When someone is planning for retirement or starting to think about retirement, you have a number of different financial strategies at your disposal, and a good financial planner will guide you through them all. However, many retirees or soon-to-be retirees know that there is also a real debate today over whether dividends or drawdowns are the right approach to retirement. Making this decision has long-term implications, so it’s certainly not something to take lightly, but for most future retirees the answer is pretty clear.
Dividend investing preserves capital and allows for continued compounding during retirement.
Dividend strategies avoid forced sales during market downturns by generating consistent cash flow.
Realty Income (O) increased its monthly dividend from $0.234 per share in November 2020 to $0.2695 in November 2025.
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Once you stop earning your salary from working and officially retire, after decades, there’s every reason to be nervous about making sure you have enough money to last. This leads to many different strategies, including Dave Ramsey’s 8% drawdown approach, which has many fans but also many detractors. For retirees, taking an income-driven approach with dividends means moving from depletion to sustainability, and instead of worrying about how long savings will last, it’s about focusing on a more secure and comfortable retirement.
For as long as we can remember, investors have learned to use systematic withdrawals, like the popular 4% rule, to fund their retirement. The real truth is that even though millions of people follow this rule, it also allows you to reduce your capital each year, and during periods of significant decline, this can make you particularly vulnerable to losing a large portion of your capitalization strength.
This and other reasons are why dividend investing can turn the tide: instead of selling assets, you can let your portfolio work for you and generate a stream of income that can support your retirement lifestyle. Not only does this keep your capital intact, but it also allows your investment to continue to compound, providing even more long-term security.
This gives retirees something that withdrawals aren’t able to do, namely grow their wealth while living off their portfolio. Preserving capital is more important than ever as retirees live longer and health care costs rise. By keeping your capital invested, you ensure you have enough money even if expenses increase, and there is no doubt that expenses will increase as you live longer in retirement.
The cashout strategy, as popular as it is, exposes retirees to the risk that if the market begins to decline early in retirement, they will be forced to sell more stocks to cover the same expenses. Once these stocks are sold, they are gone forever, leaving fewer assets to recover once the market rebounds.
By turning to a dividend strategy, this scenario is almost entirely avoided, and instead of worrying about losing money from the start, you focus solely on producing your own cash flow. Your shares remain invested and you can continue to earn income even if the market experiences a prolonged downturn.
Even during volatile years, companies with a strong dividend history will continue to pay and sometimes even increase their distributions to prevent shareholders from becoming too concerned and selling early. This type of income reliability is what is so attractive about a cash-out strategy.
It goes without saying that inflation is also one of the biggest enemies of retirement, and for good reason. If you use the fixed withdrawal strategy, you lose purchasing power as the cost of living increases, and cash and bonds simply can’t keep up. Alternatively, dividend growth stocks offer better protection against rising inflation, especially as companies increase their dividend payouts each year. Dividend Aristocrats, in particular, have increased distributions for more than 25 consecutive years, even during tumultuous market downturns like the 2008/2009 housing crisis and the COVID-19 market downturn.
Ultimately, the best reason to look at dividends for inflation is that you don’t just have a static income, but one that grows and helps you maintain a lifestyle without dipping into your capital.
Consider an investment like Realty Income (NYSE:O), one of the most stable dividend players in the REIT space. It has increased its dividend every year for over 25 years, and even today, with an annual dividend of $3.23 per share, you can earn that amount for every share you own.
In November 2020, Realty Income paid $0.234 per share, while in November 2025 its dividend had increased to $0.2695, which may not seem like much, but when multiplied by hundreds or thousands of shares, it’s a substantial difference each month.
While this may seem repetitive, it’s worth repeating again and again, especially regarding the idea that exit strategies rely on market fluctuations. If your portfolio drops 20% in a bad year, your ability to withdraw exactly what you need to live on is at risk and, to be honest, it’s a ridiculously stressful way to retire.
With dividend income, you have a completely different psychological approach to retirement. Build yourself a well-diversified dividend portfolio, whether it’s dividend stocks, REITs, or dividend ETFs, and you can count on a consistent income stream no matter how the market rises or falls.
The golden reason to consider dividends over withdrawals is that predictability is a beautiful thing in retirement, especially since expenses only go up and almost never go down.
You may think retirement is about picking the best stocks or ETFs, but you’d be wrong. Even the largest investments can be a liability in retirement. The difference comes down to one simple one: accumulation vs distribution. This difference leads millions of people to rethink their projects.
The good news? After answering three quick questions, many Americans discover they can retire. earlier than expected. If you’re thinking about retiring or know someone who is, take 5 minutes to learn more here.
