Besides good health.
Looking at the idea of retirement planning depends on our age.
History
When I was very young, the idea of retirement planning for myself seemed galaxies away; something to not even think about. Then, as I finished school and started working, I was eventually accidentally fortunate enough to land a job at a company with an employee stock purchase plan. This lead slowly to the idea of delayed gratification, even if I did not know the term. But it planted the idea that I could set aside some amount of today’s earnings for a future benefit.
I jumped in when IRAs and 401k plans were introduced. I recall feeling unsure if they were a good idea. After all, how good could it be to siphon off part of my then-current earnings to some new concepts? But I went with it, despite misgivings. And in retrospect, it was the right thing to do.
Eventually I started to invest in individual dividend-paying stocks and let the dividends reinvest.
Where Are We Now
So with all these events, and having now been retired for a few years, my perspective is clear. While having a good net worth is positive (at least it is not negative), there is something more important than assets. That something is income.
That is what retirees need: Income. When we were of working age, we worked and received income for our labor. However, now without work, where does income come from? Income now comes partially from Social Security, and income come from the assets accumulated during my working years. So the accumulation of assets that produce income is more important than accumulated assets.
In my view, having income is more important than having a high net worth. Why do I say this?
Again
I would like to repeat that statement. Assets producing income are more important than assets alone.
Why
Why do I say this? Let’s take an example.
Suppose you have assets of one million: Let’s say your stock portfolio has $1,000,000.00 worth of stock.
In scenario one, let’s say you are getting 2.75% yield from your dividends (a very normal yield). That is $27,500.00 per year, averaging $2,291.66 per month.
In scenario two, your $1,000,000.00 portfolio is in non-dividend paying stock. That means when you need cash, you will need to sell some stock. If you need $2,291.66 per month, or $27,500.00 a year, you will need to sell that amount every year. So every year your portfolio decreases.
However, in scenario one, you keep you portfolio intact. You do not need to sell anything to get your $27,500.00 yield. It is entirely likely that your dividends will increase over time. So your income will likely increase because your dividends increase.
Your take on this? Let me know here.
The illustration of the constellation of Capricorn is from the 1749 atlas by scientific instrument maker John Neale by “Uranographia Britannica.” It was purported to be a new “exact Survey of the Heavens”. It relied on the work of Dr. John Bevis (1695–1771), a London physician. Courtesy Wikimedia Commons.
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