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Portfolio > Economy & Markets > Stocks

How Retirees Are Coping With Income Challenges

By Jeff Berman

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(Photo: Shutterstock)

With the Fed’s return to a more dovish posture, retirement-age investors are dealing with numerous challenges while searching for income sources, according to the latest E-Trade quarterly tracking survey of experienced investors.

Interest-rate risk is an especially growing concern for Baby Boomers, with 33% of those surveyed indicating they were actively managing interest-rate risk in their portfolios, up six percentage points since last quarter, E-Trade said in an announcement Tuesday.

Retirement-age investors are shifting towards dividends in their search for income, the firm pointed out.

Asked if they were shifting their investing strategies toward various tactics amid the Fed’s accommodative posture pause in rate hikes, 40% of investors 55 and older cited dividend-paying stocks in the current/third quarter, although that was down from 57% in Q2, E-Trade said.

The firm noted that the latest wave of its survey was conducted July 1-11 among an online U.S. sample of 908 self-directed active investors who manage at least $10,000 in an online brokerage account.

Trailing dividend-paying stocks were fixed income (16%, down from 23%), money market funds (14%, down from 22%), CDs (14%, down from 17%), real estate investment trusts (12%, down from 16%), property/real estate (7%, down from 12%), annuities (5%, down from 10%) and master limited partnerships (flat at 3%).

When asked what risks they were actively managing with their portfolios, 46% of those investors cited market volatility in the current/third quarter, up from 45% in Q2.

Behind market volatility were interest rates (33% in Q3, up from 27% in Q2), political instability (30% in Q3, down from 33%), a potential recession (23%, down from 21%), inflation (flat at 17%), potential armed conflict, war or terrorism (14%, up from 6%) and a flattening/inverted yield curve (14%, down from 21%).

The healthcare sector continues to be seen as an area for opportunity as 58% of Boomers said the traditionally defensive and dividend-heavy health care sector has the most potential this quarter, up three percentage points since last quarter, E-Trade said.

“Investors approaching retirement traditionally turn to bonds to provide a steady stream of income for their portfolio,” according to Mike Loewengart, vice president of investment strategy at E-Trade Financial. “

That said, with bond yields under pressure in this low rate environment, it is forcing some to get a bit more creative,” he said in a statement, adding: “Defensive sectors like health care and dividend-paying stocks like blue-chips and large-cap companies could offer investors better yields right now.”

Search for Dividends 

Loewengart highlighted the following information for investors exploring dividend payers:

(1) Yield is just one of many characteristics. When researching dividend payers, investors tend to zero in on the highest yield. However, that’s not always prudent because “even the highest yielding equities can get beat up,” E-Trade noted, suggesting that investors consider the larger picture and “dig into the fundamentals of the stock.”

(2) Understand dividend growth potential. Dividend growth shouldn’t take a back seat to yield. Although certain funds could seem to offer dividends similar to the S&P, stocks held by those funds could be very different. Because of that diversification, they “tend to help investors weather market volatility,” according to E-Trade. Those investments are also constructed to help outpace inflation.

(3) International dividend payers may offer opportunities. International and emerging markets typically get overlooked when it comes to dividends. But aside from adding another level of diversification to a portfolio, they may also pay higher dividends.

The survey had a margin of error of plus or minus 3.20 percent at the 95% confidence level, E-Trade said, adding it was fielded and administered by Dynata.

The panel was broken into thirds of active (trade more than once a week), swing (trade less than once a week but more than once a month), and passive (trade less than once a month).

It was 60% male and 40% female, with an even distribution across online brokerages, geographic regions and age bands, the firm said.

Jeff Berman

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