Retirement Isn't Just for the Rich

Many people feel that they may never be able to retire comfortably. If you are one of them, you probably aren't doing a good job regarding deferred gratification. Saving a reasonable portion of your paycheck over time is the secret sauce to accumulating enough money. Many companies offer inducements, such as matching contributions up to a set percentage of pay. The Federal government offers an immediate tax break for those contributing to pre-tax accounts and an even more valuable deferred tax break if you are lucky enough to have after-tax retirement vehicles available such as Roth 401(k)s. Most working people also qualify to fund Traditional or Roth IRAs in addition to their workplace plans. Vanguard's end of 2022 balances on workplace accounts held by them are shown below. As expected, older workers have much larger accounts than younger ones. They typically earn more due to greater experience and responsibilities. They've also had more time to compound on earlier years' deposits and matching, if applicable. Average balances and median balances will always be different due to the skew from super-sized accounts, which dwarf the average participant's accounts. Fidelity Investments also published year-end data from 2022 recently. They broke down the data by generation as well as gender. Fidelity noted that women stood out as being more aggressive in their retirement savings than men. Also, women are likely to live longer than men statistically. The Boomer generation leads the way in total account net worths. They had more time to save and compound than younger workers. Boomers also probably bought homes when real estate was much more reasonably priced than in today's market. Those really trying to get to a good retirement tend to employ IRA accounts in addition to their workplace plans. Fidelity also provided average IRA balances (held with them) as of Dec. 31, 2022. The large drop in average balances last year was due to the poor stock market performance, not from a reduction in contributions. I have written numerous times on the best way to become a millionaire by age 65 or so. Simply max out your Roth IRA contributions each year and invest exclusively in equities. Ignoring fluctuations allows for dollar-cost averaging that will work magic for your long-term results. Supplementing dividend income with covered call premium dollars can also help keep average annual returns high enough to almost guarantee millionaire status over 30 to 40 years. That covers most working lives. Saving from 25 to 65 years of age is not a stretch. Even starting at age 30 or 35 can achieve more than enough for a terrific post-employment experience. Better still, using Roth IRA, or Roth 401(k) or 403-b accounts means having federally tax-free money to spend once you start making withdrawals. That is a wonderful advantage available nowhere else. Many, but not all, states exempt Roth withdrawals from state level taxation, as well. A Stock to Consider: CMA Here is an update on a stock that could help in your pursuit of easy street. Comerica Inc. is a fine regional bank serving Texas, California, Michigan, Arizona, and Florida. It has minor business interest in a few other states plus Canada and Mexico. I first wrote up CMA on Dec. 5, 2022 at a price of $66.15. It went as high as $77.30 since, but has pulled back enough to be quite attractive again. Comerica's strategy has proven sound. Decade-long growth is exceptional. Shareholders had chances to exit at north of $102 during both 2018 and 2022. At its Monday quote of $68.79, CMA sells well below its typical valuation, while yielding well higher than its average yield. The fact that total shareholder return now lags value created by such a large margin sets Comerica up for a very substantial rebound. Today's price-to-earnings is lower than CMA's multiple during the worst of the Covid-crisis. That was true only because EPS fell sharply on fears of business bankruptcies due to government-imposed shut-downs. Loan loss reserves were bulked-up in 2020, but businesses fared better than expected. 2021 saw reversals of a lot of those loan loss set asides during 2021. CMA posted record EPS of $8.35 that year. Unlike many banks which suffered profit declines during 2022, CMA went on to post another EPS high last year. That was a great testament to the bank's good management decisions. What is CMA worth? Reverting to a more typical price-to-earnings of 13 times could easily send the shares to a new all-time high of about $125. Reverse engineering the current annual dividend rate of $2.84 to a normalized 2.38% suggests $119.32 as a reasonable 12-month target price. Those fine gains do not appear far-fetched. As noted earlier CMA broke through $102 on two previous occasions. It commanded multiples of 16.9-times, 18.8-times, and 21.6-times at its peaks during 2014, 2015 and 2018. The only other times CMA yielded north of 4% were at its Covid-panic low and at last December's nadir. CMA ran from $24.30 to over $102 following its March of 2020 bottom. It rebounded quickly from $62.83 to $77.30 after hitting its late 2022 low. Yahoo Finance thinks CMA will be about $82 within a year. That would provide a solid 23.3% 12-month total return if that is all it does. I am calling their goal too low. It assumes high-quality CMA shares will only command about 8.5x growing earnings. That is far below the stock's typical valuation. Independent research house Morningstar is slightly more bullish. Morningstar deigns to provide year-ahead goal prices, but it does let us know that they see CMA worth $86 right now. Total return to that level would deliver 28.6% in total return if CMA merely reached that level once again. I see that goal as too conservative, as well. CMA's 52-week high was $97.52 and was hit almost a full year ago. EPS and dividends are both higher now than in March of 2022. If Yahoo Finance is correct, buyers at CMA's Monday quote could double their money in less than 3.1-years. If Morningstar is accurate, a doubling in total return would be accomplished in just over 2.5-years. My own target price would achieve that goal much faster if CMA's compound growth rate persists and a bit of P/E expansion kicks in. No matter which research projection turns out best, Comerica appears to be a fine choice for almost anybody's IRA account right now.

Retirement Isn't Just for the Rich

Everybody who works and saves can still have a great retirement, as I show here, with a stock to consider.

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