Yield vs. Total Return. What’s The Difference?

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Retired clients often wonder how they will generate income in retirement. Beyond Social Security, pension payments, and other forms of guaranteed income how does their investment portfolio actually produce the money they will need to keep up with inflation and pay the bills?

Two ways in which your investments can support you in retirement are “yield” and “total return”. In this post I will share how they are different and what role they play in your long-term retirement income plan.

3 Big Reasons Why Dividends Should Be Part of Your Retirement Income Plan

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Imagine an investment that offers you a predictable, consistent income that rises over time. One that, while not guaranteed, is reliable and has been used by countless others to generate income during retirement.

What is the source of this idyllic income stream? Dividends. More specifically, dividends from publicly traded companies or mutual funds that own them.

To learn more about what a dividend is, click here.

If you ate cereal for breakfast, drank a soft drink at lunch, and drove to the store to pick up a few things on your way home from work, odds you consumed several products that were made by companies that have been distributing cash to shareholders via dividends for many years.

Dividends might not be the sexiest investment you will ever own, but they should play a vital role in your retirement income plan.

Below are 3 big reasons why dividends should be part of your retirement income plan: 

Why A Roth IRA Should Be Part Of Your Retirement Income Plan

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Roth IRAs were created 20 years ago to give investors a way to invest for retirement that allowed for tax-free distributions after age 59 ½.

But they came with a catch.

These new IRAs were to be funded with after-tax contributions. Unlike traditional, tax-deductible IRAs and workplace retirement plans like 401(k) accounts, contributions to Roth IRAs are not tax deductible.

Since then, investors have debated whether it’s best to fund a Roth IRA or a traditional, tax-deductible IRA. Strong arguments can be made for both, but most financial professionals agree: whenever possible, the Roth IRA should be part of your retirement income plan.

Here’s why:

70-Year Old IRA Owners: Avoid This Expensive Mistake

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In 2017 the first baby-boomers turned 70. Happy birthday! However, if you had your 70th birthday between January 1 and June 30 of this year, the IRS says you must take your first IRA “required minimum distribution” (aka RMD) this year as well.

Well, OK. Technically, you really have until next year. More about that below.

2018 Social Security Raise – Better Than a Stick in the Eye

photo credit: Vitaly. Unsplash.com.

The Social Security Administration projects a 2.2% increase for those receiving retirement benefits in 2018. While this is actually the biggest increase in years – 2017 saw an increase of only 0.3% and 2016 social security recipients saw no increase at all – it’s not likely to bump you into a new tax bracket.

In dollars, the projected increase adds up to about $28 per month for the average social security recipient.

As my grandfather, himself a longtime social security beneficiary, is fond of saying, “it’s better than a stick in the eye”.