If you're thinking of retiring in your early 60s, think your situation through carefully, because there are lots of reasons not to retire before age 66. After all, if you retire at age 62 and live to age 95, an age that plenty of people will reach, you're looking at a retirement that's 33 years long. Consider, for example, the well known "4% rule," which suggests that you might withdraw about 4% of your nest egg annually in retirement (adjusting for inflation over time). If you're counting on Social Security making up the difference in your retirement income needs, know that the average Social Security income is about $16,000 a year, too. If you work three more years and retire at 67 and your nest egg grows by an annual average of 8%, it will turn into more than $500,000. Working a few more years actually offers several advantages: Yes, you'll be able to save and invest a lot more money, resulting in a bigger nest egg. By delaying retirement, you can also delay starting to collect Social Security. Yes, your checks will be bigger, but remember that by delaying starting to collect them, you're ending up with many fewer checks. The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.
Warren Buffett is the world’s wealthiest investor because he buys great stocks at fair prices, and if you’re in retirement, following in his footsteps could be a savvy strategy for achieving financial security. Although you might not be able to buy all the stocks that Buffett’s Berkshire Hathaway (NYSE:BRK-B)(NYSE:BRK-A) owns, a good place to start could be Bank of America (NYSE:BAC), Apple Inc. (NASDAQ:AAPL), and Coca Cola Company (NYSE:KO).
This bank is still a bargain
Bank of America is one of the country’s biggest banks, and Warren Buffett recently said he plans to exercise warrants that will give him ownership of 700 million shares. He acquired the warrants when he bought $5 billion in Bank of America preferred securities during the great recession.
Up until now, he’s been happy to sit back and collect interest on his preferred stock, but following Bank of America’s decision this week to increase its dividend 60% to $0.48 per year, owning common stock has become a better bet. Once he exercises his warrants, he’ll be able to pocket $36 million more in interest annually than he would collect if he kept his preferred stock instead.
No, you can’t turn back the clock and get the same deal as Buffett, but there’s reason why now might still be a good time to buy. Bank of America’s profit on assets has been steadily improving alongside the U.S. economy, and its price-to-book (P/B) value arguably remains in bargain bin territory. Prior to the financial crisis, the P/B ratio was typically north of one, but even after a big move up, it’s still below one today.
An expanding net interest margin should allow the bank’s financial condition to continue to improve. The spread between its cost of funds and the interest rate it charges on loans has climbed to 2.71% from 2.37% in 2015, and since interest rates are still rising, net interest margin could climb even higher. Washington’s focus on rolling back recession-era bank regulations also offers support to profit growth.
If you’re still looking for reasons to buy, it doesn’t hurt that Bank of America plans on buying back a lot of its common stock. It plans on repurchasing $12 billion in stock between July 1 and June 30, 2018.
The next big thing
Buffett traditionally shies away from technology stocks, but he’s made an exception with Apple Inc.
He started buying Apple in 2016 when shares were down and out because of slowing demand in China and lower iPhone volume because consumers weren’t upgrading. So far, buying Apple has been an impressively good investment.