Everyone knows how low interest rates are right now. That’s why we urge investors to look beyond government bonds and CDs if they need to earn a decent amount of income. Here’s a dramatic illustration of how your income stream would have withered away if you chose to invest only in government bonds over the course of a typical thirty year retirement:
If you retired thirty years ago, in 1982, and invested your nest egg of $500,000 in 10-year Treasury bonds, you would have earned $72,950 per year of income before tax.
Ten years into your retirement, in 1992, that income stream would have dwindled to $35,150 per year before tax.
Twenty years into your retirement, in 2002, your income would have dropped further to $25,200 in annual income before tax.
And by 2012, thirty years into your retirement, that same $500,000 in investments would have generated only about $10,000 in annual income.
If you still don’t see why this is a BIG problem, here’s one more fact. Let’s say, when you retired in 1982, you needed that $72,950 in annual income to pay your living expenses. With inflation, you would have needed $171,341 by 2012 to afford the same level of comfort you enjoyed in 1982.
So while in 1982, the income generated by your portfolio would have covered your expenses very nicely, by 2012, your expenses would have risen to $171,341 and your income would have shrunk to $10,000. Ouch!
Welcome to the new reality of retirement income! If you think you don’t need some “growth” in retirement, think again. Your life expectancy keeps “growing,” your expenses keep “growing,” so maybe your portfolio better keep “growing” too!