Thinking Beyond Dividends for Retirement Income

Many retirees gravitate toward financial investments that produce “passive income"—cash flow acquired with little to no work required to obtain or maintain. One popular example is dividend-paying assets that offer a steady stream of income.

Stocks, mutual funds, and private investments that produce dividends can be an excellent way to supplement retirement income. Such cash flow can be used to offset day-to-day living expenses without selling off any shares in those investments.

Risks of Reliance on Dividend Income

The problem is that relying on dividends for cash flow can greatly limit investment options and expose retirement funds to volatility in the markets. Please find below some key reasons to think beyond dividend-producing investments when seeking retirement income:

Lower Yields, Lower Income

Recent changes in the interest rate environment have illustrated that many companies emphasize reinvesting profits for growth when borrowing costs rise rather than increasing their dividend payouts. The result? Retirees struggle to maintain their desired income levels, especially if living expenses rise due to inflation.

Market Volatility Can Sting

Stock prices are not static. Economic downturns and corporate-specific issues can cause share prices to plummet, directly impacting future dividend payments. Imagine relying on a specific dividend amount to cover monthly expenses, only to see it disappear or be reduced during a market downturn.

Sacrifice Portfolio Growth

Dividend-focused investments often prioritize immediate income over capital appreciation. In other words, the dividend deposits that you rely upon in your account may impede long-term growth in your overall portfolio.

False Sense of Security

Dividends are not guaranteed; they can be cut or even eliminated at any time. If a corporate board is nervous about current or looming economic hardships—or simply decides to reallocate capital into a new business strategy—reducing dividends is an attractive way to conserve cash.

The Inflation Erosion

All seniors who have retired in the past few years can attest that inflation is the silent thief that erodes the purchasing power of money over time. If your retirement plan is built around dividend payouts and your dividend income does not keep pace with inflation, your standard of living will gradually decline.

Tapping Other Assets for Income

One way to mitigate the risk of over-dependence on dividend payments is to explore retirement income strategies that help create a more robust and resilient income stream that can withstand market fluctuations and changing economic conditions. There is one potential source of retirement income that is often unknown, derived from a commonly held asset.

Many seniors are discovering the potential to generate significant cash by selling an existing life insurance policy that they no longer want, need, or can afford to a state-licensed third party as a life settlement.

A life settlement is a financial transaction that is similar to the sale of a home or car—all rights, title, and beneficial interest in the asset, in this case, a life insurance policy, are transferred to the buyer, who, after paying the policy owner an agreed-upon sum, becomes responsible for all future premium payments and collects the death benefit when the insured passes away.

The proceeds from the sale of a life insurance policy can be used for anything you want, including paying for living expenses, medical bills, and vacations, or as gifts to grandchildren or other loved ones.

The best way to proceed with determining if a life settlement is right for you is to work with an experienced life settlement broker, such as Welcome Funds, who will contact qualified buyers on your behalf and negotiate the purchase price to yield the highest payout it can.

Think Beyond Dividends

One way to mitigate the risks of dominant exposure to dividend income is to be creative with your assets. Exploring the life settlement option is a great way to help finance your future. To learn more about life settlements and receive a free life insurance policy appraisal, please call 866.399.4103 or visit www.welcomefunds.com.