Ken Fisher Explains How to Generate Retirement Income

Transcript

So intuitively, you know that somebody in my line of endeavor is often asked, "what's the best way to generate income in retirement?" And the answer is, the best way to generate income in retirement is to go back to work. You don't have to be a genius to figure that out. I mean, then you generate income. This isn't a tough one. Or is that true?

Well, actually a better way to generate income in retirement, which you may not care for, is to have started a business that succeeded in your working career that has durability post retirement that you could step away from. And yet it still provides you income because of your ownership. Not everybody's kind of got a desire to go out and start a business. Some people would go out and try, fail. I know that. So how would you emulate that without doing it? And the answer is that's where the capital markets come in.

Because when you buy stocks, you're buying businesses that generate income and that income, the earnings get priced moving forward because the markets are a pre pricer of widely known information and prices the earnings ahead. And that builds into the price of the stock, which is why stock market investing tends to have pretty good long term returns but irregular with volatility.

Now in that let me say, that the way to do that, and I've written a fair amount about this in a number of my books, particularly, Plan for Prosperity, Debunkery, The Only Three Questions That Count. Is, you set aside enough income, in liquid securities to be able to cover short term downturns that last for up to a year or two. You invest otherwise in largely equities. If you can't take volatility, then you throw some fixed income in and then you pull out of that what I call a homemade dividend. What do I mean by that? What I mean by that is because capital gains rates are low on tax. Capital gains tax rates are low and payout rates are low compared to earned income. You actually do best to just think of paying out to yourself from your corpus over time, to sustain that level of cushion that would get you through a bad time as you move forward.

And this homemade dividend instead of a real dividend is actually cheap, because you can take it out of the principal of your account. And, you know, people will say, and you used to say this a lot when I was young, you shouldn't dip into your principal. The answer is, plan fully dipping into your principal over time is actually about the least costly thing you can do. If the rest of your principal is correctly planned into an investment program aimed at getting good returns in capital markets consistent with what capital markets typically generate.

So mind you, again, I revert to the point that capital markets have volatility in them and you don't get a steady, steady and smooth return. So you have to be able to adjust for that. And that's a part about having a cushion set aside. But beyond that it's just a planful process of how to create the income from regularly taking little bits out of your principal.

Thank you for listening to me. I hope you found this useful. And I thank you much for your attention. Hi, this is Ken Fisher. Subscribe to the Fisher Investment YouTube channel. If you like what you've seen. Click the bell to be notified as soon as we publish new videos.