Retirement Without Income Growth Leads To Financial Death -- Bonds Won't Pull The Wagon

by: Richard Shaw

Someone retiring today at age 65, may live 30 years to age 95. If like many, they do not have a large excess of savings, their standard of living will be destroyed by rising costs over the term of their retirement -- unless their income grows.

Even though dividend stocks are volatile, IF an investor has sufficient assets at retirement to generate enough dividend income to support lifestyle without selling assets, they are more likely to enable lifestyle maintenance over decades of retirement.

Dividends have tended to grow at a rate faster than inflation over time -- pensions generally do not, Social Security does not, and bond interest is fixed.

Let's see what a person 95 years old today (retired at 65 in 1982) has endured during the term of retirement, while the rest of the world earned rising annual amounts. This chart shows the average wage and salary income of all U.S. workers from 1981-2011. Using data from the Federal Reserve and the Bureau of Labor Statistics, it simply divides total wage and salary income, by the number of employed persons each period.

U.S. Average Annual Wage & Salary Income of Employed Persons

That retiree is simply sunk financially if they did not have a growing income. The working world, experienced more than a tripling of their earned income in that period (from $14,878 in 1981 to $48,579 in 2011). If that retiree did not have a reasonably comparable income growth during that time, they would be in a very sad financial condition now.

That's why we are biased toward high quality, above average dividend yield stocks with good earnings coverage, and a consistent history of payment and dividend increases at the core of an investment portfolio.

For the do-it-yourself investor, we publish a monthly subscription letter ("Rational Risk Equity Income Investor") with a rules-driven identification and data exploration of dividend stock selections at

The 1981 - 2011 period was not an odd-ball period. The inflation in wages has been relentless, as this chart from 1959 (the earliest data) through early 2012 shows:

U.S. Average Annual Wage & Salary Income of Employed Persons

Thanks to David Van Knapp for suggesting we republish this article from our blog. It is the prequel to our recent articles on SeekingAlpha about "S&P 500" dividends of 100 years and 30 years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.