Pension Income Options
Discussion
I was speaking to a neighbours father and he mentioned that he utilises dividends for his income which got me thinking.
Previously my retirement plan had been to utilise funds in DC pensions and relying on their growth to provide my income but I'm now wondering if investing in a range of high yielding dividend FTSE 100 stocks including the likes of Persimmon, Vodafone, Aveva and Legal & General might be a better strategy.
Anyone got any thoughts and / or know which pension companies allow you to invest in individual stocks?
Previously my retirement plan had been to utilise funds in DC pensions and relying on their growth to provide my income but I'm now wondering if investing in a range of high yielding dividend FTSE 100 stocks including the likes of Persimmon, Vodafone, Aveva and Legal & General might be a better strategy.
Anyone got any thoughts and / or know which pension companies allow you to invest in individual stocks?
SunsetZed said:
I was speaking to a neighbours father and he mentioned that he utilises dividends for his income which got me thinking.
Previously my retirement plan had been to utilise funds in DC pensions and relying on their growth to provide my income but I'm now wondering if investing in a range of high yielding dividend FTSE 100 stocks including the likes of Persimmon, Vodafone, Aveva and Legal & General might be a better strategy.
Anyone got any thoughts and / or know which pension companies allow you to invest in individual stocks?
Sounds a risky stategy to me. How much would you have to invest to be be able to live off dividend income?Previously my retirement plan had been to utilise funds in DC pensions and relying on their growth to provide my income but I'm now wondering if investing in a range of high yielding dividend FTSE 100 stocks including the likes of Persimmon, Vodafone, Aveva and Legal & General might be a better strategy.
Anyone got any thoughts and / or know which pension companies allow you to invest in individual stocks?
Drumroll said:
SunsetZed said:
I was speaking to a neighbours father and he mentioned that he utilises dividends for his income which got me thinking.
Previously my retirement plan had been to utilise funds in DC pensions and relying on their growth to provide my income but I'm now wondering if investing in a range of high yielding dividend FTSE 100 stocks including the likes of Persimmon, Vodafone, Aveva and Legal & General might be a better strategy.
Anyone got any thoughts and / or know which pension companies allow you to invest in individual stocks?
Sounds a risky stategy to me. How much would you have to invest to be be able to live off dividend income?Previously my retirement plan had been to utilise funds in DC pensions and relying on their growth to provide my income but I'm now wondering if investing in a range of high yielding dividend FTSE 100 stocks including the likes of Persimmon, Vodafone, Aveva and Legal & General might be a better strategy.
Anyone got any thoughts and / or know which pension companies allow you to invest in individual stocks?
There's loads of articles about dividend yield as a pension strategy - and it's not generally considered a good idea.
I think the advice against is down to the potential variability of dividends and the types of companies it requires you to hold. Typically UK companies pay much higher dividends than US, but US stcks see higher growth as a result of the reinvestment that isn't paid out as a dividend. So ultimately you'd struggle to get a diverse portfolio.
I think the advice against is down to the potential variability of dividends and the types of companies it requires you to hold. Typically UK companies pay much higher dividends than US, but US stcks see higher growth as a result of the reinvestment that isn't paid out as a dividend. So ultimately you'd struggle to get a diverse portfolio.
Carbon Sasquatch said:
There's loads of articles about dividend yield as a pension strategy - and it's not generally considered a good idea.
I think the advice against is down to the potential variability of dividends and the types of companies it requires you to hold. Typically UK companies pay much higher dividends than US, but US stcks see higher growth as a result of the reinvestment that isn't paid out as a dividend. So ultimately you'd struggle to get a diverse portfolio.
An article hereI think the advice against is down to the potential variability of dividends and the types of companies it requires you to hold. Typically UK companies pay much higher dividends than US, but US stcks see higher growth as a result of the reinvestment that isn't paid out as a dividend. So ultimately you'd struggle to get a diverse portfolio.
https://finalytiq.co.uk/natural-yield-totally-bonk...
To summarise:
• Concentration risk: Typically, the portfolio will hold around 10 – 20 high yielding shares. Some sectors, for example, banking, may contain a greater proportion of high yielding shares and these therefore might feature heavily in a portfolio.
• Poor diversification. The portfolio may pick shares from just one country, e.g., the UK, and with the portfolio containing just equities, it does not have asset class diversification, e.g. bonds
• Style risk: High yielding shares tend to have a tilt towards the value factor meaning that a high yield share portfolio has the potential to underperform the broader market for long periods of time.
