Reliable Retirement Income Redefined

Bruce Miller

If your retirement investing strategy is to maximize your total assets to last through your golden years, you might want to stop what you are doing and reconsider.

You could try another way to generate a reliable retirement income and ensure that you cover all of your retirement spending needs without ever touching the bulk of your retirement assets. When it comes to retirement investing, the common wisdom is that you are supposed to invest a portion of your wages during your working years to build a large retirement nest egg.

Therefore, once you retire you can start liquidating your investment assets by withdrawing funds to cover your spending needs and hope that the nest egg is large enough to last for the remainder of your life. With our life expectancy rising constantly, there is a good chance that the remainder of your life after retirement will be a long time.

According to the Social Security Administration’s life expectancy calculator, a man retiring in 2017 at full retirement age of 67 has a life expectancy of 85.5 years, which is an additional 17.5 years after retirement. A woman retiring in 2017 has a life expectancy of 87 years.

This means that a retirement nest egg must last almost two decades, which is about half the work life for the average person. The life expectancy for individuals in their mid-20s who are entering the workforce now is at least two years higher compared to current estimates.

Why the income-only approach to reliable retirement income?

The good news is that we are living longer. A little bit of bad news is that to enjoy the additional retirement years, we will need more funds to provide a steady and reliable retirement income.

Thousands of individuals born in the post-World War II years are retiring every day who are relentlessly searching to find stable and reliable retirement income that will allow them to enjoy financial security during their retirement years.

If done with accuracy and discipline, the “traditional” approach of managing your invested assets for safe withdrawal rates is certainly an effective way to manage your income. But, is there another way? Can the retiree – or her Registered Investment Advisor (RIA) – use the dividends paid by her investments, and only these dividends, to provide for this required income? Is this possible to generate such income through all manner of market movements without ever having to sell any of the principal investments? I believe that it is possible.

During my Certified Financial Planner™ (CFP) course in 1998, I was instructed how to derive income by slowly liquidating an investment portfolio mix of stocks and bonds using historically studied safe and sustainable withdrawal rates. I began to wonder why I could not derive from dividends the same level of reliable retirement income that I was being taught in my investment training course. However, the course-mandated text book, which spanned 675 pages, never even mentions the dividends approach as a method of portfolio management for retirees who require reliable income.

What is wrong with the current approach to reliable retirement income?

The Modern Portfolio Theory is complicated, full of statistical analysis, Monte-Carlo simulations and correlation coefficients that the average retiree has difficulty comprehending. Is it possible to use a much simpler method to invest in the reliable dividends that the large U.S. companies pay to meet the primary retirement goal of most retires: long-term reliable income?

Seventeen years after my CFP course of using the investment principals of an income-only approach to providing long term reliable income, I have concluded that there is no reason a retirement portfolio cannot be invested ONLY for reliable income. The conventional literature does not address this approach. I had to learn this through trial and error – mostly error – and the writings of others on web-based investment discussion forums.

I have read many books and articles on “income investing.” However, every one of these books focuses on investing for total return. Nowhere have I read of a pure income approach to managing retirement savings. All the books that I read refer to the portfolio’s valuation and show charts of “growth”, “performance”, “appreciated value” or any variation on this central theme of capital appreciation.

What these writers either do not understand or refuse to understand, is that the clear majority of retirees are no longer in pursuit of total return. Most retirees are in pursuit of a reliable retirement income.

Using my training and experiences in financial planning, I have organized my approach to manage a portfolio for pure income in such a way that it will, hopefully, make sense to those who are considering or who are using this approach to generate long-term reliable income from their portfolio during retirement years. I will explain my approach in a series of upcoming articles on (or

What the new approach is not

Before I start describing my approach, I want to explain what I am NOT intending to do. I am not attempting to convince anyone that the pure income approach is the method they should use. The paradigm of capital appreciation is deeply rooted with many retirees and investors who, despite their thirst for long-term reliable income, will not be willing to let go of the capital appreciation approach. However, I will make clear that letting go of the current, “traditional” method is essential to successful income investing. Instead of the price of an investment security being the underlying force of investment decisions, the reliability and sustainability of the dividend will take its place. I will agree with the argument that the change in the price of an income stock may indicate when the stock is in danger of not being able to pay its dividend.

However, the change in price is not one of the screening criteria for selecting an income-producing stock, nor is it a maintenance indicator for deciding on whether to hold on to an income stock. While the stock price is a sensitive indication of a company’s financial health, it is not very specific. Many factors affect the stock price and most of those factors have little or nothing to do with the company’s ability to pay its dividend.

Another reason is that the stock price is a lagging indicator of a company’s ability to continue dividend payments. A more accurate way to evaluate a company’s ability to pay their dividends is through trends in the company’s cash flow fundamentals. In the upcoming articles, I will explain in detail how to screen, select and monitor securities for reliable retirement income.

All aboard! Final destination: reliable retirement income

I understand that some individuals are content with the status quo of the existing investment methodology and that those individuals will not change their mind under any circumstances, and this is certainly understandable. However, I encourage all investment advisors and all individuals who are intrigued by the dividend retirement income concept or who have started using an income approach to check out at least the first few articles where I will describe the basic advantages and disadvantages of my approach. I hope that you will find the topic intriguing enough to join me on the journey of explaining a new approach to reaching your final destination of a reliable retirement income.

Bruce Miller



Bruce Miller is a certified financial planner (CFP) who also is the author of Retirement Investing for INCOME ONLY: How to invest for reliable income in Retirement ONLY from Dividends and IRA Quick Reference Guide.

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