Dividend income in retirement

BY MARY HOLM

Q. Your column on June 15 included a question from a couple who were contemplating buying a few parcels of shares.

They finished, "Why is it so many people emphasise capital growth or capital shrinkage and forget about the dividends?"

We were interested in your reply: "But I wouldn't recommend that a retired couple should rely on dividends as their main source of income."

My question is, what would you recommend a retired couple depend on for their main source of income?

My wife and I are in our late 60s and have financial investments in managed funds (international/Australian shares), 17 per cent; property syndicates, 14 per cent; capital notes and bonds, 14 per cent; New Zealand shares, 50 per cent; cash, 5 per cent.

We depend mainly on dividends, and enjoy the advantage that imputation credits give to our total income.


A. I wasn't quite precise enough in my wording, sorry.

What I should have said was, "I wouldn't recommend that a retired couple should rely on dividends to provide them with income to cover their basic needs."

Dividends are unreliable. As I said a couple of weeks ago, they can suddenly be cut quite drastically.

And if you decide to sell your shares after a dividend cut, you might find that share prices have fallen and you take out less money than you put in.

The usual advice is that retired people put the money they expect to use over the next five to 10 years - the more conservative you are, the longer the period - into solid fixed-interest investments, such as lower-risk capital notes and bonds.

You can then be reasonably sure you'll have the money you need when you need it.

Longer-term money can stay in shares or share funds.

Market fluctuations won't matter, as there'll be time for recovery, and over the years your investments are likely to grow more quickly.

However, if you're well off, you might not put all your shorter-term money in fixed interest.

I know of one adviser to wealthy retired clients who puts enough of their money into long-term Government bonds that the interest will cover their basic needs. He then suggests they take more risk with the rest.

If they do well, they take round-the-world holidays and drink $50 bottles of wine.

If not, they go to Coromandel and drink what's on special at the supermarket.

You might be in a position to do that, too.

By the way, I wouldn't tend to include property syndicates as solid fixed-interest investments.

They're a mixed bag. But too many have come a cropper in recent years.

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