Retirement Calc dividend stocks

by Don
(Ponte vedra,fl,usa)

If your retirement income is based on dividends and not selling stock, retirement calculators with sequence of returns built in would not model the income on how long it would last properly?

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May 24, 2020
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by: Mike

Hey Don,

There is no perfect system and everyone's strategy is different. In a perfectly rational world, it should make no difference if your returns come from dividends or capital gains (assuming the same tax rates).

But the world is not perfect. Markets can be very volatile, meaning reliance on selling stock can be fraught with danger. Likewise, dividends can be cut or eliminated which will clearly reduce your income when you rely on it.

We like to focus on acquiring high quality businesses and have some diversification. We recognize all sorts of unpredictable events can happen (as we've seen lately). This means that you need a decent buffer of cash as well as cash coming in from different sources. Our focus on dividends means we don't need to rely on a "good sale" of stock but that doesn't mean dividend stocks are definitely the best. Look at how you'd have done having large amounts of your wealth in Amazon or Berkshire Hathaway if you'd held of both of those for a long time. Those are not dividend stocks but clearly have been excellent businesses.

I know we haven't answered your question here but there is no perfect answer. The key is to be aware of all the options and focus on making on lots of good decisions which will stand you in good shape no matter what the world or markets throw at you.

Mike

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