What a 2% Yield Doesn't Tell You
For most of our working lives, we're trained to watch one number to measure progress toward retirement: how much bigger the pile in our retirement account gets. Every paycheque, every contribution, every year-end statement — the story is always “did it grow?” We get good at that. Decades of practice will do that to a person.
Then retirement arrives, and the story flips. Instead of adding to the pile, we're supposed to draw from it. For many people, that shift doesn't feel like a financial adjustment — it feels like breaking a habit they've spent thirty or forty years building. No wonder it's uncomfortable. It feels foreign, and almost wrong.
And I saw this play out clearly in a meeting not long ago with a woman I'll call Diane, who was doing exactly the kind of retirement math so many of us do in our fifties and sixties. She was looking over an investment proposal I'd built around her risk tolerance and income needs, and she noticed the dividend yield sitting around 2%. She looked at me and said, plainly, “That's not enough.”
She wasn't wrong to worry. She was just aiming at the wrong number.
The number that isn't the whole story
It's an easy trap to fall into, because dividends feel like free money in the purest sense. Money shows up in your account every quarter, you didn't have to sell anything to get it, and it feels like collecting what's yours without touching your nest egg. That emotional comfort is real, and I understand why it's appealing — especially when you're looking at a plan for a life you haven't lived yet.
But here's the part that's easy to miss: a dividend isn't a bonus on top of your wealth. It's simply a distribution of wealth you already had. Imagine you own 100 shares of a company trading at $50. Your holding is worth $5,000. Then the company announces a $1 dividend. The next day—on the “ex-dividend date”—the share price typically drops by about the dividend amount. Now the shares trade at $49. The 100 shares you own are now worth $4,900, plus you’ve received $100 in dividends. So, what’s your total wealth? Still $5,000.You're not richer for having received it — the wealth just moved from one pocket (the company) into another (your account). Same total, different location.
That's a hard thing to feel in the moment, and I get it, because the deposit is visible and the price drop isn't. One shows up as a number in your bank account; the other is just a slightly smaller number you may never think to check that same day. Our brains notice the first and miss the second.
Why yield alone leads us astray
There's a second problem with leaning too hard on dividend yield as your income plan: dividends aren't guaranteed. Companies can and do cut them when times get difficult — even large, familiar names investors thought they could count on. Intel, General Electric, and closer to home, BCE, have all reduced their dividends in recent years when circumstances called for it. They were the kind of solid companies people build retirement income around precisely because they felt dependable.
And then there's also a quieter risk: chasing yield tends to narrow your portfolio’s exposure. High-dividend stocks cluster in a handful of sectors — banks, telecoms, utilities — while some of the most successful companies of the past few decades built their value by reinvesting profits instead of paying them out. If yield is your main filter, you can end up both less diversified and missing the companies driving a large share of long-term growth. That's a lot of risk to take on for a number that was never designed to represent your whole financial picture in the first place.
Three ways to think about it instead
So if yield isn't the right measure, what is? A few shifts that I've found genuinely help:
Think total return, not yield. Your retirement income doesn't need to come only from what a company chooses to pay you. It can come from growth in value, interest, and planned, sensible withdrawals — combined. This gives you far more flexibility than waiting on a dividend cheque.
Don't let one number drive your portfolio's shape. If “higher yield” becomes your main goal, you may end up concentrated in a narrow slice of the market without meaning to. A well-diversified portfolio, built for your actual income needs, will usually serve you better than one built to maximize a single statistic.
Build your income like a paycheque, not a single stream. For most Canadians, real retirement income is layered — CPP, OAS, a workplace pension if you have one, and withdrawals from your RRSP, RRIF, or TFSA, timed thoughtfully. No single piece needs to carry the whole weight. That's the point of having several.
Where this leaves Diane — and you
Diane didn't become a client after that meeting. And I'm not sure if I fully convinced her. I suspect she still glances at yield numbers the way many of us glance at the scale after a good week of eating well — as if one number should tell the whole story. Old habits, especially financial ones built over decades, don't dissolve in a single conversation. And I don't expect them to.
But I still think about her question, because I think it's the right question asked of the wrong number. “Is this enough?” is worth asking. “Is the yield high enough?” isn't — not on its own.
So here's what I'd ask you to sit with, whether you're approaching retirement or already there: “enough” was never meant to be a percentage. It's a plan — one built from several sources working together, designed around what your life actually costs, not around what a single number on a proposal or a statement happens to say this quarter.
If you've caught yourself judging your portfolio's readiness by its yield, that's a completely human thing to do. But it's also worth a second look. Pull out your latest numbers, and instead of scanning for the yield figure, ask a different question: where would this income actually come from in a typical year, and from how many places? That one shift in the question you ask is often the beginning of feeling like you have enough — because you finally can see all of it, not just the part that shows up as a deposit.
The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This newsletter was written, designed and produced by Vincent Lam, CFP®, Financial Planner with Intentional Retirement Planning and Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc.
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