| An issue that plagues many retirees is how to | | | | and an analysis of a different period may have |
| manage retirement income in the face of the | | | | revealed different results. |
| increasing cost of living. Even with moderate | | | | Although publicly traded stock can help you to |
| inflation, costs of living tend to increase over time. | | | | manage inflationary risks, the dividends that these |
| This can reduce the retirement income retirees | | | | stocks pay out are highly dependant upon the |
| can obtain from fixed income investments, even | | | | overall profitability of the issuing company. |
| while they must meet higher expenses. Where | | | | Therefore, you will want to strongly consider the |
| can you find a source of retirement income that | | | | dividend payment history of the company prior to |
| can keep of with inflation, along with your | | | | making such a retirement investment. |
| expenses? | | | | A few additional things should be considered about |
| Our suggestion: consider putting some of your | | | | stocks and CDs. First publicly-traded stocks tend |
| money into a portfolio of large capitalization | | | | to be suited for investors that are seeking asset |
| dividend-paying stocks as an income generation | | | | appreciation and are willing to take on the |
| alternative. This retirement investment could help | | | | additional investment risk. On the other hand, CD's |
| to provide you with a retirement income that | | | | are suited for investors that are concerned about |
| keeps pace with the rising costs of living. For the | | | | preserving their principal investment and are |
| 30 years ending 12/31/04, the stream of | | | | adverse to market risk. With this in mind, it should |
| dividends from an investment in a basket of | | | | be remembered that CDs are FDIC insured while |
| stocks representing the S&P 500 index | | | | publicly-traded stocks are not. The values of |
| generated a growing stream of income. During | | | | publicly-traded stocks fluctuate in value and may |
| that same period, interest rates from CDs fell | | | | result in either a gain or loss upon sale. |
| 7.42% to 1.85% (the S&P 500 is an | | | | The retirement income from these investments is |
| unmanaged group of securities considered to be | | | | also subject to differing income tax rules. Stock |
| representative of the stock market in general; it | | | | dividends are generally subject to federal income |
| is not possible to invest directly in an index). | | | | tax of 15%, while CD interest is taxed as |
| Data 1/1/75 through 12/31/04. Dividends based | | | | ordinary federal income tax rates, which can |
| on a $10,000 investment 1/1/75 in a basket of | | | | range anywhere from 10-35%. CDs may have an |
| stocks representing the S&P500 from | | | | early withdrawal penalty if money is taken prior |
| American Funds Distributors. Interest rates from | | | | to maturity. On the other hand, the stock of |
| Federal Reserve year end rate on 6 month CDs. | | | | most largely capitalized companies can typically be |
| You cannot invest directly in an index. Past | | | | purchased and sold at any time when the market |
| performance is not a guarantee of future results | | | | is open. |