• Home
  • E-Booklets
  • Pay Less Tax
  • Privacy Policy
  • Cheatsheets
  • Contact Us
  • About us

Retirement Income

New Ways to Get More Retirement Income

  • Retirement Advisors
  • Retirement Insurance
  • Retirement Investing
  • Retirement Living
  • Retirement Planning

Dividends Provide Several Answers To Low Interest Rates

Posted on August 2, 2013 by bobrichards

Guest Post by David Bressler.
David Bressler is author of the forthcoming book "The Elephant in the Room has a Paycheck", a fun & socially conscious blueprint for successful long-term investing.

Everyone is always so concerned with being careful to avoid absolutes when it comes to future expectations, that when discussing the value of dividends and their potential for retirement income we are missing a great opportunity to increase retirement income and security.

"Future dividends are not guaranteed."

This is a truth, but does not tell the whole story.

The decision to pay a dividend, and how much to pay, is not a day-to-day decision (or even a year-to-year decision). Dividends are a "very high level corporate strategy", and unlike stock prices are determined by executives (and committees) not by the 'free market'.

But, it's not the dividend itself that's most important.

It's the dividend raise that’s the secret ingredient.

Dividend Raises

There's an exclusive set of dividend payers that have both paid consecutive dividends for a long time AND increased the amount paid each-and-every year for decades. These companies are called dividend aristocrats and have raised their dividends for a minimum of 25 consecutive years. PG for example, is currently celebrating their 57th year of consecutive increases.

Beating Inflation

The challenge with a CD or Fixed Income based strategy is inflation. And, I’m not thinking about how the government measures inflation either. I'm talking about the "real inflation experience". I'm in NYC, and they're talking about another subway fare hike. That's a 10% increase at a minimum. And, even if we get an increase like that every 2 years, it's still way higher than the government's reported inflation rate. Want to eat healthy? Inflation stats don't factor in the reduced quality of the food they do measure. So your prices are going up if you want to eat at the same level of health as in the past. And, so on.

As dividends are raised year-after-year there is a possibility to beat inflation. For example, on their investor website ExxonMobil mentions that they have raised their dividend 6% a year, on average, for the past 30 years (click to enlarge table).

It's not just about inflation risk though.

A Realistic Risk Perspective

There's a quote I like to remember when it comes to risk:

"In theory there is no difference between theory and practice. But, in practice, there is."

There are a few ways that dividend aristocrats reduce practical risk, though it might not be theoretically true.

  1. In terms of cutting the dividend: The CEO of a company that has a 25+ year streak of dividend raises doesn't want to be "the guy" who breaks that streak. It's an ego and job-security thing at a very personal level of motivation.
  2. In order to keep the streak going, a company might put a small increase in place. Maybe small increases are a leading indicator for trouble?
  3. Before cutting the dividend, they'd stop the increases. The company is less likely to cancel the dividend after increasing it for so many years. The first thing they'd do in a "bad" situation would be to not-increase the dividend. Again, missing an increase one year is a sell-signal for someone depending on dividend raises.

To recap, dividend aristocrats help protect against inflation risk and provide investors with a selection of companies whose dividends have some friction thereby helping to provide retirement income safety.

Action Steps

OK, so you’re convinced. You’re excited by dividend aristocrats. What's next?

Thinking in terms of the "paycheck" (the income your portfolio generates) instead of (or, along with) the "net worth" means that you want to start measuring it too.

And, for people who are a little further from retirement, you want to use income-oriented measures as a way to motivate you to stick to your retirement savings strategy.

The obvious thing to measure is your portfolio income. I like to call this your "Elephant's Paycheck" because we're putting the Elephant in the Room to work, and he's bringing home some bacon.

Less obvious than the paycheck though, and way more exciting (and therefore motivating) is your Elephant's raise. You can measure the raise retroactively, which is eye-opening. A current sample portfolio I’m tracking has experienced a 16% raise over the past 15 months.

Your Elephant's raise has two components, a raise from dividend increases and a raise from dividend reinvestment. Compare this raise to the one you've gotten on your job or your pension or social security, and you understand why it's so eye-opening.

