Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

Here's 5 Portfolio Changes To Create More Income In Retirement

• Ari Taublieb, CFP®, MBA • Episode 253

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Building a retirement income strategy involves more than selecting dividend-paying stocks. A focus on total return — which includes both growth and income — can offer a more comprehensive approach for long-term planning.

• Relying solely on dividend-paying stocks may reduce portfolio diversification and growth potential
• Total return (income + growth) can provide a broader view of long-term investment outcomes
• Asset location strategies may improve tax efficiency depending on the type of account
• Bond ladders with staggered maturities can help create more consistent income over time
• Annuities can provide structured income, though they may have limitations such as fees or inflation sensitivity
• The most effective strategy is one that aligns with your goals, risk tolerance, and understanding
• Be cautious with complex products — understanding fees, liquidity restrictions, and structure is essential



Advisory services are offered through Root Financial, an SEC-registered investment adviser. This content is intended for general informational purposes only and should not be construed as personalized investment, tax, or legal advice. Advisory relationships are established only through a signed agreement. Any examples discussed are hypothetical and for illustrative purposes. If client experiences are referenced, no compensation was provided and their experience may not be representative of others. Comments shared publicly are unsolicited and do not reflect the views or experience of all clients. They are not verified and should not be construed as testimonials or endorsements. Root Financial does not provide tax or legal advice. Tax planning topics are discussed in the context of comprehensive financial planning and should not be relied upon as a substitute for professional advice. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Watching or listening to this content does not create an advisory relationship.

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.

“Early Retirement – Financial Freedom” is a podcast produced by Root Financial Partners, an SEC-registered investment adviser. The content provided is for informational and educational purposes only. It should not be interpreted as investment, legal, or tax advice. I may reference planning situations based on real client experiences, but they’ve been simplified for clarity. Always consult your own financial advisor before making decisions.

Listening to this podcast does not create or imply an advisory relationship with Root Financial. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Testimonials and endorsements do not reflect all client experiences and are not compensated. Learn more at our website or by reviewing our Form ADV at https://adviserinfo.sec.gov.

Speaker 1:

Please do not make this mistake that so many early retirees make when it comes to creating income in retirement, what they're doing is they're only having dividend paying stocks. You do not want to do this, and I'm going to explain why in today's episode. Now, this was prompted by a client who asked me a question about whether it makes sense to have safer companies when they're retiring early because they need more income, of which I replied absolutely. For companies when they're retiring early because they need more income, of which I replied absolutely. And then I followed up with why you don't want all dividend paying stocks because of something called total return. So today's episode is going to be a little bit more stat heavy. I hesitate to even say that because I don't want to go so into the weeds that you fall asleep on me, but I want you to understand a really important difference that I think will shift the way you think about creating income, which might be the most important aspect of your retirement. So these five portfolio changes today should help you create more income. I'm going to walk through each of them and give you an example. So if you're new to the show, welcome.

Speaker 1:

I love recording these different podcasts on various topics, whether it be healthcare or tax strategy or finding purpose in retirement, which I know. At the beginning of the show I was even saying hey, I think this might be the biggest topic how much income can you create? But really it's purpose, and how are you going to have a plan for fulfillment? In my personal opinion, because I see way too many people that retire and then go. I don't know what the heck I'm going to do. I just worked for 30 years and now I don't know what that looks like. So make sure you have that dialed in. But today is going to be more, once again, stat, heavy on dividends and income creation, which I equally love. I just think too many people go the route of, financially, am I in a good spot? Yes, I can retire early, I'm doing it. And then they look back going, wow, I really didn't think through this fully, and I see way more people do that than people who go. Hey, it turns out I know exactly what I'm going to do, but financially, yeah, I don't think I can retire. I don't see that as much.

Speaker 1:

So I'm going to hop into a few different examples. Once again, if you're new, welcome. My name is Ari Taublieb. I am the chief growth officer here at Root and I'm the host of this podcast, the Early Retirement Podcast. These are posted on YouTube, so if you wanna watch me right now, you of course can. And if you're listening on the podcast app, awesome. These get released first to those on the podcast app. So if you're trying to find this on YouTube, the video might not be up yet, which you do not need for today's type of content, so let's hop right in. So this first example this is about dividend paying stocks. So I'm going to give you a wider example and then I'm going to start to dial it in for you.

