Retirement Planning – A Safe Fixed Income Investing Strategy

Planning for retirement income is one of the most important jobs you’ll ever have. If you are like most investors you have a great “rear-view mirror, but very poor headlights”.


  • Many retirees need income from their investments to supplement Social Security and pensions
  • Fixed Income to many mean just buying bonds and bond funds (ETF’s)
  • Given the poor outlook for bonds during rising interest rate cycles many investors are looking for other methods of “Fixed Income” investing
  • A conservative stock portfolio with income producing stocks might look pretty attractive
  • There are tips for choosing these income producing stocks


Today’s retirees can’t rely on the traditional methods for securing income during their retirement, mostly bonds. As I’ve written before, current bond holders are going to face a huge shock when interest rates start to rise in the next 6-9 months. Many of you will think, oh good, interest rates are rising! However as they do your current bonds (or funds) will drop substantially in principle value. What good will it do to have a bond fund pay you 3%annually, drop by 15-20% in value? Just to be clear, some day it will pay handsomely for a retiree to buy bonds, when they yield 6-8%, but not now as they rise to that level.

What to do

The “Fixed Income” stock dividend theory says that you develop a stock portfolio of reliable companies with secure dividends that will pay you “bond level or better yields and just hold onto those investments. In this case you also have the possibility of capital appreciation over the years and dividend growth. Bonds do not have any possibility of dividend growth. For example, you buy a basket of blue-chip dividend growth stocks for $1,000,000 and they average 3% yield, or $30,000 a year in dividends. If, over a period of years your blue-chip stocks follow the average market return of 6% (or more) your $1,000,000 will grow by $60,000/yr compounded. Furthermore, many of these companies increase their dividend every year so the $30,000/yr also grows.

Tips for Choosing Income Stocks

  • It is relatively easy to research on line and find blue-chip companies that have a solid history of both dividend payments and growth.
  • Look for a large dividend supported out of free cash flow, not borrowing. Determine what % of free cash goes to support the dividend.
  • Choose stocks with growth potential
  • Here are some examples of dividend growth over the last 5 years:
    • McDonalds 14%
    • General Mills 12.5%
    • Phillip Morris 12%
  • Get help from sources like Morningstar or a web site I like

Here is an example of how this works:

I bought Altria (MO) the cigarette company in early 2014, it is a blue-chip stock with a long history of dividends increases. I bought it $34/share with at the time a $.48/quarter dividend or 5.6% yield. Today the stock trades for $51/share with a $52 dividend. Therefore, I’m up 50% on the value of my investment and the dividend has increased by almost 10%. Therefore my current dividend yield on my purchase price is over 6%. During this same time frame the S&P 500 up a shade less than 6%.