Should You Retire with High-Yield Dividend Equities in Your Portfolio?

Can you live off dividends in retirement? That really depends on the scale of your dividends and the lifestyle you’re attempting to maintain. There are certainly some retirees whose investment portfolios are robust enough that their lifestyles are financed solely or primarily by dividends.

The Importance of Planning

Trying to live off equity dividends may seem precarious – and it certainly can be if mistakes are made in your financial management and investment portfolio. Retirees attempting to rely primarily on dividends for their retirement income must often strive to ignore the daily peaks and valleys of market volatility and avoid making hasty decisions that could interrupt or compromise their dividend income.

Traditional retirement using withdrawal methods aren’t entirely devoid of leveraging dividends to supplement Social Security, but they often rely primarily on bond interest income and the selling of equities to finance pre-retirement levels of income. Focusing your portfolio on equities, ETFs and mutual funds comprised of high-yield dividend stocks does take a slightly unique approach.

Do Stock Dividends Always Grow?

When it comes to investing, very few things are risk free. Equities are certainly never devoid of risk. However, in the long term on average stock dividends do grow. This differentiates them from the more predictable interest from bonds which are essentially static.

The other big argument in favor of dividends in retirement is inflation. Dividend growth has a history of outpacing inflation, which is understandably a significant concern for people nearing retirement and those in retirement, especially now when inflation is having a measurable impact on people on a fixed income.

Should You Reinvest or Take Dividends as Income?

What you do with those dividends will likely change depending on where you’re at in life. Reinvesting dividends makes sense until you reach retirement, at which point you might take the cash to pay expenses – unless you receive enough dividend yield to both support your lifestyle and reinvest.

How much those reinvestments snowball depends on the amount of money you put in, the size of the dividends and the rate at which those companies are increasing their dividend yield each year. You can find dividend calculators online and see the potential power of dividend reinvestment after 10, 20 or 30 years, even with moderate dividend and stock price growth rates.

Finding the Right High-Yield Dividend Equities for Your Portfolio

There are a lot of challenges facing soon to be retired and retired people in Phoenix and Tempe. The past two years have been financially difficult for a lot of people, and many are likely worried about being able to maintain their lifestyle in retirement.

You might like the idea of living off dividends but may think it’s too late at this point in your career. Before you give up hope, contact Fullerton Financial Planning. You may be surprised at how much diversity there is in the market.

Some investment options, like REITs, preferred shares and master limited partnerships, have a reputation for minimal dividend growth but high yields. Allocating your money into various high-yield investments may offer a way to quickly increase your supplemental retirement income, but the only way to know for sure is to speak with a financial planner or investment manager.



Whether you’re looking for solutions for the short term or you are taking a long view on your retirement income, the team at Fullerton Financial Planning can help. Call our retirement planning and financial planning experts at (623) 974-0300 and discuss your situation with one of our certified fiduciaries.