Speaker 1:

So I had someone reach out and they were new to investing, but they were already adding to their 401k. It just they weren't so much into hey, can I retire early? It was the traditional. My employer set up a 401k for me. I did what I was supposed to do. I put money into it for many, many years. Now I'm kind of into this investing thing because I'm realizing if I get a better return, that's actually more important than if I were to save more money, and that concept really made them go. Huh, that's interesting. So the idea of them having a million dollars. Getting a 10% return of a hundred thousand was way more attractive than having to put away 30,000 into their 401k. They're like I should just invest better, which is true. So you should do both, obviously, but you get my point.

Speaker 1:

So when we're talking strictly about income creation, we are talking about dividends and what a dividend is. Many of you know this, but I like to explain it a different way. So a dividend is a company saying thank you so much for owning us. We appreciate it. We're going to pay you a dividend just to be nice, because we believe in paying out. You're an owner of the company. It's essentially we're passing along earnings to you, and so a lot of people like this because short term, it's like this is awesome. We're getting literal, passive income where we don't literally do anything, and it's beautiful.

Speaker 1:

The thing we have to ask ourselves as investors which people don't enough, in my opinion is what if this company did not pay me the dividend? What if this company did not pay me the dividend? So let's assume I own Johnson Johnson, which is the example I'm going to share in just a little bit. Johnson Johnson they are known for being a really stable company and they pay a healthy dividend of about 3%. It's a little north of that today. So if I have $100,000, I know I could get $3,000 that year in passive income. I don't do anything. I mean, it's just so awesome. Maybe I have to ride the ups and downs, but there's really not that much volatility with a company like Johnson and Johnson. So it's awesome and there's a reason I like this company. But what too many people do is they go. This is awesome.

Speaker 1:

I want only companies like Johnson and Johnson that pay me a healthy dividend, and here's why you don't want to do that. If you're an investor, your goal is total return. What is the quality of the investment? If Johnson Johnson grew by 0% but paid you a 3% dividend every year, that's awesome. But your $100,000 remains at $100,000 and then you get $3,000 a year if nothing were to change. Great. But we need to ask ourselves what if Johnson Johnson did not pay us 3% dividend? What if they paid us 1% and instead invested that back into the company to allow it to essentially innovate further as a company, to possibly grow it? Let's call it 5% or 6%. Well, that's interesting. It now grew at 6%. We didn't receive all 6%, it just went up in value. So my $100,000, it's now not worth $100,000. It's worth $106,000, but it also gave me $1,000 that year as a dividend.

Speaker 1:

So the reason I'm explaining this to you is Johnson Johnson stock in the last year, so exactly a year. It's up 6.8% and the yield is 3.4%. So that's north of 10%. That's really good. That is the reason I like it. It's a stable company. It's grown 6.8% and a yield of 3.4% that's awesome. This means it's a really healthy company.

Speaker 1:

But if we go a little wider and we look at the last five years, johnson Johnson is up 1% over the last five years. Now it's consistently paying this 3% yield, this dividend. But if I put a hundred thousand in a Johnson and Johnson and it grew by 1% over the last five years and it still paid me 3% per year, okay, so 3% is what paid me 3000 times five years. Okay, so it paid me 15,000, but it only grew by 1%. So now it's worth 101,000 and I have 15,000 to show for it. That's not terrible.

Speaker 1:

But if we look at the S&P 500 and I'm picking VOO for a second, which is the Vanguard S&P 500 index, the yield is less. The yield of the S&P 500 is one and a half percent versus 3% with Johnson Johnson. The difference is over the last five years. Voo is up 85%. So what short-sighted people do is they go.

Speaker 1:

I want companies just like Johnson Johnson that are paying dividends. Yeah, that feels good in the short term. But now here I am with inflation rising and my VOO, for example, s&p 500, my $100,000, it's up 85% over the last five years. I have $185,000. That's awesome. The difference is it didn't throw off $3,000 a year. It threw off about $1,400 a year, which is still really good, and it grew for us. Now it came with more volatility.

Speaker 1:

But this is a really simple example and I'd want to go much deeper, of course, if I was working with any of you. And this is what we do for our clients to show you how we build a portfolio, what are the exact companies we put in, what is the balance of dividend paying versus just total return. But this is just a super simple thing that I think people make the mistake on of hey, let me get something like SCHD, which is another famous ticker of high dividend paying. Etf Sounds good, high dividend paying, I want dividends, but there's a risk to that that most people are not always considering, which is what if they didn't pay us that dividend and instead grew it more? So that's the number one thing that I see people not consider when it comes to income creation. So if you want to retire early, you probably don't want a ton of dividend paying stocks because you want to grow your portfolio as much as you can so you can retire early. And then, yes, when you're actually retired, that's when you want it to be more dividend focused, but you don't want it to be all dividend focused. That's number one. Number two and number one I spent a lot of time on because that's the most bang for your buck. If you don't know my style, my job is to advise you and hopefully you take action on some of these things, not just, hey, this is cool to learn, which, yes, that's why I do this, but I want you to go wow, that's something I didn't consider. And then there's other things that I'm going to tell you straight up. Hey, this is not something you need to worry about. Maybe you have been worrying about it, don't worry now.

