The Downside of Chasing Yield in Retirement
When paychecks stop, the question changes.
It becomes:
“How do we generate income?”
That is usually when retirees start looking for yield.
High-dividend stocks.
High-yield bond funds.
Private credit.
REITs.
Structured products promising 7–9 percent income.
On the surface, this feels logical.
Income is needed.
Yield produces income.
But yield is not the same thing as sustainability.
And chasing it often creates a different kind of risk.
Yield Is Not Return
This is the first misunderstanding.
A 7 percent yield does not mean a 7 percent return.
Total return equals:
Income plus price movement.
High-yield securities often:
Carry credit risk
Carry equity-like volatility
Decline sharply in recessions
When retirees move heavily into high-yield instruments, they often assume they have reduced risk.
In reality, they may have concentrated it.
Yield Often Masks Volatility
High-dividend stocks can fall 30–40 percent in downturns.
High-yield bond funds can behave similarly to equities during credit stress.
The income may continue.
But if you are withdrawing principal alongside that income, portfolio sustainability still depends on total return.
A portfolio yielding 6 percent but declining 20 percent is not stable.
It just feels productive while declining.
Sequence Risk Doesn’t Care About Yield
If retirement begins during a market decline and you are withdrawing 5 percent annually, early negative returns matter.
Whether the portfolio is producing 3 percent yield or 6 percent yield does not eliminate sequence risk.
If total portfolio value declines materially in early retirement, withdrawal percentages rise quickly.
Yield does not solve that.
Structure does.
Tax Drag Is Often Ignored
High-yield portfolios tend to generate:
Ordinary income
Non-qualified dividends
Higher annual tax liability
For affluent retirees, this can:
Increase marginal tax rates
Trigger Medicare IRMAA surcharges
Reduce flexibility for Roth conversions
Income that feels attractive pre-tax may be less compelling after tax.
The Behavioral Trap
Chasing yield often happens after volatility.
Markets decline.
Retiree becomes uncomfortable.
They move from growth assets to “income assets.”
The problem is that many high-yield assets decline during the same downturns.
Now the retiree has:
Locked in losses
Shifted into assets with similar risk
Reduced long-term growth capacity
This is not safety.
It is a rebranding of risk.
What Income Planning Actually Looks Like
For higher net worth retirees in Grosse Pointe, income design typically includes:
Staging multiple years of withdrawals in stable assets
Maintaining diversified equity exposure for growth
Using disciplined rebalancing
Applying guardrails for spending flexibility
Income comes from total return.
Not from yield alone.
You do not need the portfolio to “pay” 5 percent in dividends to withdraw 5 percent sustainably.
You need the portfolio to support that withdrawal across cycles.
That is a different framework.
When Higher Yield Makes Sense
This is not an argument against all higher-yield investments.
In some cases, modest allocation to:
Dividend strategies
Credit exposure
Income-producing assets
Can be appropriate.
The issue is concentration.
When yield becomes the primary objective, portfolio balance suffers.
The Real Risk
The downside of chasing yield is not obvious in year one.
It appears during:
Recessions
Credit events
Periods of rising rates
Extended downturns
Yield feels like productivity.
But if it compromises diversification, tax efficiency, or growth capacity, it increases long-term fragility.
The Better Question
Instead of asking:
“How much income does this produce?”
Ask:
“How does this improve the durability of our income over 25–30 years?”
In affluent retirements, the goal is not maximizing yield.
It is maximizing sustainability.
Yield can be part of that.
Chasing it rarely is.
