Taking Stock: Strong dividend-paying stocks can ease pain of market slides

Retirees needing income would be wise to invest in stocks that grow dividend payments.
Published: February 16, 2014
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Dear Mr. Berko: I retired at 55 in 1997 and moved my $460,000 401(k) to an individual retirement account to be managed by our broker.

By late 1999, my portfolio had increased in value to $605,000, so we took out $4,000 a month — about $3,000 from appreciation and about $1,000 from dividends.

Then, in 2001, my IRA got trashed in the dot-com bubble and crashed by more than 50 percent, to $290,000. This was devastating because we needed stock growth to give us most of the income we needed. So I returned to work in 2003, which was good because in 2006, my employer was merged into a larger company, and my few shares of stock were exchanged for $410,000.

This time, I purchased quality bank stocks and mortgage bonds. I retired again in 2008 at 66, with Social Security, and the market crashed again because of the housing bubble and subprime mortgage scandal. My IRA took another big blow, but my Social Security income (my wife’s, too) helped pay our bills.

In early 2010, a money manager you recommended improved our account’s value back to where it was before and then some. Today I get about $3,300 a month in dividend and interest income. Recently, the market has been so volatile that I’m scared of losing 50 percent of our principal again. I need this monthly income.

Please advise me as to whether I should liquidate everything and wait until events calm down. Please look at my portfolio and tell me what to do. Will the market crash again, or will it continue to rise? The money manager says to hold, but I trust your advice.

LS, Joliet, Ill.

Dear LS: I understand how you feel, and at your age (74), it’s not so easy to go with the flow as it was when you were 55.

There are tens of dozens of gurus who claim absolute knowledge about what the stock market will do over the next few years. They spend huge bucks competing for your attention on satellite radio, on the Internet and in the print media. All are either unreservedly bullish or frighteningly bearish; there’s no in-between. These guys profess a brilliance that makes it impossible for them to be wrong. Because I’m not thus hindered, I’m incapable of knowing what the market will do in the coming few years.