Speaker 1:

So an example of that there's something called a bond ladder, and what this is is. This is something where you buy a bond, but it's not like you go online and click BND. So BND is a ticker symbol for a bond index. That's different from what I'm talking about. A bond ladder has different maturity dates. What on earth does that mean? So you might buy a bond that matures in one year or two years or three years or four years or five years, or a bond fund that does that?

Speaker 1:

Do you think you deserve a greater return with a bond if you hold it for one year or five years? If you're my client, I would make you ask, but for all of you listening, you do not have to answer this. So one year or five years, what's going to essentially give you more return? What should? Well, the answer is five years, because you're holding that money longer, you're actually giving up the ability to touch into that. You're saying I'm happy to take some illiquidity today in exchange for more return. So what people will do is they will ladder out a retirement or they'll say I want at least 100,000 this year of income, so I'm going to put that in a bond. So next year, I know at a minimum I got let's call it 4% my $100,000 minimum. I got 4% on that, and so now I have $104,000 next year that I can spend on whatever I want, and then maybe the next one's, 5%, and then 6%, and so now those are not the rates today. Just an example. Here you want to make sure you are being rewarded when you have more maturity, meaning when there's more time in between when you can access that money. So this is a common example. There's also something called a CD ladder, which very similar thing.

Speaker 1:

So the thing about real estate and I'll joke about this on some of my other videos. I'll say how great is real estate? It's completely passive, except when the laundry doesn't work and now you have to get a new washer, except when the roof leaks. And then also, what about when you're traveling? And then these things happen when your property manager quits. I mean, it's still just no hassle, and I'm just joking around with people because I own real estate. But the reason I say this is it's not completely passive. The stock market is truly passive. The difference is there's not as much consistent income from a stock portfolio compared to a real estate portfolio. Now, stocks have historically performed way better, but a real estate investment trust is a similar way to getting exposure to real estate. It's just not in the traditional sense where, like, you're putting your hand on the property Now it's a real property, but you're owning it along many other investors.

Speaker 1:

So these are companies that own or finance income producing real estate, and they must distribute 90% of taxable income to their shareholders. For example, if I had a REIT that focused on apartment buildings, for example, or shopping centers, that might yield 4% to 6% in annual dividends. That's generally going to be higher than if I had. Let me give you a better example like Johnson Johnson from before, johnson Johnson had about a 3% yield, and that's really good for a company. So the point here is sometimes it makes sense to have diversification not just sometimes, most of the time and if we're diversifying, what we want to do is have what's called a real estate investment trust, because this can be a really cool way to get exposure to real estate without liability but still good income. The risk is, this is something it's going to distribute income to you, so if you're not owning this in the right account, your tax bill is going to be much higher. So this is called asset location not asset allocation, but asset location, and this is something that so many people just overlook.

Speaker 1:

A common example is something like a Roth IRA. A Roth IRA is awesome. That's your best account for tax-free growth forever. That is literally the best account you've got. You probably don't want a real estate investment trust in that, because it's not going to grow like crazy. It's prioritizing more income, but at the same time, what's really cool is Roth once again. No taxes, ever again. Fund is in there.

Speaker 1:

So what people do is they'll put something like a REIT in a Roth IRA, because they're like I'm a genius, I just avoided taxes when the income comes and I'll say you're correct, but wouldn't you rather add the S&P 500? That's up 85%, which you didn't have to pay any taxes on. And now your Roth is worth way more. And then they're like oh yeah, so this is an example of people saying, okay, now it's getting a little complicated. I don't want to miss the boat here.

Speaker 1:

So I struggle to go to this level of detail today, but I think it's important and I think a lot of you who are longtime listeners are able to grasp these concepts. If not, if you're like hey, you're starting to lose me here. I know you like this stuff, but some of us are just trying to get the basic information. How do we retire early. Well, I try to make different episodes and I try to go to a different level of detail for each, so I apologize if you don't feel this is exactly hitting the nail, but for some of you I think it is.

