Financial expert Suze Orman has unveiled a strategic shift that could dramatically increase retirement income for millions of Americans.
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In her podcast, “Dividend Paying Stocks vs. Treasuries,” Orman makes a compelling case for choosing dividend-paying stocks over traditional Treasury bonds — a move that could boost after-tax income by more than 30%.
The Numbers Don’t Lie
Orman’s analysis reveals striking differences in actual take-home income. Using a hypothetical $100,000 investment, she demonstrates that seven carefully selected dividend-paying stocks would generate $4,304 in after-tax income annually, compared to just $3,268 from a 10-year Treasury paying 4.3%. Over a decade, this translates to an additional $10,360.
The secret lies in tax treatment. While Treasury interest gets taxed as ordinary income at rates up to 24%, qualified dividends enjoy favorable capital gains tax rates.
“It’s taxed as a capital gain versus ordinary income,” Orman explains in the podcast.
Orman’s Seven Stock Picks
The financial guru shared seven dividend-paying stocks from her personal portfolio that yield 3.9% or higher: AbbVie (ABBV), AT&T (T), Prudential Financial (PRU), Fifth Third Bancorp (FITB), Sanofi (SNY), Williams Companies (WMB), and Amcor (AMCR). These selections average a 5.69% annual dividend yield, significantly outpacing current Treasury rates.
However, Orman emphasizes due diligence is essential.
“You want to make sure that the company is making enough money — it’s called free cash flow — to cover the dividend,” she advises.
The Safety Factor
Critics often point to dividend cuts as a major risk, but Orman addresses this concern. “If stocks are going down, at least you’re being paid to wait until they do come back up,” she argues. Unlike Treasury bonds that lock in rates for years, quality dividend-paying stocks often increase their payouts annually.
A Balanced Approach
Orman doesn’t advocate putting everything into dividend stocks. She maintains that “the anchor of this bull market really is technology” and recommends maintaining exposure to AI and growth stocks. Her strategy involves using dividend stocks for the income portion while keeping growth investments for wealth building.
Implementation Strategy
For retirees considering this approach, Orman recommends dollar-cost averaging and working with financial professionals. She warns against chasing extremely high yields, noting her picks range from 3.9% to 8.75% – reasonable rates suggesting sustainable dividend policies.
This strategic pivot from bonds to dividend-paying stocks could represent a game-changing opportunity for retirees seeking to maximize fixed income while maintaining reasonable safety. As Orman’s analysis demonstrates, the path to higher retirement income often lies in making smarter tax-advantaged choices.
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This article originally appeared on GOBankingRates.com: Suze Orman’s Investment Plan That Every Retiree Needs to Copy
