Retirement: why dividends may not be as important as you think

, their strategy often shifts from accumulating wealth to generating sustainable income. This transition is driven by a mix of psychological, financial and lifestyle changes.to fund retirement.

While most assets offer a blend of both, some like cash only offer income returns, and others like gold solely provide capital growth. Regardless, total return is income return plus capital return. The main reason we differentiate between income and capital returns is tax. Income is taxed at your marginal rate, while capital gains benefit from a CGT discount if held for more than a year, making capital returns more tax efficient.Once you stop working or sell your business, you shift from being a saver to a spender, and the regular work payments cease.

However, prioritising high immediate income creates an inherent tension between income and capital growth, affecting long-term financial health.For instance, if you invested $1 million in a high dividend yield Australian share ETF in 2023, it returned 6.2 per cent income plus a 5.3 per cent capital growth for a total return of 11.5 per cent .

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