Transcript

00:00:00:01 – 00:00:24:28
Mike
Let’s talk a little bit about why you do not want to use stock dividends as your solution, if you will, for retirement income. I’m going to go back in time and tell you the story of my grandfather. If he walked into a room, he basically took over the room because he had a big personality. Always smiling, always happy, always in a positive mood.

00:00:24:28 – 00:00:44:25
Mike
Just, you know, the kind of guy that everyone wanted to be around. I was maybe eight years old and I went to see him. When I saw him, he had the newspaper open and I’m like, Grandpa, what are you doing? And he says, You sure to be your son? This is the Wall Street Journal. What he would do is he would save some money.

00:00:45:12 – 00:01:05:16
Mike
And then once he had some money, safety, go to his stockbroker, which you know, this was we’re talking in the seventies. Here you go. The stockbroker. And he would buy some of the stocks that he had underlined in The Wall Street Journal. Why do you do that, Grandpa? And he says, Well, when I retire here. Coming up in a few years, we want to buy a cottage on a lake up in northern Michigan.

00:01:05:20 – 00:01:25:12
Mike
And we want to be kind of a place where all you grandkids can get together. Right. So what he really wanted, he wanted a family enclave. And the way he would do it is he would buy these stocks and they would hopefully grow over time so he could buy that cottage. Here’s where I want to introduce a model to you, because this is important.

00:01:25:20 – 00:01:48:23
Mike
We’re talking about why you don’t use dividend CDs for retirement income. And I want you to think about it this way. Whenever you do your retirement planning, you have some different elements that you need to think of. And we call that goals, strategies and tools. All right. Goals, strategies, tools. I just shared with you what my grandfather was trying to do.

00:01:48:23 – 00:02:18:08
Mike
He had a goal by the family cottage. Right. He wanted to get that cottage. And what was his strategy to do that? He wanted growth and accumulation. That’s what he wanted. And the tools, dividend paying stocks. And by the way, when my grandfather bought these dividend paying stocks, it was every time he bought a stock, it was a company that everyone knew who it was.

00:02:18:15 – 00:02:40:20
Mike
Like if you were doing it today, it might be Coca Cola. We all know who Coca Cola is and blue chip company paying a big dividend. College is a goal. Let’s grow our money and we’re going to use dividend paying stocks to get there. Very straightforward. And by the way, as a certified financial planning professional, I have to tell you, I’ve got no problem with that.

00:02:40:22 – 00:03:04:28
Mike
When my grandparents retired a few years later, guess what? Boom, boom, boom. They got the college. They got it big. I mean, it worked. Everything worked. It was awesome. And then one day my parents said to us children, they said, you know, I’m the oldest of four. They said, Come on, kids. Time to get in the car. We’re going up north to the cottage for the last time.

00:03:04:29 – 00:03:30:29
Mike
Mom, Dad, what are you talking about? What do you mean, the last time? Well, Grandma and Grandpa, they’re kind of running out of money, and they need to sell the cottage. So here’s my grandfather’s stock portfolio here. And when he retired and let’s imagine it was $300,000, which, by the way, it was in those days that being worth over $1,000,000 today.

00:03:31:00 – 00:03:54:20
Mike
What he was doing with the dividends, because remember, this was spinning out dividends every year when he was growing it. What was he doing? Reinvesting the dividends, which is exactly. That’s what Warren Buffett does. That’s exactly what you’re supposed to do with dividends. But when he retired and he got the cottage, what did he do? He said no more of this reinvesting stuff.

00:03:55:10 – 00:04:25:05
Mike
I’m going to use these dividends for income. That’s what I’m going to do. And guess what? It worked out really well at first. Sometimes the stock market goes up over time, sometimes it goes sideways over time, and sometimes it goes down over time. And what happened was the downs started happening. And so when the stock values started going down, guess what was happening?

00:04:25:05 – 00:04:53:29
Mike
The dividends, they were going down. In fact, they went down so far that suddenly my grandparents were like, Oh, these are not enough. We’re in trouble. It’s not enough money. We need more money to make ends meet. Where are they going to get more money to make ends meet? Right there. They had to sell stock, not when it was high, but when it was low.

00:04:55:03 – 00:05:08:22
Mike
And when you sell stock low, that means you have to sell more shares. And when you sell more shares, that means there’s less shares to generate dividends next year, which means next year you have the same problem. It’s only a little bit bigger. And then the next year you have the same problem. It’s only a little bit bigger and a little bit.

00:05:09:03 – 00:05:32:18
Mike
It’s a this is the downward spiral. This is how you go broke in retirement. I’ve seen that happen over and over and over again. What was their mistake? Their mistake was this. When they hit retirement, they got the and you got their goal, their goals shifted at that point. They changed because now we had to add a word here.

00:05:32:25 – 00:06:02:02
Mike
What was their new goal? Their new goal was keep the cottage they went from. I want to get a cottage to. We need to keep the cottage and went. And that little shift, that is a fundamental shift in life. That fundamental shift is right here. Instead of reinvesting, instead of adding money to the portfolio, we’re now going to take it out.

00:06:02:10 – 00:06:25:13
Mike
And that means that when it came to their investment strategies, their financial strategies, do they still want to grow their portfolio? Yes, but they need to add something. Stable income is a strategy that they needed to add and they didn’t do it because guess what? Dividends are not stable. You can’t use that. At no point are dividend stable, and I don’t care if you’re dividends and your company will go on for 30 years.

00:06:25:23 – 00:06:51:20
Mike
That was they were for my grandfather, too. And they grow for 30 years until they don’t. 2000 to 2002 dividends. A group for 30 years suddenly didn’t anymore. 28. They didn’t anymore. They grow until they don’t. We should probably carve out. Right. Carve out some of these stocks into some type of income tool. Right. Something that would generate income so that we didn’t have this worry.

00:06:51:29 – 00:07:17:07
Mike
So that we know that, hey, if markets go up, we want to put a green check. We want to say, hey, we’re going to be okay if markets go sideways. We want a green check. We want to be okay. And if markets go down, we want a green check. We want to be okay. Well, guess what? If all of your money is in dividend paying stocks, you’re only okay if markets go up and we need better than that.

00:07:17:10 – 00:07:45:17
Mike
Learn from my grandparents because they made that mistake. They had to sell the cottage. And when my grandparents had to sell their cottage, my grandfather larger than life, super positive, happy guy. Within a year, he was dead. That broke him. I never saw him laugh or smile again. It was a tragedy, one that never had to happen. He just made a little tiny mistake.

00:07:45:22 – 00:08:03:07
Mike
Unfortunately, it was at the time of life when little mistakes are magnified in the big mistakes. Don’t be my grandfather. Learn from him. My grandfather. He had enough money. If he did the right thing, he never would have had to worry about money. He would have been on keep that cottage forever. But you got to make sure you’re setting up your accounts the right way.

00:08:03:11 – 00:08:34:04
Mike
You need to make sure you understand retirement is a fundamental shift in life. And remember, stock dividends. They’re not for retirement income. They’re for reinvestment. Use the tool for what it’s designed to do. There you go. That’s our message this week. Hope you find helpful. See you again soon.