New York CNN Business  — 

It’s never too early to start thinking about saving for your retirement. But if you’re a part of Generation X or a young Baby Boomer, the need to start putting away money for your Golden Years is more urgent.

Many financial advisers tell investors to move more of their money into conservative, safe haven investments like bonds and money market accounts as they get older.

Yet it might be a mistake for investors in their 40s, 50s and early 60s to start dumping stocks now.

Bond yields are extremely low

To be sure, bonds tend to be less risky. But the Federal Reserve cut interest rates three times last year and is not signaling that it plans to raise them anytime soon, especially since there is no sign of runaway inflation on the horizon.

As a result, the yield on the benchmark 10-Year Treasury is currently below 1.6%. The rates that banks pay for savings accounts are similarly puny.

“You can’t discuss lower rates without lower inflation, and that’s the ultimate liability for retirees because it’s dragged down yields overall,” said Mike Dowdall, a portfolio manager for BMO Global Asset Management’s target risk funds. “If you’re parking cash in government bonds, you will suffer from erosion in your purchasing power.”

That’s why some market experts argue that graybeards should invest like they were still Millennials or even members of Generation Z.

After all, people are living longer these days – average US life expectancy in 2019 was 79 years old, up from 74 in 1980. That 401(k) or IRA money may have to last for two or three decades of retirement.

“There is an overselling of asset allocation ‘wisdom’ that recommends fixed income for retirement,” said George Calhoun, professor of quantitative finance for the Stevens Institute of Technology. “It’s misguided to own traditional government bonds in most situations.”

Dividend paying stocks are a good bet

Calhoun pointed out that Verizon (VZ), Exxon Mobil (XOM), Chevron (CVX), Johnson & Johnson (JNJ) and CNN owner AT&T (T) are all examples of companies that pay giant dividend yields.

“It’s not fun to ride the market roller coaster when you’re approaching retirement. But you’re not taking that big of a capital risk with blue chip stocks which pay a 3% dividend yield or more. That’s twice the rate of a 10-Year Treasury,” Calhoun said. “If you have any hesitation about market volatility, these companies are not going away.”

He also noted that Warren Buffett has said he wants 90% of the money that his wife will inherit put in an S&P 500 index fund and only 10% in short-term bonds. (Buffett turns 90 in August and his wife, Astrid Menks, is reported to be in her mid-70s.)

Dowdall added that investors planning for retirement should probably include a mix of stocks and higher-yielding corporate and emerging market bonds. (The yield for the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) is 4.5% for example.)

But investors shouldn’t just focus on income when putting together a portfolio for retirement, he said. There’s nothing wrong with having some money in growth stocks that can generate strong returns even if they don’t pay dividends.

He joked that people shouldn’t bet the ranch on Tesla (TSLA) for example, but that “yield is not the be-all and end-all” for older investors.

“Companies often have a choice of paying dividends or reinvesting cash back into the business. It’s not necessarily a bad thing to reinvest. And as an investor you want companies that are growing,” Dowdall said.

Don’t go overboard when chasing returns

Still, there’s a reason why bonds are a good, steady source of income for retirees – they don’t tend to fall as sharply as stocks in bear markets.

“If you need all the income you can get, you can’t afford losses. If you want to plan for a longer retirement, you can’t expect the money to magically make all the returns you need,” said Lamar Villere, manager of the Villere Balanced Fund.

Villere’s fund has a current asset allocation of 70% in stocks, 20% in bonds and 10% in cash. But he said that as you get older, you should pull back on stocks and bump up your weighting in bonds and cash.

“The right answer for an older investor is a less fun one to hear. It’s that you need to be working for longer or spending less in retirement,” he said. “The focus needs to be on lowering risk, not maximizing returns. Blindly chasing yield can create problems.”