We all need income when we retire. But what many people don't understand is that your investment portfolio doesn't have to generate all of your cash flow from dividend or interest income. That mistaken belief can trap retirement investors, forcing them into risky investments that they don't understand.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at this retirement income trap and how to avoid it. Dan notes that one reason that high-yielding investments Annaly Capital (NYSE:NLY) and American Capital Agency (NASDAQ:AGNC) have been so popular is because of their high dividend yields, despite the risks that they have in rising interest rate environments. Dan also notes that high-yielding dividend stocks often cut their payouts, citing CenturyLink (NYSE:CTL) as an example from last year. Dan suggests that the better approach is to focus less on income and instead provide for predictable withdrawals from retirement investments, even if it requires selling shares of stock.