To eliminate stocks form your retirement
income plan would be a mistake. Not only are some stocks
significant income generators (dividends of 4% annually and
more) but their growth in dividends serves as protection
from inflation. Take the following example of a retiree who
enjoys traveling to Europe. The cost of a $5,000 vacation
has increased substantially in US dollars due to the depreciation
of the dollar. But if you had owned $5,000 of European stocks,
the currency appreciation of those assets would have offset
your dollar loss. The same idea applies to owning stocks
in a clothing manufacturer to offset increases in your clothing
or stocks in a food processor or supermarket to offset increasing
costs of food.
The chart below shows why during a 30-year retirement (e.g. from age 60 to age 90), the increasing income from stocks is essential. |
