Retirement Pays Dividends

1. Retirement Pays Dividends And a Retirement Portfolio is? For the vast majority of people at or nearing retirement age their major requirement is to receive a reliable and inflation beating regular INCOME. Conventional Wisdom Says: Let's say you have retired with a lump sum available from your pension plan, or maybe have been made redundant with a payoff. Alternatively, perhaps you have been saving hard for a long time and have created a fund to invest for income. What should you do? What options are open to you as an income seeker? There are a very large number.

2. Retirement Pays Dividends Conventional Wisdom Says (cont.): Conventional wisdom on this topic from IFAs will tend to propel you in the direction of some kind of insurance company product such as guaranteed income bonds or the like. A lot of literature on the subject of retirement investing for income suggests that, even if you have been saving through equity vehicles of some kind up until now, there should be some switch away from equities just because you have retired.Advisers make such comments because of the perceived risk of keeping money in shares, it being felt by them that at the age of, say, 60, one should be taking less risk than before with savings. From what I have seen, the great majority of retirement lump sums end up either in insurance company investments, or simply in National Savings and bank and building society deposits.

3. Retirement Pays Dividends Bugger Conventional Wisdom: My proposition is that far from avoiding equities, retirement income seekers should actively migrate to this form of investment, even if they have never done so before. It is an option that is considered only rarely, particularly by IFAs. The fact that there is no commission available on such an arrangement has, of course, nothing to do with it. However, I have to say that even other sources such as articles in the press on this topic will rarely suggest shares as a great place for income investing.

4. Retirement Pays Dividends The Plan: The life expectancy of a 60-year-old man is quite long. For a lady, several years longer than the male. Anyone with a lump sum available to invest for income upon which they depend must therefore try and find a source that will grow that income and also offer some easy access to the capital. Inflation is the obvious reason that it is essential, for those that do depend heavily on the income, to try and ensure that it will grow. Having the capital available may be important at some future point if, for example, you have to go into a care home.So what I am suggesting is a portfolio of high yield shares. This offers the attraction of a decent commencing yield, the likelihood that it will grow, and the likelihood also that over longer periods the capital may grow as well.

5. Retirement Pays Dividends The Plan: The primary aim of the portfolio is growth of income not capital, although by reinvesting dividends in the ‘working’ years is necessary when limited capital is available to start off the investment. Remember: The High Yield Portfolio is designed essentially for income investors, to be held forever with no dabbling and aims to deliver a decent initial yield around twice that of the FTSE100 index and currently in excess of cash deposit rates as well and crucially, inflation-beating income growth over the long term for investors prepared to take the risks of investing in equities. I believe that capital growth will go hand in hand with income growth, but that is a secondary motive for this particular portfolio.

6. Retirement Pays Dividends So Which Companies? We need to identify Companies with relatively low risk, good dividends that stand a very good chance that you will derive an increasing income, and that your capital may well increase over time as well. However increasing income is the primary object with the scheme, capital growth being merely the icing on the cake. Note also that your capital is freely available to you at any time at the market price should you need to realise it, a valuable feature. Many insurance company products compel you to tie up your money or impose penalties on withdrawal.I wish to stress, though, that in considering this approach must be made aware that there are risks. Neither the income nor the capital is guaranteed. If you cannot live with that then, clearly, don't do it. I believe, however, that the risks are less than many people imagine

7. Retirement Pays Dividends Quick Review: • Require an annually increasing income • We do not care about the invested capital (although we expect capital to increase and treat this as ‘icing on the cake’) • After setting up the portfolio we review it for 15 minutes every ten years • No Fund Manager Fees! • Tax Advantages - • Note the highly attractive tax situation of dividend income compared with other types such as interest, rents or pension annuities. Dividends are tax free to a basic rate or lower taxpayer and liable to tax at only 25% on a higher rate payer.

8. Retirement Pays Dividends Rough Guide to Share Selection: The Mechanism for Constructing a High Yield Portfolio is part mechanical and part intuitive: • Minimum Capitalisation of GBP 1.5 billion • A history an unbroken increase in dividends over the last five years • Net Gearing Below 50 percent • A portfolio of 15 shares • No Two Shares in the Same Sector • Forecast dividend 50% above the FTSE 100 Average

9. Retirement Pays Dividends So What Are Our Expectations? The Next Couple of Slides Illustrate Potential Returns Under various Circumstances.The Key to Believing these projections is common sense. But First, some facts: Over periods of 5 years shares have done better than other types of asset (such as cash or bonds) in three times out of every four cases. Over longer periods shares have performed even better. Therefore long term investment is good for your health.The UK stock market has returned an average of around 8% a year, in excess of inflation, over the last 80 years. No one knows how much the stock market will return in future. But the historical evidence suggests that it will continue to do better than cash over long periods of time.

10. Retirement Pays Dividends The Following Slides Will Have Tables Like These: So Lets Take a Look at What They Mean! This is How Much Cash You Put In Every Year! The Holy Grail - Annual INCOME! Our Return on the Total Portfolio Value We are expecting our Companies to increase their dividends every year Total Portfolio Valuation

11. Retirement Pays Dividends Example Projections: ‘Typical’ Assumptions 12.5 % Per Annum Increase in Share Price8.0% Per Annum Increase in Dividends ‘Pessimistic’ Assumptions 3.5 % Per Annum Increase in Share Price5.0% Per Annum Increase in Dividends ‘Reasonable’ Assumptions 8.0 % Per Annum Increase in Share Price8.0% Per Annum Increase in Dividends

12. IN OTHER WORDS, DEPRESSED SHARE PRICES ARE A MAJOR ADVANTAGE TO THE HIGH YIELDINVESTOR!! Retirement Pays Dividends Same Performance Every Year : Improved Annual Income Even Aftera ‘Disastrous’ First Two Years! ..and if the Portfolio is ‘trashed’ in early years: First Two Years of Investment Result in a Significant Capital Loss!

13. Retirement Pays Dividends An Analysis Of The Previous Slide Shows The Income Being Generated at time of Retirementas a Percentage of the Total Portfolio. The Returns Should Be ‘Sensible’ If they are Not (I.e. The FirstProjection is Only Generating 2.7%) Then It Would be Prudent to Create a New High Yield Portfolio to Improve the Annual Income.

14. Retirement Pays Dividends A Word About Charges: The Projections Include All Dealing Charges. If this was offered as a Professional Fund Then the Portfolio Value of GBP 318,137 would be reduced by around GBP 34,000 and the Annual Income Would Be Reduced By About 9 percent; PROVIDED you could Find a Fund With LOW dealing charges and EXIT conditions However, Most Fund Managers Charge a lot more than assumed inabove Calculations and When Buying the Underlying Shares They Use a bid/offer system which is typically 5% spread. This Would Destroy a High Yield Portfolio Return!!