"What may have been true once, investors are more hesitant to sell off shares to generate a 4% income draw every year, as it feels more and more risky to do so. It's for this reason that retirees are starting to look more favorably at dividend ETFs, which allow them to collect a steady cash flow without having to constantly monitor daily prices in their portfolio."
"This isn't to say that the 4% rule hasn't historically worked, after all, it's popular for a reason, but a lot of people who follow it do so by textbook rules. The problem is that reality isn't always as simple as just pulling 4% every year, as you have to navigate markets falling, expenses rising, and anytime you are withdrawing during a market downturn, it can have a lasting negative impact on long-term returns. Now, let's focus on dividend income, which completely changes the equation."
The 4% rule, introduced in 1994, guided predictable retirement withdrawals by selling portfolio shares. Market conditions have changed—higher inflation, interest rates, and longer life expectancy—making annual 4% withdrawals riskier. Selling during market downturns can inflict lasting damage on long-term returns. Dividend-focused ETFs provide an alternative by generating cash flow without forced principal sales, allowing retirees to preserve capital and reduce the need to time markets. Dividend income changes the withdrawal equation by offering regular distributions that can cover living expenses while maintaining the investment base.
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]