on companies that consistently raise dividends. And don’t overpay. To avoid that, look for dividend payers overseas, where stocks have been less inflated than in the U.S.  A good option: PowerShares International Dividend Achievers ETF POWERSHARES INTERNATIONAL DIVIDEND ACHIEVERS PORTFOLIO PID 0.1696% , a MONEY 50 pick that invests in foreign companies that have hiked dividends for at least five years straight. It paid out 3.9% over the last year yet has a modest average portfolio P/E of 14.

Preferred stocks offer even higher yields, recently averaging 6%. These shares can be traded like regular stocks but have more in common structurally with bonds: Their payments tend to be fixed over time, and their shareholders are ahead of common stock owners in the pecking order of whom companies must pay first. What you give up in exchange for that reliable income: a shot at much appreciation, because preferred shares, like bonds, have set redemption prices. And like bonds, preferreds are also sensitive to interest rates. If rates jumped, your shares could lose value, as they did in 2013.

Preferreds also lack diversification; almost 90% of them are issued by financial institutions. To reduce your exposure to banks, James Kinney, an adviser in central New Jersey, suggests splitting your preferred stake between iShares U.S. Preferred Stock ETF ISHARES TRUST U.S. PREFERRED STOCK ETF PFF 0.0626% and Market Vectors Preferred Securities ex-Financials MARKET VECTORS ETF PFD SECS EX FINLS ETF PFXF 0.0523% , which counts blue chips like United Technologies and Tyson Foods among its top holdings.

More in this series:
High-Yield Bonds: Where to Look for Quality Junk

MONEY retirement planning

4 Tips to Plan for Retirement in an Upside-Down World

upside down rollercoaster
GeoStills—Alamy

The economic outlook appears a lot dicier these days. These moves will keep your retirement portfolio on course.

Gyrating stock values, slumping oil prices, turmoil in foreign currency markets, predictions of slow growth or even deflation abroad…Suddenly, the outlook for the global economy and financial markets looks far different—and much dicier—than just a few months ago. So how do you plan for retirement in a world turned upside down? Read on.

The roller coaster dips and dives of stock prices have dominated the headlines lately. But the bigger issue is this: If we are indeed entering a low-yield slow-growth global economy, how should you fine-tune your retirement planning to adapt to the anemic investment returns that may lie ahead?

We’re talking about a significant adjustment. For example, Vanguard’s most recent economic and investing outlook projects that U.S. stocks will gain an annualized 7% or so over the next 10 years, while bonds will average about 2.5%. That’s a long way from the long-term average of 10% or so for stocks and roughly 5% for bonds.

Granted, projections aren’t certainties. And returns in some years will beat the average. But it still makes sense to bring your retirement planning in line with the new realities we may face. Below are four ways to do just that.

1. Resist the impulse to load up on stocks. This may not be much of a challenge now because the market’s been so scary lately. But once stocks settle down, a larger equity stake may seem like a plausible way to boost the size of your nest egg or the retirement income it throws off, especially if more stable alternatives like bonds and CDs continue to pay paltry yields.

That would be a mistake. Although stock returns are expected to be lower, they’ll still come with gut-wrenching volatility. So you don’t want to ratchet up your stock allocation, only to end up selling in a panic during a financial-crisis-style meltdown. Nor do you want to lard your portfolio with arcane investments that may offer the prospect of outsize returns but come with latent pitfalls.

Fact is, aside from taking more risk, there’s really not much you can do to pump up gains, especially in a slow-growth environment. Trying to do so can cause more harm than good. The right move: Set a mix of stocks and bonds that’s in synch with your risk tolerance and that’s reasonable given how long you intend to keep your money invested and, except for periodic rebalancing, stick to it.

2. Get creative about saving. Saving has always been key to building a nest egg. But it’s even more crucial in a low-return world where you can’t count as much on compounding returns to snowball your retirement account balances. So whether it’s increasing the percentage of salary you devote to your 401(k), contributing to a traditional or Roth IRA in addition to your company’s plan, signing up for a mutual fund’s automatic investing plan or setting up a commitment device to force yourself to save more, it’s crucial that you find ways to save as much as you can.

