This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

'Coupon-Clipper' Funds Emerge

The bear market has been particularly cruel for people who just retired and immediately saw their nest eggs chopped nearly in half. The losses may not even be recovered in 10 or 20 years.

The damage highlights a key question most investors face: How much can you afford to withdraw annually from retirement savings? Financial advisers agree that there is no easy answer. Investors who take big withdrawals during a downturn can exhaust savings quickly. Those who delay withdrawals may be belt-tightening needlessly.

Some of the most intriguing approaches to withdrawals have been devised by Vanguard Group and Charles Schwab (SCHW) for their managed payout funds. Introduced in the past year, the funds are designed to provide retirees with monthly checks.

In some respects, the Schwab approach resembles what was once called coupon clipping. Decades ago, wealthy families carefully avoided touching their principal. For income, they spent stock dividends and bond interest payments -- or coupons. The strategy worked well in much of the 1940s and 1950s when the dividend yield on the S&P 500 topped 6%.

But over the years, stock prices rose, and S&P yields fell, hitting a low of 1.1% in March 2000. The skimpy yields discouraged the coupon-clipping strategy and caused investors to focus on achieving capital gains. In recent years, many financial advisers have told fund clients to reinvest dividends and sell shares to cover expenses.

Now that stocks have collapsed, the yield on the S&P 500 is back above 3%. Retirees can again consider living on dividends, and the old coupon-clipping strategy has found new life in Schwab Monthly Income Fund--Moderate Allocation (SWJRX). The fund invests in a portfolio of stock and bond funds. Stock dividends and bond income are paid out to shareholders who may choose to leave the principal untouched. The fund's current yield is 3.8%.

Stock quotes in this article: SCHW, SWJRX, VPGDX 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs