How To Increase Retirement Income

Traditional investments for retirement accounts have emphasized investment grade bonds with a high degree of safety. But low interest rates from the Federal Reserve have forced investment thinking to change for retirement accounts. Treasury rates are at or near record lows, not far above zero. Investment grade bond yields are 2-5%. Today, IBM (IBM) announced that it expects to borrow $1.5 billion worth of 3 year bonds, costing about 0.85% annually and 7 year debt at an annual cost of 1.9%. In addition, when bonds mature, principal is reinvested in new bonds, which could have even lower yields. IBM will use some of the proceeds to pay off debts with higher costs.

A better way to increase income in retirement accounts is invest in quality companies that raise dividends. Some of the finest Dividend Aristocrats were selected, which have been increasing annual dividends for at least the last 25 years. Many have streaks of 30-40 years (or more). After the difficult recession 3 years ago, dividend streaks have become more significant. These Dividend Aristocrats were hurt by the recession, but weathered the storm, and were able to extend their streaks, because of stronger financials at a time when many highly regard stocks (including former Dividend Aristocrats) did not raise dividends.

Source: Seeking Alpha

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