When it comes to retirement savings strategies, many investors either take the dividend income approach or the total returns path.
The idea behind dividend investing is to generate enough income through dividends to cover immediate needs in retirement, without having to sell shares within your portfolio.
The total return approach focuses on generating as much growth as possible through dividend income and capital appreciation, even if it means selling shares when necessary.
But before you decide which path is right for you, let’s take a closer look at both approaches.
Dividend Income
With dividend-income investing, the goal is to maintain a cash flow from dividends and interest sufficient enough to support your retirement lifestyle without the need to sell shares from stocks and stock funds in your portfolio. This strategy theoretically prevents investors from dipping into their principal.
Psychologically, it can be very comforting. You have a steady and predictable stream of income to meet your needs in retirement. And you don’t need to reduce the size of your portfolio.
But this isn’t necessarily the case in reality.
When a company pays a dividend, its stock share price drops by about the same amount as the dividend. So whether you take a $100 dividend or sell $100 worth of stock, your portfolio value is essentially the same.
Moreover, dividend income investing isn’t always as concrete as it may seem. Dividend payments can move up or down—or stop altogether.
During the COVID-19 pandemic, for example, dividends paid by U.S. firms decreased by 22 percent in the first three quarters of 2020, according to research by Dimensional Fund Advisors.
A major dip in dividend payments or their elimination could severely disrupt your income stream in retirement.
With this approach, you’re basically always at the mercy of the boards of directors behind the dividend companies you’re invested in.
Moreover, dividend investing can put you at the risk of yield chasing. Some investors may believe that simply building a portfolio with the highest yielding dividend stocks or dividend exchange-traded funds (ETFs) could be a sound strategy. But many companies offering above-average dividend yields could be firms in distress that are merely using high yields to attract investors.
Plus, dividend investing may indirectly decrease the diversification of your portfolio. How? Most dividend paying companies are large and established firms that may be situated in a limited number of sectors.
Of course, the dividend-investing strategy can also involve other fixed-income assets like bonds and bond funds. But here too lies risk. You may be pushed to seek out high-yield bonds, which are generally considered high-risk. As a result, you may be left with a highly volatile portfolio.
And in times of economic turmoil, investors who are so heavily focused on high-yield assets to support income needs in retirement may have no choice but to dip into the principal they were trying so hard to maintain.
But this doesn’t mean that dividend paying stocks and ETFs shouldn’t have a place in your portfolio.
The total return strategy could involve these assets, but it also doesn’t restrict asset sales when feasible.
Total Return Strategy
The total return strategy focuses on generating both income and growth potential to support your lifestyle in retirement.
It can apply to a traditional portfolio built with stocks, bonds and cash. Many advisers recommend you keep at least one year’s worth of expenses in cash, while considering sources outside your portfolio like Social Security benefits and annuity payments.
Two to four years’ worth of expenses may be situated in cash and short-term bonds or bond funds within your portfolio. And the rest could be invested for growth and income potential through stocks, mutual funds and ETFs, as well as dividend-paying securities.
To meet your annual withdrawal target, you can start with interest and dividend payments, as well as cash generated outside your portfolio. And if you need more, you can rely on the proceeds you get when you rebalance your portfolio.
Remember: This strategy doesn’t restrict you from selling shares when necessary. It allows you to build a diversified portfolio that may also utilize growth-oriented assets that could deliver capital appreciation without paying dividends or interest. This also gives you the freedom to further diversify your portfolio across various market sectors.
The Bottom Line
The idea of living off dividend and interest payments in retirement without having to sell any shares sounds appealing. But that’s rarely the case for most people. And it’s important to remember that dividend payments and interest rates may fluctuate over time. Focusing on living off dividends and interest could force you to chase the yield, which could be risky. And by focusing on these assets, you’re essentially reducing the diversification of your portfolio.
But the total return approach doesn’t place such tight restrictions on selling shares. It lets you create a well-diversified portfolio that aims for income as well as growth potential, and aligns with your risk tolerance. But to make the most out of a total return strategy, you can work with a qualified financial adviser who can help you construct a diversified portfolio geared toward your financial goals, risk tolerance, and other personal factors.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
