Retirement: Where Could You Get Safe 6% Income?

Jan. 27, 2018 8:00 AM ETDES, DGRW, DWX, EVT, FFC, HQH, IEF, JPC, KBWY, KYN, NMZ, PDI, PFF, RFI, RNP, STK, T, TLT, UTF, VIG, VYM, VZ197 Comments

Summary

  • The stock market continues to break new highs, which is very good for retirees, not so much for younger investors or anyone who needs to put new money to work.
  • Most retirees, however, are interested in a regular stream of income rather than total returns.
  • The traditional method of Stock/Bond investing with 4% withdrawals falls short of expectations due to changing retirement dynamics.
  • We discuss two other ways to generate income, which are safer and provide consistent income. However, one stands out - it provides higher income, and lower drawdowns.

The stock market was on a roll all year long last year, and the rally continues in the new year. Most investors love the idea of rising markets and for a good reason. It gives everyone a feeling of getting wealthier. However, it becomes challenging if you need to put new money to work in the market. Also if you invest in 401(k) every paycheck, and still have more than 10-15 years to retire, you are getting less of a bargain each passing month. In fact, a fast-rising market is sort of a bad deal for young investors whose time horizon is long because they will be getting less number of shares for the same amount of money.

On the other hand, for retirees or near-retirees, a rising or a bull market is actually a very good thing, since they are not putting much of new money to work. On the flip side, a prolonged bear market early in the retirement can be devastating.

However, most retirees do not invest for total return, but for a regular stream of income while preserving capital. So, the big question that faces every retiree is how to get safe income without dipping into or losing principle. Obviously, bank or CD deposits pay next to nothing. Bonds have been in a bull market for nearly three decades and are expected to lose value in a rising interest rate environment. Yet, there are several viable alternatives; however, none is without flaws or risks. For our examples, we would assume that our typical investor needs $40,000 of annual income from the investment portfolio. Rest of the spending-need will be met by social security or other fixed income coming.

We will discuss three options; the first two only provide 4% income, whereas the third option will aim to provide 6% income

Author's Note: The Passive DGI Core portfolio is published as free-content. Other portfolios such as 8% Income CEF portfolio, 6% Income Risk-Adjusted portfolio, 401(k)-IRA-Conservative portfolio, Sector-Rotation ETF portfolio, and High-Growth BTF portfolio are part of our SA Marketplace service High Income DIY Portfolios. For more details or a two-week free trial, please see the top of the article just below our logo.

This article was written by

High-income, lower-risk portfolios suited for income-seeking investors.

I am an individual investor, an SA Author/Contributor, and manage the “High Income DIY (HIDIY)” SA-Marketplace service. However, I am not a Financial Advisor. I have been investing for the last 25 years and consider myself an experienced investor. I share my experiences on SA by way of writing three or four articles a month as well as my portfolio strategies. You could also visit my website “FinanciallyFreeInvestor.com” for additional information.

I focus on investing in dividend-growing stocks with a long-term horizon. In addition to a DGI portfolio, I manage and invest in a few high-income portfolios as well as some Risk-adjusted Rotation Strategies. I believe "Passive Income" is what makes you 'Financially Free.' My personal goal is to generate at least 60-65% of my retirement income from dividends and the rest from other sources like real estate etc.

My current "long-term" long positions (DGI-dividend-paying) include ABT, ABBV, CI, JNJ, PFE, NVS, NVO, AZN, UNH, CL, CLX, UL, NSRGY, PG, KHC, TSN, ADM, MO, PM, BUD, KO, PEP, EXC, D, DEA, DEO, ENB, MCD, BAC, PRU, UPS, WMT, WBA, CVS, LOW, AAPL, IBM, CSCO, MSFT, INTC, T, VZ, VOD, CVX, XOM, VLO, ABB, ITW, MMM, LMT, LYB, RIO, O, NNN, WPC, TLT.

My High-Income CEF/BDC/REIT positions include:

ARCC, ARDC, GBDC, NRZ, AWF, CHI, DNP, EVT, FFC, GOF, HQH, HTA, IIF, IFN, HYB, JPC, JPS, JRI, LGI, KYN, MAIN, NBB, NLY, OHI, PDI, PCM, PTY, RFI, RNP, RQI, STAG, STK, USA, UTF, UTG, BST, CET, VTR.

In addition to my long-term positions, I use several "Rotational" risk-adjusted portfolios, where positions are traded/rotated on a monthly basis. Besides, at times, I use "Options" to generate income. I am also invested in a small growth-oriented Fin/Tech portfolio (NFLX, PYPL, GOOGL, AAPL, JPM, AMGN, BMY, MSFT, TSLA, MA, V, FB, AMZN, BABA, SQ, ARKK). From time to time, I may also own other stocks for trading purposes, which I do not consider long-term (currently own AVB, MAA, BX, BXMT, CPT, MPW, DAL, DWX, FAGIX, SBUX, RWX, ALC). I may use some experimental portfolios or mimic some portfolios (10-Bagger and Deep Value) from my HIDIY Marketplace service, which are not part of my long-term holdings. Thank you for reading.




Disclosure: I am/we are long ABT, ABBV, JNJ, PFE, NVS, NVO, CL, CLX, GIS, UL, NSRGY, PG, MON, ADM, MO, PM, KO, DEO, MCD, WMT, WBA, CVS, LOW, CSCO, MSFT, INTC, T, VZ, VTR, CVX, XOM, VLO, HCP, O, OHI, NNN, STAG, STOR, WPC, MAIN, NLY, PCI, PDI, PFF, RFI, RNP, UTF, EVT, FFC, KYN, NMZ, NBB, HQH, JPC, JRI, TLT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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