Investing for Retirement
When planning for retirement, you need to identify your financial goals and decide how to take action.
Most American workers are responsible for their own retirement savings. Unfortunately, they don’t really get a head start or leg up; most high schools don’t have classes on 401(k)s or individual retirement accounts (IRAs).
Judging by how little Social Security currently pays ($1,550 monthly or $18,600 annually), there’s a big gap to make up if you want to have a comfortable retirement. (Source: “Monthly Statistical Snapshot, December 2022,” Social Security Administration, last accessed January 31, 2022.)
When it comes to saving for retirement, the sooner you start, the better—regardless of how much money you can set aside. Thanks to the magic of compound interest, even small amounts eventually add up.
For example, if two people each save $5,000 per year, earn the same annual return on investment (six percent), and retire at the same age (67), the person who started saving at the age of 22 would end up with nearly twice as much as the person who started saving at 32. (Source: “How to Win at Retirement Savings,” The New York Times, last accessed January 31, 2022.)
By the time the 22-year-old turned 67, they would have almost $1.1 million in their retirement account, while the person who started at 32 would only have $557,173.
To build a diverse retirement portfolio that grows over time, you don’t need to invest $5,000 a year; you can start with only $100.00 (or even less). The important thing is to start early instead of waiting until you think you have enough money. There’s no “right amount” to begin investing with; it’s whatever you’re comfortable with.
What Kinds of Investments Are Suitable for Retirement Portfolios?
Once you decide to start investing, you need to consider what kind of equities you’re going to invest in. With thousands of different investments to choose from, it can be overwhelming.
Stocks are the first thing people think of when it comes to investing. And for good reason—it’s the easiest way to start investing. The New York Stock Exchange (NYSE) is the largest exchange in the world, with more than 2,500 companies listed. The Nasdaq is the second-largest stock exchange in the world, with more than 3,750 companies listed. (Source: “Comparison of the Number of Listed Companies on the New York Stock Exchange (NYSE) and Nasdaq From 2018 to 3rd Quarter 2022, by Domicile,” Statista, last accessed January 31, 2022.)
Here are three types of stocks that you might want to consider for your retirement portfolio.
Dividend stocks are well suited for people who are looking for long-term financial growth that can help them generate passive income during retirement. Stocks that pay rising dividends are especially appealing. These tend to be so-called boring blue-chip stocks like Johnson & Johnson (NYSE:JNJ) and Walmart Inc (NYSE:WMT).
These companies might not be flashy, but they’re industry giants that do well when times are good or bad. They’re cash cows that reward investors with reliable dividends. Johnson & Johnson has raised its dividend for the last 60 years and Walmart has increased its dividend for the past 49 years.
Preferred shares are another investment vehicle that few people seem to talk about. A preferred share is an equity that is issued at a face value, usually $25.00, that pays regular (monthly or quarterly) dividends. Since about the 1880s, they’ve been a key type of holding for many old-money families.
If you’re retired or near retirement and need fixed, reliable income to pay for your expenses—or if you plan to continue working and want to supplement your paycheck with work-free income, preferred shares could be the way to go. Preferred shares pay safe, ultra-high-yield dividends.
When companies need to raise money for a new project, expansion, or acquisition, they need financing from investors. They simply can’t do this with common shares because the more common shares they issue, the less those shares are worth. Therefore, some companies offer preferred shares to raise capital. Unlike bonds, preferred shares have no maturity date when the principal must be repaid. What the company can do, though, is redeem a class of preferred shares any time after the “call date” provided for each issue.
Here are two benefits of owning preferred shares:
- Their dividends always receive priority over the dividends paid on common shares (including if any dividends are missed)
- Their yields are a lot juicier than those of common shares, in the range of four percent to 15% (or even more)—compared to a current yield of just 1.3% on the S&P 500
Preferred shares have one so-called weakness. Since they’re more like bonds than common stocks, they tend to trade around par value. This means they don’t enjoy the same kind of price appreciation that common stocks do. At the same time, investors don’t have to worry about preferred shares’ underlying value evaporating whenever the stock market tanks.
Exchange-traded funds (ETFs) are a great way for people who don’t have a lot of money to invest in a basket of securities from virtually every conceivable asset class.
If you can’t afford to buy shares of all the individual stocks in the S&P 500, you can buy an ETF that tracks the S&P 500. Or, if you like technology stocks but don’t have the money to buy whole shares of big companies like Alphabet Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc (NASDAQ:AAPL), Meta Platforms Inc (NASDAQ:META), and Netflix Inc (NASDAQ:NFLX), you can find an ETF that provides you with partial shares of these companies.
ETFs provide more stability than individual stocks. If one stock within the ETF isn’t performing well, it won’t weigh down the price of the whole ETF.
Choosing the Best Place to Retire in the U.S.
