Baby Boomers (1946-1964) are now between 56 and 74 years old; at or near the end of their working careers. When it comes to saving and protecting their retirement nest egg, they have very little wiggle room!

What if we have a Great Depression type market crash? It took 25 years for the market to return to the all-time high.

Without the benefit of time, will Baby Boomers be able to recover? Some may have the luxury of government pensions, while others have saved; many through 401k type programs. Whatever wealth Boomers accumulated has to pay the bills for the duration. Don’t let any financial advisor pooh-poo your concerns by saying, “The market always comes back.” The question is, “Can you guarantee it will come back in MY lifetime?”

I found some Great Depression charts.

Recently John Williams told us the government statistics are bogus; unemployment and inflation are much higher than reported. Factoring real inflation into your retirement projections is a big challenge.

Chuck Butler focused on the worldwide debt levels, predicting corporate and government defaults, in turn causing the stock market to collapse, and perhaps a currency revaluation.

Pundit Bill Bonner predicts, “Stocks will rise (“a dead cat bounce”, the old timers call it) on the “bailout” news, and then give up another 50% of their value.”

The Great Depression website explains, “By 1933, 11,000 of the nation’s 25,000 banks had disappeared.”

Combine the market crash with bank failures and much of the nation’s wealth disappeared.

In 1933, the Federal Deposit Insurance Corporation (FDIC) was established to protect citizens against bank failures. For the last 87 years, Americans felt their money was safe. You could buy Certificates of Deposit (CD) or treasury bonds, earning enough interest to grow your wealth and stay ahead of inflation.

Today, FDIC insured CD’s and US Treasures are a cruel joke! They may be safe from default but gimme a break! While these numbers change regularly, even 30-year yields don’t come close to keeping up with inflation.

To make matters worse, John Williams also warns that Social Security will not keep up with real inflation either.

So, what options are left?

The stock market is shaky, the bond market is not keeping up with inflation, and appears on the verge of collapse.

I contacted Tim Plaehn, a member of our panel of experts, and editor of The Dividend Hunter.

DENNIS: Tim, on behalf of our readers, thank you for making some time for our benefit. Things are pretty scary right now, particularly for Baby Boomers. We certainly can’t count on a quick recovery.

How is this impacting your Dividend Hunter portfolio?

TIM: Dennis, the unprecedented shut down of much of the U.S. economy put a lot of stress on the business operations of most of the high yield, dividend paying companies. Many companies made the decision to reduce or suspend dividends until they had a clearer picture of the how and when things will shake out.

In March we also experienced what I call a “liquidity event” when leveraged funds in the high yield space were forced to quickly liquidate holdings at any cost. Share prices crashed by as much as 90% from pre-crisis levels and several dozen funds went out of business.

On the flip side, the stock market crash produced some great investment opportunities in the different income sectors. Preferred stocks went from boring 5% to 6% yield investments to ones with 10% plus yields and 40% upside potential. I’ve created a whole new sub-portfolio of preferred stocks for my Dividend Hunter readers to take advantage of this opportunity.

DENNIS: Chuck Butler tells us tells us:

“Cheap money encouraged corporate binge borrowing to astronomical levels. Instead of building plants, innovating and creating jobs, trillions of dollars went into dividends, stock buybacks and executive bonuses.”

I’m very concerned, particularly with the downturn, about their ability to pay off their big binge borrowing bonds (Pun intended). I fear many will take advantage of the current situation to cut dividends they might still afford to pay, so they can, amid much hoopla, raise them later and justify nice bonuses.

Are you seeing any evidence of that?

TIM: I have seen indications. I tell investors that each dividend cut is a unique situation. I have recommended selling some stocks after dividend suspensions. These are the companies where it looks like management took the crisis as an opportunity to permanently reduce payouts.

There are others I have recommended holding and buying more shares to average down. These are the companies where my analysis shows the dividends are likely to be restored.

It has become more apparent that stronger balance sheets matter. All companies, especially in the high yield sectors, need to use some level of debt. However, there is conservative use and aggressive use, and that matters.

One difference in the high yield world is that many companies operate under pass-through rules that require them to pay out 90% of net income as dividends. Some of the sectors covered by pass-through laws include REITs and BDCs.

To analyze these stocks, I focus on free cash flow generated, to make sure each company earns enough to support the current dividend, and hopefully, future dividend growth.

DENNIS: All of the aforementioned pundits feel investors must hold gold (GLD). They are very worried about inflation. Gold doesn’t pay dividends, and Boomers need income to survive. How are you advising your readers to hedge the inflation challenge?

TIM: Even though I am an income guy, I have been talking to my subscribers about precious metals investing. I think gold, silver, and platinum do make a great hedge against both inflation and disruption.

Right now, precious metals are doing well, and I think there is plenty of upside. The spot prices are not reflecting the actual supply and demand imbalances.

I do caution against paying too much of a premium for any type of precious metal investments. The mining stocks have had quite a run, and may have gotten ahead of the actual metals.

I recommend buying gold, silver and platinum at the lowest spreads to spot an investor can find. Personally, I am accumulating all three metals with regular monthly investments.

Another attractive way to invest in precious metals are through the royalty companies. These companies pay upfront to own a portion of the future production from gold mines. The royalty stocks pay dividends, and typically grow the dividends over time. A couple of these are Wheaton Precious Metals Corp (WPM) and Franco Nevada Corp (FNV).

DENNIS: One final question. Boomers need income to pay the bills and have few, if any safe options. I know you look for quality companies, paying good dividends, that do well in tough times.

Historically, many people, seeing their portfolio drop 90% like the Great Depression chart shows, eventually panic and sell. Baby Boomers don’t have that much time remaining on the clock.

What should investors do to hedge against the worst case?

TIM: Dennis, thanks for inviting me.

That exact scenario is why I focus on income producing investments. When stocks crash, the share prices may not (and often do not) reflect the ability of the investments to continue to pay dividends. Each investment must be individually analyzed to determine the ability to continue to pay investors.

Staying on top of the portfolio, knowing what is happening within each company, and paring the list down to the real keepers versus those that may continue to struggle, is my full-time job.

Once I have done that, then my job is to educate our readers to help deal with their emotions. Panic selling at the wrong time is a huge mistake.

I have long recommended building a diversified, high yield portfolio to fund a retirement income. Part of that strategy is to not spend all the income, but to reinvest a portion. That way, even with some dividend cuts, the cash keeps flowing to pay living expenses.

I also encourage readers to diversify into precious metals, cash and some fixed income so they don’t have all their eggs in one basket.

The good news is this crash has turned into a great buying opportunity to build up a portfolio of quality high yield stocks producing an excellent income stream. Quality dividend payers continue to pay, and I still see dividend increases.

Dennis here. Since the 2008 bailout, investors were FORCED into the market in order to survive. Many stocks thrived by growing with the rising tide. With the current world chaos, who knows whether the market will rise or collapse like it did in the Great Depression?

Good companies will survive and continue to provide income to their stockholders. Today, safe fixed income investments appear to be guaranteed losers when you factor inflation into the numbers.

I am very concerned for our generation and those that follow. The chart showing the 1929 crash, dead cat bounce, and then dropping another 86% is scary.