The COVID-19 economic upheaval has affected dividends, a popular source of investment income for retirees. This year, 203 stocks have reduced or suspended their dividends, with 44 of them on the S&P 500 index — and this number could still grow. These dividend cuts are likely to be more prevalent among small and mid-sized companies.
Dividend-yielding stocks generally reward long-term investors, paying them quarterly from the company’s profits. This offers a regular income stream for retirees without having to sell assets. While not all stocks have slashed dividends (at least 57 have increased them this year), you might be missing the bigger picture if you rely solely on those payments for income. Investors may have to shift their mindset about what it means to generate income from their portfolios.
Mike Hennessy spoke with CNBC about how retirees can rethink their retirement income strategy. Retirees could use the bucket approach — using fixed-income investments, such as U.S. treasury bonds — to plan for income over a multiyear period.
“You effectively cover your living expenses for five or seven or 10 years by buying the appropriate fixed-income investments to match that time horizon,” said CFP Mike Hennessy, founder and CEO of financial advisory firm Harbor Crest Wealth Advisors in Fort Lauderdale, Florida. “Then, the remaining funds in your retirement account can be invested to capture long-term equity growth.”
Read the full May 2020 CNBC article "How to rethink your retirement income strategy as more firms cut dividends” here.
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