Many people make retirement investment mistakes by overcomplicating their strategies. Wall Street has introduced a new financial product combining target-date funds and annuities, which may not be the best option for those still working. To compare, a 9.2%-paying closed-end fund provides the dividends, liquidity, and growth needed for a comfortable retirement.
The average retirement account is worth only $88,400, which is not enough to retire on according to conventional wisdom. The 4% rule suggests withdrawing $294 per month, on average. Social Security provides an average of $1,767 per month, leaving retirees with a monthly income of $2,061. This may not be enough to live comfortably, making it necessary to explore alternative retirement options.
The new retirement product aims to diversify an investor’s savings based on their age and provide an annual income for life. However, the target-date approach may yield lower returns compared to other investment options. For example, investing in the Vanguard Target Retirement 2025 Fund for 20 years may result in lower returns compared to investing in the NASDAQ or the S&P 500.
A hypothetical scenario comparing investments in the target-date fund and the NASDAQ shows a significant difference in returns over a 20-year period. While the target-date fund may provide structured income, it may not be as profitable as other investment options. An advisor may suggest that retirees look for ways to generate steady income from their investments without selling, such as through closed-end funds (CEFs).
One example of a high-performing CEF is the Liberty All-Star Growth Fund, which has provided a consistent 9.3% yield. This translates to $775 per month for every $100,000 invested, giving retirees a steady income stream. The fund holds blue-chip stocks and mid-cap growth stocks, providing both growth potential and steady income. Investing in CEFs may offer bigger long-term gains compared to target-date funds, making them a more attractive retirement option.
ASG has outperformed the target-date fund option while providing liquidity that an index fund cannot offer. With strong returns and a high yield, retirees may consider CEFs like ASG as a viable alternative to traditional retirement products. By focusing on dividends and a dividends-only retirement strategy, investors can potentially achieve financial security in their golden years.