The payoff can be substantial. A 35-year-old who earns $50,000 a year, gets 2% annual raises and contributes 10% of salary to a 401(k) that earns 6% a year would have about $505,000 at 65. Increase that savings rate to 12%, and the age-65 balance grows to roughly $606,000. Up the savings rate to 15%—the level generally recommended by retirement experts—and the balance swells to $757,000.

3. Carefully monitor retirement spending. In more generous investment environments, many retirees relied on the 4% rule to fund their spending needs—that is, they withdrew 4% of their nest egg’s value the first year of retirement and increased that draw by inflation each year to maintain purchasing power. Following that regimen provided reasonable assurance that one’s savings would last at least 30 years. Given lower anticipated returns in the future, however, many pros warn that retirees may have to scale back that initial withdrawal to 3%—and even then there’s no guarantee of not running short.

No system is perfect. Start with too high a withdrawal rate, and you may run through your savings too soon. Too low a rate may leave you with a big stash of cash late in life, which means you might have unnecessarily stinted earlier in retirement.

A better strategy: Start with a realistic withdrawal rate—say, somewhere between 3% and 4%—and then monitor your progress every year or so by plugging your current account balances and spending into a good retirement income calculator that will estimate the probability that your money will last throughout retirement. If the chances start falling, you can cut back spending a bit. If they’re on the rise, you can loosen the purse strings. By making small adjustments periodically, you’ll be able to avoid wrenching changes in your retirement lifestyle, and avoid running out of dough too soon or ending up with more than you need late in life when you may not be able to enjoy it.

4. Put the squeeze on fees. You can’t control the returns the market delivers. But if returns are depressed in the years ahead, paying less in investment fees will at least increase the portion of those gains you pocket.

Fortunately, reducing investment costs is fairly simple. By sticking to broad index funds and ETFs, you can easily cut expenses to less than 1% a year. And without too much effort you can get fees down to 0.5% a year or less. If you prefer to have an adviser manage your portfolio, you may even be able to find one who’ll do so for about 0.5% a year or less. Over the course of a long career and retirement, such savings can dramatically improve your post-career prospects. For example, reducing annual expenses from 1.5% to 0.5% could increase your sustainable income in retirement by upwards of 40%.

Who knows, maybe the prognosticators will be wrong and the financial markets will deliver higher-than-anticipated returns. But if you adopt the four moves I’ve outlined above, you’ll do better either way.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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MONEY Aging

Why Confidence May Be Your Biggest Financial Risk in Retirement

portrait of aging woman
F. Antolín Hernández—Getty Images

Seniors lose ability to sort out financial decisions but hold on to the confidence they can get it right.

You think it’s tough managing your 401(k) now, just wait until you are 80 and not quite as sharp as you once were—or still believe yourself to be.

Cognitive decline in humans is a fact. It starts before you are 30 but picks up speed around age 60. A slow decline in the ability to think clearly wasn’t an issue years ago, before the longevity revolution extended life expectancy beyond 90 years. But now we’re making key financial decisions way past our brain’s peak.

Managing a nest egg in old age is the most pressing area of financial concern, owing to the broad shift away from guaranteed-income traditional pensions and toward do-it-yourself 401(k) plans. Older people must consider complicated issues surrounding asset allocation and draw-down rates. They also must navigate an array of mundane decisions on things like budgets, tax management, and just choosing the right cable package. Some will have to vet fraudulent sales pitches.

About 15% of adults 65 and older have what’s called mild cognitive impairment—a condition characterized by memory problems well beyond those associated with normal aging. They are at clear risk of making poor money decisions, and this is usually clear to family who can intervene. Less clear is when normal decline becomes an issue. But it happens to almost everyone.

Normal age-related cognitive decline has a noticeable effect on financial decision making, the Center for Retirement Research at Boston College, finds in a new paper. Researchers have followed the same set of retirees since 1997 and documented their declining ability to think through issues. Despite measurable cognitive decline, however, these retirees (age 82 on average) demonstrated little loss of confidence in their knowledge of finance and almost no loss of confidence in their ability to manage their financial affairs.

