Dividends for Retirement Income? Read This First, Ep # 266

Have you ever thought about purchasing stocks for purpose of generating dividend income? If that is part of your retirement plan, then you won’t want to miss this episode. Today we’re taking a look at a retirement headline from MarketWatch that highlights three considerations to be aware of before jumping into this strategy.

Stick around for the listener questions segment to hear the answer to Jerry’s question about increasing his retirement spending until it’s time to collect Social Security.

Outline of This Episode

[1:22] 3 tips for buying stocks to produce dividends in retirement
[5:01] Use a Swiss Army Knife portfolio
[7:25] On increasing retirement spending before Social Security

Consider these 3 points before buying stocks for dividend income

Value stocks have long been thought of as a sound long-term investment. The possibility of generating income through dividends is appealing and plenty of people have had success using this strategy. However, before you embark on this retirement income strategy consider these 3 ideas.

Don’t get your hopes up. In the 1980s dividend payouts were 3 times higher than today’s 1.8%. At the moment, dividends don’t offer much return on investment and aren’t able to keep up with inflation, so dividend investors end up losing purchasing power against inflation. Another consideration is that companies today prefer to return money via buybacks rather than paying out dividends.
Don’t confuse stocks with bonds. It is important to remember the difference between stocks and bonds. Stocks are ownership in a company. Bonds are IOUs issued by government entities or corporations and used to raise money. Generally speaking, save for the current year, bonds are usually less volatile than stocks. By relying on stock dividends, you may be taking on more risk than you need to.
Be careful of reaching for yield. Buying stocks based on their high theoretical dividend yield could be risky. The higher the dividends are, the less likely they are to be paid. Be aware of the risks involved when investing in stocks for income.

A Swiss Army Knife portfolio will serve your goals

Since you can’t change your investment strategy every time the market changes, it is important to create a portfolio that is useful for all situations in retirement. A Swiss Army Knife portfolio is a portfolio that can help you weather whatever storms the market throws at you.

Your Swiss Army Knife retirement portfolio will generate withdrawals that serve your retirement goals, rather than limiting you and your goals to what dividends you can find. By using a Swiss Army Knife approach, you’ll ensure that each part of your portfolio has a purpose and that your investments stay diversified. By buying shares in the best companies in the world across the entire market through low-cost index funds, you’ll allow the market to work on your behalf.

Have you considered using dividends to create retirement income? Consider building a Swiss Army Knife retirement plan instead.