Retirees and soon-to-be retirees may have investment options they haven’t either considered yet, according to BusinessWeek Online.One option is to decrease spending, and eliminating or reducing unneeded life-insurance coverage can cut down on the need for cash today, financial planners suggest. Also, baby boomers might even be able to turn the cash value of an unnecessary policy into an annuity.
The recent rising interest rate environment has led some investors to seek fixed-income investments other than bonds, which tend to underperform in those circumstances. “Nontraditional fixed income offerings, such as bank loans, can be a smart income generating alternative,” said James Holtzman, a financial planner at Pittsburgh-based Legend Financial Advisors. “Nontraditional fixed income still isn’t correlated to stocks, but has done well when interest rates rise.”
Preferred stocks, essentially a hybrid of stocks and bonds, offer another way to generate extra cash flow. High-yield mutual funds such as the Loomis Sayles Global Bond can also make sense, says Georgia Bruggeman, chief investment advisors at Holliston, Mass.-based Meridian Financial. However, “stretching for yield often leads to higher risk unless you have done your homework,” Bruggeman cautions.
Small business owners may want to consider hiring their parents on a part-time basis as they make the transition into retirement. “If the children have their own business and are in a higher tax bracket than their parents, hiring their parents part-time can be a great way to provide some cash flow,” says financial planner David Jacobs, of Kailua, Hawaii-based Pathfinder Financial Services.
An outright gift to parents might be awkward, but it can help solve retirement income troubles. A person may give another gift of up to $12,000 tax-free annually. Children can give money to pay parents long-term insurance premiums, which also allows the parents to continue to take the premiums as a tax deduction, said Sid Blum, financial planner at Green Light Fee-Only Advisors in Evanston, Ill.
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