Critically, the survey found, more than half who experience significant cognitive decline remain confident in their money know-how and continue to manage their finances rather than seek help from family or a professional adviser. “Older individuals… fail to recognize the detrimental effect of declining cognition and financial literacy on their decision-making ability,” the study concludes. “Given the increasing dependence of retirees on 401(k)/IRA savings, cognitive decline will likely have an increasingly significant adverse effect on the well-being of the elderly.”

Not everyone believes this is a disaster in the making. Practice and experience that come with age may offset much of the adverse impact from slipping brainpower, say researchers at the Columbia Business School. They acknowledge inevitable cognitive decline. But they conclude that much of its effect can be countered in later life if problems and decisions remain familiar. It’s mainly new territory—say mobile banking or peer-to-peer lending—that prove dangerously confusing.

In this view, elders may be just fine making their own financial decisions so long as terms and features don’t change much. They will be well served by experience and muscle memory—and helped further by smart, simplified options like target-date mutual funds and index funds as their main retirement account choices. The problem is that nothing ever really stays the same. Seniors who recognize the unfamiliar and seek trusted advice have a better shot at keeping their finances safe throughout retirement.

Read next: Why Your Employer May Be Your Best Financial Adviser

MONEY Social Security

What You Need to Know About Social Security Survivor Benefits

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q. My husband is 10 years 4 months older than me. He began drawing his Social Security benefits at 65 and 10 months. I will be 62 next month. My benefits will be less than his since he was the larger wage earner. Based on statistics, I am likely to outlive him. We don’t need my benefits now so we could wait. But since it’s likely he will pass away first, and I will get his benefits because they are higher, is there any reason to wait to draw my benefits? —Lynda

A. First off, I hope you both live forever. But in the interest of being practical, you need to choose the Social Security strategy that will give you the highest amount of income over both your lifetimes, based on your expectations for longevity. Here’s what to consider:

If, as you say, your husband’s Social Security benefits are much larger than your own, then you will be receiving spousal benefits while he is still alive and survivor benefits after he dies. So you and your husband should figure out the strategy that will provide the best balance of current and future income.

Your spousal benefits will be 30% larger if you wait to take them until 66, which is what Social Security defines as Full Retirement Age (FRA) for you. (This age will rise from 66 to 67 for people born after 1954.)

So your decision is whether to take reduced spousal benefits at 62 or wait four years to take them at age 66. I don’t know what these different amounts might be, but you and your husband can figure them out by signing up for online Social Security accounts that will let you see your projected benefits.

Your maximum spousal benefit at age 66 will be half of what’s called your husband’s Primary Insurance Amount, or PIA. This is half of what he was entitled to receive at his FRA, and from your description, it sounds like that’s when he began taking benefits.

For example, let’s assume your spousal benefit at age 66 will be $1,000 a month. Then, at 62 you will receive only $700 a month, because of the 30% early filing reduction. Even at a reduced level, this will total $8,400 a year, or $33,600 from age 62 to 66. If you waited until age 66 and thus qualified for the larger spousal benefit, you would be getting $300 more each month.

Given these amounts, it would take you 112 months to recoup the $33,600 you would have received by taking benefits early. Your husband would need to live to more than age 86 for this deferral strategy to just break even in unadjusted terms. And this doesn’t reflect what economists call the present value adjustment of getting that $33,600 many years earlier than your full spousal benefit.

Your survivor benefit will be the actual benefit your husband was receiving when he dies, or in your case twice your spousal benefit. So you would want to contact Social Security and switch to this higher benefit as soon as possible after his death.

By the way, if your husband had deferred his retirement benefit from his FRA to age 70, his benefit would have been roughly 31.2% higher than he actually received. So, your widow’s benefit would have been even higher.

Philip Moeller is an expert on retirement, aging, and health. His book, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” will be published in February by Simon & Schuster. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: How to Use Social Security’s ‘File and Suspend” Option

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