Just as an FYI - Carbon Sasquatch, I'd suggest the disparity between UK and US dividend payout is more of a recent phenomenon and is partly due to the divergence in their valuations - see their relative P/E ratios. This may not be the case forever.
"A quick review of the history of the S&P 500 reveals just how abnormal sub-3% annual yields have been"
https://www.investopedia.com/articles/markets/0716...
Investors should focus on total return (growth + dividends)
dividends are generally misunderstood - they are a return *of* capital, not a return *on* capital.
They are also tax inefficient (for individual and company) when compared to investing for growth.
(Granted pension + ISAcan protect the individual from some of the extra taxation from dividends)
dividends are generally misunderstood - they are a return *of* capital, not a return *on* capital.
They are also tax inefficient (for individual and company) when compared to investing for growth.
(Granted pension + ISAcan protect the individual from some of the extra taxation from dividends)
As I recall such approaches were popular in the past because the tax treatment of dividends was more favourable than capital gains. Also, transaction charges for selling small portions of a portfolio to pay income were prohibitive. Both of those aren't a consideration for most people any more.
Nowadays I see no reason for most people to expose themselves to the risk that comes with holding a concentrated portfolio of companies, not to mention the time it would take and the expertise it would require.
By doing so you'd be missing out on the returns from the wider global market which will include companies that don't pay dividends for good reasons and sometimes, bad reasons.
Nowadays I see no reason for most people to expose themselves to the risk that comes with holding a concentrated portfolio of companies, not to mention the time it would take and the expertise it would require.
By doing so you'd be missing out on the returns from the wider global market which will include companies that don't pay dividends for good reasons and sometimes, bad reasons.
Derek Chevalier said:
Just as an FYI - Carbon Sasquatch, I'd suggest the disparity between UK and US dividend payout is more of a recent phenomenon and is partly due to the divergence in their valuations - see their relative P/E ratios. This may not be the case forever.
"A quick review of the history of the S&P 500 reveals just how abnormal sub-3% annual yields have been"
"A quick review of the history of the S&P 500 reveals just how abnormal sub-3% annual yields have been"
I was unaware of the history, but agree that the future could be very different.Thanks all for taking the time to reply with the guidance and links and confirming the downsides of the idea.
@those who posted sarcastic comments really? Look at the guidance and a million between 2 people is not far above the minimum recommended amount for people looking for a comfortable not luxurious) retirement when retiring at 60. Sure that's a position that might seem like a dream for many but it's not going to provide more than most of the boomer generation enjoy through DB pensions.
Also we're prepared to make sacrifices to get there, we choose not to go abroad each year or buy as expensive cars on finance as we could so that we can overpay on the mortgage and put extra into the pension.
@those who posted sarcastic comments really? Look at the guidance and a million between 2 people is not far above the minimum recommended amount for people looking for a comfortable not luxurious) retirement when retiring at 60. Sure that's a position that might seem like a dream for many but it's not going to provide more than most of the boomer generation enjoy through DB pensions.
Also we're prepared to make sacrifices to get there, we choose not to go abroad each year or buy as expensive cars on finance as we could so that we can overpay on the mortgage and put extra into the pension.
Pistom said:
Yes, some of the sarcastic comments made me smile too. £1m really isn't a huge amount for a pension these days and the returns from that hardly offer a luxury lifestyle.
I fear some will be in for a shock as they approach pension age.
But it is all relative, our pension pot wasn't even £1/2million when I decided to retire at 55, we live the life we want to. Freely admit it doesn't include lots of foreign holidays, but it never did before we retired.I fear some will be in for a shock as they approach pension age.
My comment wasn't sarcastic.
40 years working (retiring at 60) means you would need to put 25k/year away, to get your million. That's putting the entire of an average annual salary (at current rates) in to pension every working year of your life. Forget mortgage, food, taxes, kids, living costs etc.
How is that realistic for the vast majority of people?
40 years working (retiring at 60) means you would need to put 25k/year away, to get your million. That's putting the entire of an average annual salary (at current rates) in to pension every working year of your life. Forget mortgage, food, taxes, kids, living costs etc.
How is that realistic for the vast majority of people?
Drumroll said:
WelshRich said:
£450 per month at an interest rate (Fund growth) of about 4% will compound over 40 years to half a million. A couple equates to £1M between them…
And many people can't afford to put that away each month.Gassing Station | Finance | Top of Page | What's New | My Stuff