Longevity keeps increasing—and only will continue in the future. (See Chapter 2.) Which means folks are likely to spend longer in retirement now than ever—maybe much longer than most anticipated. Getting enough cash flow to fund retirement is often a top concern for many investors.
No one wants surprises in retirement—particularly not the sort of surprise that requires a sudden spending downshift. So how can you increase the odds your portfolio kicks off a level of cash flow you expect for the totality of your time horizon?
A near-ubiquitous myth is funding retirement is easy and predictable with a portfolio heavy in high dividend-yielding stocks and/or fixed income with high coupon rates. Whatever that yield is (so goes the belief) you can safely spend—maybe without ever touching principal! Many investors—including professionals—believe this is a safe (there’s that word again) retirement strategy.
Don’t count on it. This myth could cause potentially very costly errors. Ones that can force you to ratchet down your future spending—and make for awkward conversations with your spouse.
There are a few problems with the high-dividend myth. First and most simply, this confuses income with cash flow. Yes, dividends (interest payments, too) are technically income. You report them as such on your tax returns. And there’s nothing wrong with either as cash flow sources—dividend-paying ...