Personally, I enjoy projecting the raise forward. Looking forward, and knowing that I'm going to be getting a double-digit raise over the next 12 months if I just "stick to the plan" really helps me stick to the plan! By the way, the sample portfolio is showing a 12 month projected raise of 13.24% as I write this. I also know, by the way, that's a conservative projection.

In short, if you're going to invest in a portfolio of dividend aristocrats to reduce investment risk, turn on dividend reinvesting. Then, keep track of your Elephant's Paycheck and your Elephant's raises, and investing will become fun again.

 

How to Prosper and Thrive In Retirement

For those already retired seeking to improve their finances
  • The 4 most important issues for any retiree and a quick plan to address each
  • The overlooked annuitization of assets to make your money go farther and reduce risk
  • An easy way to save money on health coverage
  • You don’t need to be rich to plan your estate like this
  • A few simple lessons can reduce stress and bring more joy in your retirement year. Stop worrying and learn the simple
  • actions to take.

    You might also like:

    • Bear Market - When Will It End?
      Bear Market - When Will It End?
    • Retired and Stocks Losing Value
      Retired and Stocks Losing Value
    • When Will the Stock Market Recover
      When Will the Stock Market Recover
    • Recession Can Be Good for Retirees - The Silver Lining of Recession
      Recession Can Be Good for Retirees - The Silver Lining of…
    • How to Pay Lower Taxes on IRA Distributions
      How to Pay Lower Taxes on IRA Distributions

    Filed Under: Retirement Planning

    About bobrichards

    Bob Richards
    Editor | Involved in Various Marketing Positions within the Financial Services Industry

    Comments

    1. itsme says

      August 6, 2013 at 8:55 pm

      My uncle who is retired relies more and more on dividends from his shares

      Reply
    2. [email protected]cess Services in Brunei says

      August 21, 2013 at 7:19 am

      Hi,

      I came here through Google search engine and i found some valuable contents about dividends. Now i can clearly understood this things. But i just want to know what is NASDAQ, SENSEX, NIFTY etc. means?
      i am waiting for your reply

      Thanks

      Reply

    Leave a Reply Cancel reply

    Your email address will not be published. Required fields are marked *

    Second place winner best retirement blog

    SH award winner SMALL (1)

    Not Enough Savings to Retire?
    Learn Six Ways to Earn Retirement Income (from home)

    You do not need special talents, skills, computer knowledge, etc. We show you multiple ways others are working a few hours a week to generate a comfortable retirement income.

    Download Free Copy

    Latest Posts

    Recession Can Be Good for Retirees - The Silver Lining of Recession

    Recession Can Be Good for Retirees - The Silver Lining of Recession

    Bear Market - When Will It End?

    Bear Market - When Will It End?

    When Will the Stock Market Recover

    When Will the Stock Market Recover

    How to Pay Lower Taxes on IRA Distributions

    How to Pay Lower Taxes on IRA Distributions

    Retired and Stocks Losing Value

    Retired and Stocks Losing Value

    Categories

    • 401K IRA Roth Withdrawals, Distributions, and Rollovers
    • Annuities for Income
    • Estate Planning
    • Retirement Advisors
    • Retirement Insurance
    • Retirement Investing
    • Retirement Living
    • Retirement Planning
    • Social Security
    • Supplemental Retirement Income
    • Tax Savings
    • Alternative Investments
    • E-Booklets
    • Pay Less Tax
    • Privacy Policy
    • Cheatsheets
    • Contact Us
    • Subscribe
    • Sitemap

    Recent Posts

    • Recession Can Be Good for Retirees - The Silver Lining of Recession
    • Bear Market - When Will It End?
    • When Will the Stock Market Recover
    • How to Pay Lower Taxes on IRA Distributions
    • Retired and Stocks Losing Value

    The Retirement Income Blog

    25A Crescent Drive #1508
    Pleasant Hill CA 94523
    T: 844-887-4131
    E: [email protected]

    © 2018 Retirement Income