How To Increase Income When Investing For Retirement

May 10, 2012 3:08 PM ETT, LEG, EMR, KMB, CLX, JNJ, AMCR, PG, ABT, PEAK, NUE, SYY9 Comments
Avi Morris profile picture
Avi Morris

The stock market has had a spectacular run off its lows in early 2009. Dow doubled to 13,000, and this has dramatically cut yields on most stocks. During this time, the Federal Reserve reduced interest rates, which is good for refinancing loans and mortgages, but tough on retirees, and to a lesser extent, those planning for retirement. High yielders, which generate income, are important in retirement accounts and for those planning for retirement. Retirees are living longer, and have a greater need for more income to pay for rising costs, which include increased medical costs and costs of care in later years.

Traditional investments for retirement accounts have emphasized investment grade bonds with a high degree of safety. But low interest rates from the Federal Reserve have forced investment thinking to change for retirement accounts. Treasury rates are at or near record lows, not far above zero. Investment grade bond yields are 2-5%. Today, IBM (IBM) announced that it expects to borrow $1.5 billion worth of 3 year bonds, costing about 0.85% annually and 7 year debt at an annual cost of 1.9%. In addition, when bonds mature, principal is reinvested in new bonds, which could have even lower yields. IBM will use some of the proceeds to pay off debts with higher costs.

A better way to increase income in retirement accounts is invest in quality companies that raise dividends. Some of the finest Dividend Aristocrats were selected, which have been increasing annual dividends for at least the last 25 years. Many have streaks of 30-40 years (or more). After the difficult recession 3 years ago, dividend streaks have become more significant. These Dividend Aristocrats were hurt by the recession, but weathered the storm, and were able to extend their streaks, because of stronger financials at a time when many highly regard stocks (including former Dividend Aristocrats) did not raise dividends.

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Avi Morris profile picture
Avi Morris became interested in stocks while in high school when he started an investment club. It made him a few bucks and his interest in stocks continued. Over the years, Avi earned a portfolio between savings

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