Are you living off income or cash flow?
Ask a group of retirees what they want from their investments and they’re likely to give the same answer: income.
Written by Dan Bortolotti, Advisor.ca
From the article: Income, in the truest sense, refers to interest from bonds or dividends from stocks (if you own an investment property, it also includes monthly rent). The key idea is that income does not deplete your original capital. Cash flow, on the other hand, includes all distributions from your investments, including capital gains and return of capital.
Retirees often say they want to live off the income from their investments while leaving their capital untouched. But that goal is out of reach for most Canadians. At current rates, a broadly diversified portfolio of bonds and stocks might yield 3% or so, meaning you’d need a $1 million portfolio to generate just $30,000 in annual pre-tax income.
The fact is, most retirees will need to draw down some of their principal to meet monthly spending needs. In other words, they should plan to live off cash flow, not income.
