In many respects, older Australians have never had it so good.
Your house, and your investment properties, are worth small fortunes.
Your shares are worth a bundle.
You're the recipient of generous tax breaks, including negative gearing, superannuation, imputation credits, family trusts and capital gains tax discount.
You are more likely to get a tax refund than to pay tax.
Despite your wealth, you might still be a recipient of the aged pension, and be eligible for a seniors health card.
Life is good. But you deserve the good life. You've worked hard for your money.
If one thing is missing, in this low interest rate environment, it's income.
I encourage you to read on to learn more about you, and about your six-step income-generation plan. Tell me if it doesn't sum you up perfectly…
You were born in an era of relative hardship. Your parents lived through World War I, the Great Depression, or World War II. One can only imagine the extreme hardships endured by all in that era, not to mention the atrocities and untold tragedies of war.
As a result, you were taught to work hard and save hard. You went without some of life's luxuries, tipped additional money into your super, all in order to maximise your well-deserved retirement nest egg.
As you got older, you'd paid off the mortgage, maybe were the beneficiary of an inheritance, and the kids had left home.
It was then you started investing in the share market. You'd already bought Commonwealth Bank of Australia (ASX: CBA), Woolworths Limited (ASAX: WOW), Qantas Airways Limited (ASX: QAN) and Telstra Corporation Ltd (ASX: TLS) when they first floated.
You added BHP Billiton Limited (ASX: BHP) and the other banks because you knew them, pundits on the radio and in the newspaper were encouraging you to buy them, and they were blue chips stocks.
You probably also own popular stocks like Wesfarmers Ltd (ASX: WES), AMP Limited (ASX: AMP), Insurance Australia Group Ltd (ASX: IAG) and maybe even CSL Limited (ASX: CSL).
If that's you, and you'd held the shares to today, reinvesting the dividends all the way through, you're doing well. Mighty well. Congratulations.
And if it's not you, you can learn from those who've made it.
You're a millionaire, probably a few times over — even if you'd never publicly acknowledge it, or live and spend like a millionaire. Those early years, the times of hardship, have molded your spending habits for life.
And that's a good thing.
By comparison, the kids of today have never had it so good. Driven daily right to the door of their private schools. Dutifully ferried to a myriad of after-school activities. Seat belts. Bike helmets. Participation trophies. Wrapped in cotton wool.
A 25-year old Australian has never experienced a recession in their lifetime. A 30-year old Australian can't remember the last recession. To them, house prices only ever go up. Interest rates are only ever low. Jobs are aplenty. Mortgages, credit cards, personal loans and car leases mean you never have to wait to buy anything, be it the latest iPhone, new car, overseas holiday or house.
Back to you…
Although you can afford it, you don't want to pay any more tax than the absolute minimum.
You'd be apocalyptic at the thought of the government changing the superannuation rules, abolishing negative gearing or tampering with your franking credits.
Although you don't need them, you don't want to give up your government-funded benefits.
You're doing mighty well.
Still, in the words of the late Malcolm Fraser, life wasn't meant to be easy.
Low interest rates are hurting you. Whereas once you could live off the income of your term deposits, today that source of income has evaporated.
Meanwhile, the share market is riding high, the S&P/ASX 200 Index on the verge of hitting 6,000.
With the GFC still front of mind (even though it was 6 years ago now), you are fearful of another share market crash, one that could wipe out half of your wealth in the space of a few short months.
You've dabbled in some mining stocks, getting burnt as the mining bubble has well and truly burst.
You've chased some high-risk penny stocks, lured by the apparent quick riches on offer when a 5 cent share rises to 10 cents. Since you've been reading The Motley Fool, you now know that a company with a $50 share price can be cheaper than one trading at 5 cents, and that buying penny shares is a one-way ticket to the poor house.
You do know that, right?
You know house prices are unsustainably high. You're nervous about what might happen to your beloved bank shares should the bubble burst.
You know the government finances are in a mess. You know they are going to come knocking, sooner or later, for more tax.
You've seen the ghost towns, and know China is slowing, quickly.
You know oil could go to $20. You've read about how George Soros said Greece could go "down the drain," exiting the euro in the process, potentially dragging other European countries down with it.
Yet you still need income. You need to live, reasonably well. You'd like to travel, in some level of comfort. You deserve it.
Gold doesn't help you.
At an annual interest rate of 2.5%, term deposits keep your money safe, but not much more. And you pay tax on the income.
You still need income. As a Motley Fool reader, you know, by comparison, dividend paying shares make the most sense.
You look at Telstra shares, and their 4.6% fully franked dividend yield, which grosses up to 6.6%, and you see just how attractive it looks when compared to government bonds, terms deposits and investment properties.
You know you should take the plunge, put more of your money into the share market.
You know you need a diversified portfolio, and that piling even more money into the banks, the supermarkets and Telstra is NOT the answer.
You know it's impossible to time the market — to buy at the bottom and sell at the top.
You're afraid of investing now, for fear of it being a market top.
Yet, you still need income.
Here's your 6 step plan…
1) Maintain a healthy cash balance. It allows you to sleep well at night, to have money easily available for life's pleasures, to pay for unexpected expenses, and to take advantage of the occasional share market correction by buying, removing the need for you to sell shares at the worst possible moment.
2) Commit to adding money to the market once per month, every month. Make it part of your monthly routine. Pick a date, say the 20th of each month, and make the trade. Add to an existing position, or open a position in a new stock. I'm biased, of course, but for those illusive stock ideas, a subscription to Motley Fool Dividend Investor seems like a no-brainer to me.
3) Buy quality, dividend paying companies. Swear off the dross. Accept a lower starting yield in return for higher growth prospects, both from the underlying share price, and the dividend.
Andrew Page's most recent recommendation to Motley Fool Dividend Investor subscribers is a case in point — it's fully franked dividend yield is a seemingly low 3.3%, but growing quickly, with the added bonus of the very real possibility of significant capital appreciation.
It's exactly what happened to Andrew Page's January 2015 recommendation to Motley Fool Dividend Investor subscribers. When Andrew tipped them, Australian Pharmaceutical Industries Limited (ASX: API) shares were trading on a fully franked dividend of 4.3% — decent, but nothing to write home about.
What IS to write home about now is the 100% total return from that recommendation in the 10 weeks since the recommendation. Wow. Count me as a VERY happy shareholder. Without Andrew's prompt, I'd never have bought the shares on my own,
4) Invest for the long-term. Don't sweat the day to day share price movements. Don't sweat if the market loses 10% or even 20%. You're still wealthy, you still have a healthy cash balance. Sit back, enjoy the income, and if you're receiving fully franked dividends, continue to enjoy the annual refund from the tax man.
5) Educate your children, and your grandchildren, about the benefits of investing in the share market. Of the wonders of compound returns. Of how you are buying a part-ownership in a company, not trading symbols. Of how dividends make up a huge proportion of total returns, over time. Of how reinvesting your dividends, and making regular contributions into the share market, will make you wealthy, over time. Of how to live below your means. Of what it's like to live through a recession.
6) And finally, enjoy life, and your financial freedom. You deserve it.
