investing

Get A Portfolio That Pays You During Retirement with Dividend Investing

When it's time to start pulling money out of your retirement savings, it's nice to know that dividends are pumping it back in. But you've got to be careful when picking which dividend payers to rely upon.

If you’re like most people, you’ve spent much of your adult life working and, if you’re smart, saving some of the money you made and investing it.

During this “accumulation phase,” you built wealth and resources to provide an income source for yourself in retirement. You watched your portfolio grow, but you didn’t tap into it.

But now a change is coming. You’re retiring. And while you want your portfolio to keep providing returns, you also want it to give you income to use for your day-to-day expenses and to live the lifestyle you dreamed of.

If you’re working with an adviser, he’s probably talked to you about this “distribution phase” and has been helping you prepare for it.

Much of that conversation should have been about moving to a safer investment strategy to protect the money you worked so hard to save.

Why dividends are attractive to retirees

If you haven’t already, it’s a good time to think about dividend investing as a part of that plan — building a collection of solid stocks with dividend yields that generate money throughout the year.

If you own stock, you know it goes up and down on a daily basis. The price changes to whatever somebody is willing to pay for it at the time; you hope it will continue to go up, but that’s not always the case.

But if it’s a company that pays dividends, it also will pay you cash that can be deposited into your brokerage or bank account. You get paid for owning that stock.

At a time when you’re looking for safety and security from your portfolio, dividend-paying stocks can be a good investment. Dividend payers historically outperform other investments over the long haul, with quite a bit less volatility. And it’s nice to know that if you need to take a 4% withdrawal from your portfolio, 3% or 4% will come from dividends, so you don’t have to put all your hope in that ever-changing market.

You know your portfolio is going to pay you for owning it.

What to watch out for

Still, you have to be careful when shopping for dividend-paying stocks. You can’t just pick stocks that pay high dividends. Do a little homework. Is the company healthy? Is it profitable? There are companies out there that pay high dividend rates, but they are losing money. The money they’re using to pay those dividends might be coming from borrowed funds, and when a company isn’t healthy financially and still pays a high dividend, you risk watching that stock go down to a point where it might not recover or, at best, it recovers slowly.

Companies with a history of paying dividends consistently, and increasing their dividends, are usually household names, such as Coca-Cola (KO), Pepsi (PEP ), General Mills (GIS) and Procter & Gamble (PG ). Financial companies often increase their dividends, as do health care companies. If you don’t want to pick individual stocks, you can choose a dividend growth mutual fund or a dividend growth exchange-traded fund (ETF). Your adviser can help you or do it for you.

Follow a long-term game plan

The idea with dividend investing is to not over manage. Plan to stick with that stock for a long while (unless something really catastrophic happens, or there’s a change of course within the company).

You don’t want 100% of your investments to be dividend payers, but there should be a good portion of your portfolio that pays you for owning it. Even if you’re not in the distribution phase yet, it can make sense to have some dividend payers in your portfolio, because then you have the miracle of compound interest: You can take those dividends and reinvest them.

But especially when you’re in the income phase of the investment life cycle, when it’s all about cash flow, having dividend payers in your portfolio makes it easier to achieve success.

Any comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Fixed Insurance and annuity product guarantees are subject to the claims-paying ability of the issuing company and are not offered by Global Financial Private Capital.

This material is for informational purposes only. It is not intended to provide tax, accounting or legal advice or to serve as the basis for any financial decisions. Individuals are advised to consult with their own accountant and/or attorney regarding all tax, accounting and legal matters.

About the Author

Jared M. Elson, Investment Adviser

Managing Partner, Regent Wealth Management

Jared M. Elson is a partner at Regent Wealth Management. Jared is a Series 65 licensed Investment Adviser Representative (IAR) as well as a licensed life and health agent. He shares his investing strategies as a frequent contributor to TV news programs, books and magazines, and on the "Retirement Symphony" radio show. Investment advisory services offered through Global Financial Private Capital, an SEC-Registered Investment Adviser. SEC registration does not imply a certain level of skill or training. Regent Wealth Management and GFPC are not affiliated entities. One or more individuals at Regent Wealth Management are investment adviser representatives of GFPC and [may] receive[s] [JA1] compensation in exchange for soliciting investment advisory services provided by GFPC on behalf of Regent Wealth Management clients.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
9 Best Biotech ETFs to Play High-Octane Trends
ETFs

9 Best Biotech ETFs to Play High-Octane Trends

Biotechnology is a dynamic but often volatile industry. These biotech ETFs provide a lower-risk way to invest in the space.
July 8, 2021
SPACs 101: What Is a SPAC, And How Does It Work?
IPOs

SPACs 101: What Is a SPAC, And How Does It Work?

Why the buzz around special purpose acquisition companies (SPACs)? Here's everything you need to know about these "blank-check" firms.
July 6, 2021

Recommended

Kiplinger's Weekly Earnings Calendar
stocks

Kiplinger's Weekly Earnings Calendar

Check out our earnings calendar for the upcoming week, as well as our previews of the more noteworthy reports.
July 23, 2021
The Psychology Behind Your Worst Investment Decisions
investing

The Psychology Behind Your Worst Investment Decisions

We can torpedo our portfolios without even realizing it. Avoiding these seven traps will allow you to make rational investments.
July 22, 2021
A Responsible Way for Teenagers to Get into Investing? Maybe.
investing

A Responsible Way for Teenagers to Get into Investing? Maybe.

Fidelity has a discount brokerage platform just for kids called a Youth Account. It has some protections baked in, along with some opportunity to lear…
July 22, 2021
10 Facts You Must Know About Recessions
Markets

10 Facts You Must Know About Recessions

The Pandemic Recession officially ended in April 2020 after only two months, making it the shortest economic downturn in U.S. history. But what is a r…
July 20, 2021