For a retirement stream of income, one needs a stream of income

Duh....
I've heard the conventional wisdom. Early in one's career, invest for rising valuation. Later, switch to instruments that protect principle and create a stream of payments, on which one lives after the monthly paycheck stops.

Being a simple minded person, unable to see through the jargon of the investment industry, I am coming to a different thought on how to determine if my retirement portfolio is moving to a place where it can support me.

Let's follow this simple line of logic. When I purchase a bond, or basically loan money to a company, the bond has a face value and a set interest rate. At the point the bond comes due, I receive the face value of that bond. I also have received the stream of interest payments for the life of the bond. Yes, I know that inflation erodes the purchasing power of that bond's face value, but then inflation erodes the value of everything, so lets forget the corrosive power of inflation for now. If I re-invest the interest payments into new bonds, I receive a rising stream of interest payments year after year after year. it's simply a form of compound interest payments.
Depending on the bond market, the face value of the bond will rise and fall. The dollar figure of the interest payment doesn't actually change, but the relative rate of return varies a bit, especially as I purchase new bonds at either a discount or premium to face value.
As with any investment, there is risk of default by the company issuing the bond, but there is some comfort in the face value of the bond, provided it is issued by a solid company and that the term of bond falls within my own investment lifetime. I can be pretty sure that I will eventually see my principal investment fully valued and returned to me.

If I purchase a preferred stock, the behavior of that stock is not too dissimilar to that of a bond, particularly if I purchase a trust preferred stock where payment of interest can be deferred, but not altered or eliminated by the company, short of default. Additionally, if the stock is convertible at a fixed ratio to common stock, at times one can take advantage of "mis-calculations" in the market and achieve an immediate increase in value of the holding by converting to common stock and then selling it at a premium to the value of the conversion ratio.

The preferred stock generally pays a healthy dividend, again allowing me to freely re-invest in that company and produce a rising stream of dividend payments, providing proof of the growing ability of my portfolio to support me in the future. It is up to me to purchase new blocks of the preferred stock at times when the discount to face value is in my favor, but the actual dividend payment will be constant dollars, linked to the face value and the stated dividend payment rate of that issue.

If I purchase the common stock in a company that pays steady and rising dividends, the market almost always produces fluctuations in the valuation of that company. We all know that the common stock dividend is the first thing to go when hard times hit. Look at the entire banking industry over the last few years. Dividends evaporated like ice-cubes in the sun. They did so because earnings dried up, not as a primary result of fluctuations in valuation of the companies. The stock prices plummeted for the same reason; earnings dried up. Those companies that maintained dividend payments in spite of declining earnings saw dramatic rise in dividend payment percentages. That's why you have to keep your eye on payout ratios.

Obviously, almost no one foresaw what a horrible situation all those banks put themselves (and our investment in them) into with their "off balance sheet" risky investments. Had anyone known, we would have put our money into businesses with more transparent methods of earning money, and measurable risks of loss of earnings.

Still, if one can trust the dividend payment history to a significant extent and one diversifies one's holdings across many companies, there is a degree of security in the stream of dividend payments. One can ride out variations in valuation, continuing to turn dividend payments into more investment in the company, producing a rising stream of dividends over time. The combination of dividend reinvestment and a modest increase in valuation over time can equal or exceed the increase in valuation in companies that do not pay dividends. The payment of dividends puts a cushion under reduction in valuations that periodically occur. Practically speaking, this reduces volatility in the valuation of the investment.

I'm looking for investments that will pay me a rising stream of income, whether it be interest or dividends. I need to pay attention to the price of those dividends. The price is reflected directly in the discount or premium to face value in bonds or preferred stock. It is reflected indirectly in the price/earnings ratio of a company, if that company maintains a steady payout ratio in it's dividend policy. However, if the dividend is steady and the payout ratio is steadily rising, look out for loss in the ability to raise dividends, and an upcoming loss in the valuation of the equity.

Not rocket science or quantitative investment theory, but a reasonable means to come to some comfort with one's choice in investments. One thing I know about this approach; when I approach my retirement, I won't be forced to completely and abruptly retool my investments to the "capital preservation" mode. I'll be pretty savvy in which investments do exactly what I need, having practiced it for the preceding 15-20 years.

I know I need to double the value of my retirement portfolio at least twice in order to have a stream of income that provides reasonable security at retirement. Fortunately, I can continue to add new money via my qualified plan,and I don't need to achieve that "10+ %" historical rate of return in the stock market. I need to minimize volatility, generate a continuing and rising stream of dividend/interest payment, re-invest and seek to have an account value that allows me to live on 3-4% "harvest" of dividends/interest when the time comes. Then, I'll never run out of money, the principal will continue to grow at some rate, and I'll have something to leave to my child when I'm dead and gone.