This article is for investors who are retirees or close to retirement.
Ultimately, most retirees want safe income – cash they can use every day to pay the bills and enjoy life. So, the goal of a retirement stock portfolio is to generate enough income for those uses.
How much income do you need to earn from your dividend portfolio?
You will earn income from your dividend portfolio and other sources. To figure out how much income you need to earn from your dividend portfolio, you first need to know how much income you’ll be earning from other sources such as pensions or perhaps a part-time job.
Dividend Income = Desired Income for Retirement – Income from Other Sources
For example, if you desire $50,000 of retirement income and you earn $10,000 from other sources, then, you’ll need to earn $40,000 of dividend income.
How big is your portfolio?
Here are four scenarios that can play out according to how big your portfolio is
Scenario 1: Your portfolio is big enough to generate more than the income you need.
Scenario 2: Your portfolio is big enough to target a “safe” yield that generates the income you need.
Scenario 3: Your portfolio is not big enough such that you’re forced to take on higher risk to target a higher yield that is less safe (or at least perceived to be so).
Scenario 4: Your portfolio is not big enough. So, you opt to aim for higher growth to sell shares for capital gains as income. However, this strategy can be riskier than targeting a higher yield. I’ll explain why below.
Scenario 1: You can generate more income than you need.
Congratulations, you have saved up $1,200,000. To generate $40,000 of income, you only need a yield of 3.33%. Even in today’s relatively expensive market, it’s still possible to get a portfolio yield of 3.33%.
The leading Canadian banks, including Royal Bank of Canada (TSX:RY) (NYSE:RY) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD), are seen as core holding…
Unfortunately, I’ve reached the word limit for this (primarily) excerpt from my Seeking Alpha article, which you can access for free here: Retirees: How To Generate The Income You Need From A Dividend Portfolio. There’s also a very informative comment stream after it.
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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