While you’re busy saving for retirement, you might want to think about where you should retire. Where you live significantly affects your financial situation and way of life.
There’s no one-size-fits-all approach to deciding where to retire. There’s more to consider than just dollars and cents; you also need to consider your well-being, satisfaction, and happiness. Major factors to consider when choosing a place to retire include the general cost of living, taxes, access to health care, the crime rate, various amenities, and job opportunities.
If you love the water, living in an arid, rural area might not be best. If you hate snow, you might not like Toledo, OH. You might want to retire to Park City, UT and enjoy the mountain air, but it’s expensive. The median home price there is $2.0 million. (Source: “Park City, UT,” Realtor.com, last accessed January 31, 2022.)
Factoring in all of the above elements means your ideal retirement spot could be somewhere that was off your radar.
Top 5 U.S. Cities for Retirement
According to a recent study, the following cites are the best places in the U.S. in which to retire. (Source: “The Best Places to Retire in 2022-2023, U.S. News & World Report, November 1, 2022.)
Lancaster, Pennsylvania was recently crowned the top place to retire in the U.S. thanks to the strength of its health care for seniors, low taxes, and the overall happiness of its residents.
- Share of population aged 60 and above: 24%
- Median monthly mortgage cost: $1,556
- Median monthly rent: $1,050
- Hospital: Lancaster General Hospital
Harrisburg, Pennsylvania is located along the Susquehanna River, just 50 minutes northwest of Lancaster. The state capital has lots of walking, hiking, and cycling trails. It’s also within an easy driving distance of Gettysburg National Military Park, Hersheypark, and Amish country. Moreover, it’s just a few hours’ drive to New York City, Philadelphia, Baltimore, and Washington, D.C.
- Share of population aged 60 and above: 24%
- Median monthly mortgage cost: $1,471
- Median monthly rent: $970.00
- Hospital: Penn State Health Milton S. Hershey Medical Center
Pensacola, Florida is touted as an affordable beach retirement community for retirees on a budget. The westernmost city in the Florida Panhandle, Pensacola is near the Alabama border, the Gulf of Mexico, and Pensacola Bay. Pensacola scored high for desirability, housing affordability, low taxes for retirees, and overall happiness of its residents.
- Share of population aged 60 and above: 23%
- Median monthly mortgage cost: $1,328
- Median monthly rent: $1,046
- Hospital: Ascension Sacred Heart Pensacola Hospital and ER
Tampa, Florida was rated the fourth-best place to retire in the U.S. Located on Tampa Bay near the Gulf of Mexico, Tampa is a major city that’s known for its sandy beaches, museums, galleries, professional sports teams, zoo, aquarium, entertainment venues, and dining options.
- Share of population aged 60 and above: 26%
- Median monthly mortgage cost: $1,485
- Median monthly rent: $1,160
- Hospital: Tampa General Hospital
York, Pennsylvania rounds out the list of the top five U.S. cities to retire in. York is a small, historic city south of Harrisburg and west of Lancaster. The three cities comprise Pennsylvania’s retirement triangle. York is the onetime home of the Continental Congress, the birthplace of the Articles of Confederation, and the onetime capital of the U.S. In addition to its rich history, York is known for its shops, art community, county parks, shopping centers, and farmland.
- Share of population aged 60 and above: 24%
- Median monthly mortgage cost: $1,548
- Median monthly rent: $972.00
- Hospital: Wellspan York Hospital
The other U.S. cities that were ranked as the top 25 places to retire in the U.S. (in order of appeal) are:
- Naples, Florida
- Daytona Beach, Florida
- Ann Arbor, Michigan
- Allentown, Pennsylvania
- Reading, Pennsylvania
- Sarasota, Florida
- Melbourne, Florida
- Lakeland, Florida
- New York City, New York
- Fort Wayne, Indiana
- Ocala, Florida
- Scranton, Pennsylvania
- Manchester, New Hampshire
- Philadelphia, Pennsylvania
- Pittsburgh, Pennsylvania
- Youngstown, Ohio
- Port St. Lucie, Florida
- Toledo, Ohio
- Asheville, North Carolina
- Eugene, Ohio
The Lowdown on Finding the Best Place to Retire
If retirement is in your future, now is the time to think about where you’d like to live when you’re retired. When it comes to finding a city to retire in, it’s vital to consider factors including housing affordability, quality of health care, retiree tax rates, job opportunities, recreational activities, amenities, and the overall happiness of its residents.
With its warmer climate, Florida remains a popular state in which to retire. Florida has nine of the top 25 U.S. cities in which to retire. Pennsylvania, however, has the top U.S. city in which to retire—and three of the top five—as Americans increasingly prioritize housing affordability (their largest expense) in their decisions. This helps explain the growing popularity of Manchester, Scranton, Toledo, and Youngstown.