Financial Planning Fridays #68: Stock vs. Bond Income During Retirement
Using a 30-year example starting in 1993, this episode compares income from stocks versus bonds in retirement. While bonds offer higher initial yields, stocks have historically grown their income over time, an important consideration for retirees planning income that keeps pace with rising costs.
Using a 30-year example starting in 1993, this episode compares income from stocks versus bonds in retirement. While bonds offer higher initial yields, stocks have historically grown their income over time, an important consideration for retirees planning income that keeps pace with rising costs.
Key takeaways
- Bonds typically offer higher income at the start than stocks.
- Stocks have historically grown their income over time, unlike fixed bond payments.
- Rising dividend income can help retirement income keep pace with inflation.
- The stock-bond income mix is a key retirement income decision.
Stocks have historically paid much more in income over time than bonds. Please let me show you an example from the past 30 years. Imagine you have just retired. It is 1993 and you need to decide what types of investments are going to generate your income now that you are no longer working. Just like now, you can basically choose between stocks and bonds. Also, just like today, bonds have a higher yield than stocks which make them tempting. You could have earned 5.87% in 10-year government bonds or 2.7% in annual dividends from the S&P 500 during your first year of retirement. Today, November 28th, 2023, it is a choice between 1.44% in dividends vs. 4.35% from bonds. But look at this chart to see what happened in the long-term to a $1M initial investment. We used the average dividend and interest yield for each year to create this chart. The income from bonds was greater than the income from stocks for the first nine years but then the stocks begin to pay off and basically leave bonds in the dust. In fact, by your 30th year of retirement, you would have been receiving more than $150,000 from stocks dividends vs. only $29,500 from bonds interest. The total income received from stocks would have been almost double the income from bonds over your 30-year retirement! And at the end of 30 years your bond portfolio would have still been worth $1M. Bonds are simply loans that are repaid over time. Your $1 Million stock portfolio would have grown to more than $8.8 Million over your 30-year retirement while you collected over $2 million in dividends along the way. Thank you and we look forward to talking with you again soon Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.
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