Speaker 1:

So the final thing here that I want to talk about is an annuity. So annuities. Some annuities today are paying a really healthy rate, such as 7%. Or if you put a million bucks into an annuity, you're like, wow, I could get 7%, like $70,000 a year. That's awesome. But what happens is it pays out this rate and then over time you're still getting 7% of your million bucks, but your million bucks isn't really growing by a whole bunch. And so 20 years from now you're like, hey, 70,000 a year is like not cutting it for my living expenses, but things cost way more and so it becomes a big risk.

Speaker 1:

Now there are certain annuities that I will see where I go. Look, that's not the worst annuity in the world. But generally I'm not a big fan of annuities because they don't keep up with inflation. Even if you get an inflation protected annuity, what happens? We need to ask ourselves, kind of like the dividend.

Speaker 1:

Okay, I'm going to circle back here. Why is this company offering us an annuity? You know what on earth are they doing by? Like? What's the literal thought process? And what I find for me, doing the research is, if a company is willing to go to you and say, hey, we're going to pay you 7% guaranteed, I'm asking myself and this is what the research said why would a company guarantee 7%? Like? That's not that easy. There's times where markets are down Now there's times where it's up a whole lot.

Speaker 1:

But the reason that these annuities work and the reason they sell and the reason I'm hesitant to actually ever recommend an annuity, is my parents were sold an annuity that did not make sense for them and in that situation, this person was preying on my parents, who were not financially savvy and they were not the type of person to go hey, show me the numbers as to why this works. It was a trust thing for them, and so this advisor received a big commission by selling this annuity. Not saying all annuities are evil, but in this case, what I saw was my parents heard wait, my, my money that I've worked so hard for will never be down more than 10%. That's awesome. Now, on the flip side, they'll never be up more than 6%, but they're like that's okay, we don't really need a ton of growth at this point. And the risk is, if you miss out on some of these really big years, like last year where markets were up north of 20%, what happens is, yes, your money's never down a whole bunch, it's never up a whole bunch and you're still getting income. So it's a good sale from an advisor perspective. But what happens is inflation erodes that over time really quickly and many annuities when you pay into the annuity if it's not set up correctly.

Speaker 1:

Let's assume I get an annuity at 60 years old and then all of a sudden I go, hey, you know what, I'm going to go take this fun trip and I pass away on that trip because I'm skydiving. Well, if you don't have the right type of annuity, that goes away. It doesn't go to your heirs, it doesn't go to your spouse. It can, but you're paying other costs for that product. So these really complex products, if you don't understand something easily and simply don't go into it. Even the CD ladder I mentioned the bond ladder a few minutes ago.

Speaker 1:

If you're like, hey, that didn't totally make sense to me, why I would actually get more return for owning a bond five years out versus one year out. That might not be the strategy for you. I don't know who said it, but someone once said the best strategy is the one you understand, and I do this today. I will go to my physical therapist and go. I'm sure there's 100 exercises I should do. I want five that make sense to me, that make me feel good, that are going to make me actually do it, because I can actually feel it when I'm playing soccer. I'm sure there's other ones that they think are better, but I'm using the one that I understand, so I would encourage you guys to do the same. That's it for this episode.

Speaker 1:

Now, if you were like, wow, this is awesome, this was a lot. I want to work with Root, this is of course we do and we love getting to do it. So you can see in the description of this episode how you can start working with Root. If that example resonated earlier about Johnson Johnson, let me know, because I want to make different episodes that hopefully, are tailored to you. And then, finally, if you want to retire early, it's more fun with your friends, so I encourage you retire early, but inform them about the podcast, about the YouTube videos. I want to help as many people as possible retire early, so I appreciate it when you pass this along. Please like this video, please share it, please subscribe, please comment. It helps more people find the show and love you guys, as always, see you next time.

Speaker 1:

Thank you all, as always, for listening to the early retirement podcast. I love getting to host these shows and make different content for you guys every single week. I've not missed a single week in years and that is because I love getting to do this. Now, please be smart about this. Before you actually execute any strategy that you see me talk about or hear me talk about, should I say Please talk to your financial advisor, your tax preparer, your estate attorney. Please be smart about this. None of this should be construed as financial advice. This is for fun, educational, informational purposes only. Once again, just quick disclaimer here. Guys, please be smart about this. Appreciate you listening, as always, and you can, of course, submit a question on my website, earlyretirementpodcastcom, if you, of course, want me to address a specific case study or topic. I will not promise I can get to it, but I respond to every single person and if I find it will be helpful for a lot of people. I will absolutely make an episode on it. At the very least give you some insight. That's it. Thanks guys.