Retirement Moves for a Safe "Nest Egg"

12/24/2020 5:00 am EST

Focus: STRATEGIES

Jimmy Mengel

Editor, Outsider Club

Let's talk about retirement savings - safe, sturdy, boring retirement savings, suggests growth and income expert Jimmy Mengel, editor of The Crow's Nest.

We should all be putting up financial fences to ward off any and all invading forces: inflation, a declining dollar, or diminishing wages.

I have been working side by side with my wife to adjust our retirement plans. We spent the better part of the last few weeks going through our 401k(s), 403b(s), and Roth IRAs in order to temper them against any financial storms that may be headed our way.

The average retiree has a median $45,000 saved up. That simply won't do. Everyone who is currently working should be taking advantage of any and all company matches to their retirement account. That's free money.

The first adjustment to our accounts was to push some of our cash into safe, long-term dividend stocks. We've moved some money from standard mutual funds that encompassed the entire market to more direct and safe funds that targeted dividend-paying companies that have lasted a lifetime.

I'm talking about funds like ProShares S&P 500 Dividend Aristocrats ETF (NOBL). I've had it in The Crow's Nest portfolio since 2015, and it's returned a very noble 64%.

And since we're talking about building fences here, it's fitting that NOBL holds companies like Lowe's (LOW), Stanley Black & Decker (SWK), and Sherwin-Williams (SHW). These are all still buys in The Crow's Nest portfolio. NOBL also yields 2.32% and have returned investors 64% in the past five years.

While those conservative moves should protect us from wild market swings, the next thing we did will save us up to $30,000 in the years to come no matter what happens...

The next thing we did was refinance the home I just told you about. When we bought it we thought rates were incredibly low - we paid around 4% interest compared to the 6.75% we used to pay on our first home in Baltimore City, which we foolishly bought toward the height of the real estate bubble.

My wife and I were basically kids at the time, and the dream of owning our own home was too inviting to resist. Times were so simple back then - the loan officer actually tried to convince us not to put any money down.

We saw how those liar's loans played out, and that loan officer was lucky to fleece us with such a high interest rate. Things have changed and interest rates are at all-time lows.

We're going to spend a few thousand dollars to refinance with Penny Mac, which will take us from over 4% to just under 3%, saving us tens of thousands of dollars. Sometimes good defense is the best offense, and there is no other surefire way that I know of to lock in $30,000 in savings for a few thousand up front.

To pull this all together, Penny Mac Financial Services, Inc. (PFSI) is also a safe, blue-chip dividend stock and should be a great performer over the next year or two.

Thousands of Americans are doing the exact same thing we are and refinancing homes at rates we've never seen. A recent report estimated that there are almost 20 million feasible refinance opportunities.

If you mortgage a loan at, say, $400,000, that amounts to the potential for almost $8 trillion in refinanceable mortgages. Penny Mac will be servicing a whole lot of them.

That kind of inflow could give Penny Mac the cash it needs to further increase that dividend from the 1.7% it pays today to well into the 2.5% range. The stock should also continue to climb as they release booming financial records.

I like a well-tended house. It's as easy as reducing your payments, increasing your value, and storing away cash for that rainy day which always seems to come at the worst time.

That's why I'm building a fence, refinancing my loan, and buying dividend stocks that will provide me income every month - regardless of how the market is doing.

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