Dividends, Brokerage Accounts Key Sources of Retirement Income

A new Hearts & Wallets report, “Retirement & Funding: Building Informed Expectations About Sources of Income in Retirement,” found that for retirees with dividends, this represents 19% of their income. For retirees with $2 million or more in investable assets, this jumps to 34%. Future retirees expect dividends will generate 16% of their retirement income, and for the wealthiest future retirees, they say it will generate 27% of their income.

Turning to taxable brokerage accounts that retirees take withdrawals from, this source supplies 21% of income, 23% for retirees with $500,000 to $2 million in investable assets, and 29% for retirees with more than $2 million in investable assets.

“Dividends and taxable brokerage accounts are quiet sources of retiree incomes,” says Laura Varas, CEO and founder of Hearts & Wallets. “Retirement account withdrawals, in contrast, have gotten lots of attention, with whole infrastructures built around them. Different sources of retirement income are the threads that retirees weave together to form a protective blanket for their senior years. By studying actual retirees, we gain important insights into income sources for specific groups that can shape personalized product and advice solutions going forward.”

Future retirees expect that withdrawals from retirement accounts, such as defined contribution (DC) plans and individual retirement accounts (IRAs) will supply 16% of their retirement income, but in fact, these accounts supply 22% of income. For retirees with $500,000 to $2 million in investable assets, this jumps to 24%, and for those with more than $2 million, 30%.

Employment also is a source of income for retirees, supplying 36% of income. Future retirees expect that employment will supply 25% of their income, and for households with less than $100,000 in investable assets, they say work will supply 30% of their retirement income. This drops to 16% for households with $500,000 to $2 million in investable assets but rises to 25% for those with $2 million or more.

“Consumers may want to work longer as a retirement of 20, 30 or more years isn’t necessarily practical,” says Amber Katris, author of the report and a subject matter expert with Hearts & Wallets. “These expectations must be tempered as work opportunities can run out for older consumers.

Additionally, real estate supplies 22% of retirement income, 20% for those with less than $100,000 in investable assets, and 24% for retirees with $500,000 to $2 million.