Retirement "Income" or Retirement "Paychecks"? - (week 13)

Last week I read Dan Brown’s new book “The Secret of Secrets.” This is the latest book in the Robert Langdon series that started with “Angels and Demons” and became really popular when he released “The Da Vinci Code.” It had been 8 years since he released the last book in this series, so I was excited to see if this book measured up. It did not disappoint. I don’t want to spoil the book for you, so I won’t give many details. I will only say that the story is based on a scientific principal that could explain everything from why each of us have unique special talents, to why we are currently living in such uncertain times, to what happens when we die, and even what God is. Let’s just say that Dan Brown not only has created another great story but will also give you plenty to think about. Why am I giving a book review in a column on retirement? Two reasons. First, the idea that I could read an entire 670-page book in a week while I was still working, is absurd. One of the things I’ve liked most about retirement is that I don’t feel guilty about sitting outside on a nice afternoon and just reading a book. Second, one of the challenges is to keep my mind engaged now that I no longer exercise my problem-solving skills as much. Trust me, this book will engage your mind. In between chapters, I took the time to read last week’s Barron’s newspaper. Each week they have a “Retirement” column. Needless to say, I’m always curious to see what advice they offer to retirees. This week’s column was entitled “5 Places Investors Can Still Find Reliable Income”. Like most retirees, I’m always interested in “reliable income,” so I was particularly interested in what suggestions I would find in the article. I quickly realized that Barron’s – and for that matter, the majority of the investment industry – has a different definition of income than I do. As a retiree, “income” to me means money that replaces my work paycheck and is therefore used to pay bills and spend on things. For my retirement income plan, this income is made up of social security, annuities, and regular withdrawals from my retirement plans. If I was lucky enough to have a pension, that too would be included.

“Income” means a completely different thing on Wall Street. There “income” is interest paid by bonds and dividends from stocks. It’s really just the “yield” on your portfolio. In fact, the Barron’s article starts with the sentence “Bond yields have edged down on expectations of a Federal Reserve rate cut….” Accordingly, the “5 places” to find “reliable income” are all either bond funds or bond ETFs. Certainly, I understand that I can buy a bond and spend the income from the bond. Likewise, I can buy a stock and spend the dividends when they are paid. But the majority of retirees do not think of that as reliable retirement income. Three weeks ago I wrote about how few retirees make regular withdrawals from their retirement portfolios and therefore underspend in retirement (Are You Underspending in Retirement? (Week 10). I think one of the reasons for this is the disconnect between what they think of as spendable retirement income and what Wall Street commonly calls income. The Wall Street definition of income is really just the yield on a portfolio. To a retiree, this yield – whether it be bond interest or stock dividends is just part of the return they earn on their portfolio. Just like a stock going from $20 to $30 provides me with a return on my investment, so does interest from bonds and dividends from stocks. It’s not retirement income that gets deposited into my checking account like social security, pensions, and annuity payments. Every portfolio has a fixed “income” part of the portfolio, so I can’t see Wall Street ever using a word other than “income.” Perhaps therefore, the solution is to talk about creating retirement paycheck plan when talking to pre-retirees and retirees. Let’s do a quick survey. Share your definition of “income” in retirement in the comments section.