Challenge
Recently retired clients relied on franked dividends that fluctuated with payout ratios and sector cycles. Essential expenses were stable; discretionary spending was cut abruptly in weak dividend years, creating a perceived “failure” of the retirement plan even when growth assets recovered later.
Method
We defined an income floor funded by cash, term deposits within agreed limits, and short-duration defensive holdings covering 100% of essential expenses for 24 months. Dividends and interest above the floor flowed to a discretionary bucket with explicit spending rules. Growth allocation remained for longevity, rebalanced annually unless floor funding dropped below 18 months cover.
Issues addressed
- Overweight bank hybrids misclassified as “cash-like.”
- Absence of written rules for drawing on growth when floor intact.
- Confusion between account income and portfolio total return.
Outcome
Reporting now leads with floor coverage months, not headline yield. Clients reduced discretionary cuts during a dividend dip because essentials were isolated. IPS updated with floor refill triggers after strong equity years.