Scrap The 4% Retirement Rule, Buy Dividend Stocks With 4% Yields Instead

Many retirees subscribe to the 4% retirement rule. This is a framework for managing assets into retirement. The 4% rule calls for an investor keeping a balanced portfolio of stocks and bonds, withdrawing 4% of their retirement balance every year. Under most projections, the portfolio should last 30 years. While the 4% rule is commonly utilized, it also has a withdrawal component. I don't want my retirement portfolio to have an expiration date. I'd much rather set up a retirement plan that provides income into perpetuity, so that I don't have to worry about unexpectedly outliving my savings. That's why I think a better way to go would be to scrap the 4% rule completely, and instead buy dividend growth stocks that yield 4% or better

Thanks to the market's declines last year, many stocks have crossed that 4% threshold: Altria Group (NYSE:MO) is arguably the most famous dividend stock of all time. AT&T (NYSE:T) is a large telecommunications giant that offers phone, internet, and television service. Realty Income (NYSE:O) is a REIT; it owns and operates nearly 4,500 real estate properties under long-term leases. By buying equal allocations, these three sample stocks generate an average dividend yield of 4.7%. The takeaway is that while the 4% retirement rule may have once served a purpose, it needs to be updated to reflect longer life expectancies. I think a better way to go would be to scrap the 4% retirement rule altogether, and invest in dividend stocks like Altria, AT&T, and Realty Income to generate enough income to live on. That way, a retiree never has to make withdrawals, and their portfolio remains intact throughout retirement.

Source: Seeking Alpha

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