Benjamin Graham Had a 20-Year Rule for Retirement Income. It Just Won the AI Sell-Off

Benjamin Graham’s 20-year income rule just sent a signal through the AI sell-off, and the signal is 22 points wide: the five dividend holdings in this story that pass it rose 8.8% together between the S&P 500’s October 6 record and Friday’s close, while the Nasdaq-100 fund, home of the AI trade, fell 13.6%. The rule is the fourth of the seven tests Graham set for what he called the defensive investor in The Intelligent Investor: a stock must show "uninterrupted dividend payments for at least the past 20 years." Warren Buffett’s teacher wrote it for the investor who wants safety and freedom from bother, which describes most people living on a portfolio, and if you are one of them, the month that just ended is the clearest case for it since 2022.

Take a couple, 60 and 58, who retired at 55 and 53 from software jobs with $3,000,000, no pension, Social Security at least two years away and $120,000 a year of spending. They hold $1,800,000 in IRAs rolled over from their 401(k)s and $1,200,000 in a brokerage account, and both accounts own the same five positions: 40% in the Schwab U.S. Dividend Equity ETF and 15% each in Procter & Gamble, Coca-Cola, Johnson & Johnson and Realty Income, bought at the October 6 closes. If that sounds like you, or like the version of you that sold the company stock on the way out, the numbers below are yours.

The S&P 500 fund closed Friday at $735.29, 5.6% below its record, after a 4.4% drop on Thursday and its worst week since April. The Nasdaq-100 fund, where the AI names sit, lost 6.5% on Thursday alone. Over the same month Procter & Gamble rose 11.4%, Coca-Cola 11.0%, Realty Income 8.8%, Johnson & Johnson 8.4% and the Schwab U.S. Dividend Equity ETF 7.1%. Dividend stocks rising while the AI names fell reads as a signal that money is moving out of growth and into income; it is also one month, and a rotation can turn around as fast as it started.

What the month did to the two portfolios

Here is each holding at the record and on Friday, what it gained, and the dividends it pays at the rates now declared, beside the same $3,000,000 in the Nasdaq-100 fund and in the S&P 500 fund.

The value. The couple’s $3,000,000 was worth $3,263,461 on Friday, up $263,461. The same money in the Nasdaq-100 fund was worth $2,591,042, down $408,958. The gap between the two is $672,420 in one month. On Thursday, the market’s worst day, the income portfolio lost $34,632; the Nasdaq-100 version lost $177,310.

The income. The five holdings pay $99,265 a year at the rates now declared, $8,272 a month, which covers 83% of the couple’s spending before they sell a share. The Nasdaq-100 fund pays $12,210 on the same $3,000,000, so if you hold your retirement in growth you have to sell $107,790 of shares a year to spend the same $120,000. At Friday’s price a month of spending costs you 15 shares; at the record it cost 13. That is the whole problem with selling shares for groceries, in one line: the price decides how much of your retirement each month consumes.

Move one: run Graham’s 20-year test on what you own

Graham’s test takes you ten minutes with your statement open. Procter & Gamble has paid a dividend for 136 consecutive years, since 1890, and raised it for 70 straight years. Coca-Cola and Johnson & Johnson each raised theirs for the 64th consecutive year this spring. Realty Income declared its 676th consecutive monthly dividend in October and has raised it for over 31 consecutive years. The Schwab fund applies a shorter version of the rule for you: its index admits only stocks that have paid dividends for at least 10 consecutive years, and it excludes real estate trusts, which is why Realty Income is held on its own.

The reason the test matters to you is what the record did in bad years. Here is what the couple’s shares paid in each of the last six calendar years, beside the S&P 500’s price change that year.

The income rose every year, including 2022, when the S&P 500 fell 19.5% for the year and the checks grew $6,429. From 2020 to 2025 they grew $24,426, about a third. A record is a record and not a promise, and dividends do get cut in deep recessions, which is the reason for the second move.

Move two: put three years of the gap in Treasuries

The dividends leave a gap of $20,735 a year to the couple’s $120,000 of spending. Three years of it is $62,206. Held in Treasuries at the 10-year’s 4.84%, that reserve earns $3,011 a year, and the dividends plus the interest cover 85% of spending. Keep your reserve in Treasuries or CDs held to maturity rather than a bond fund, which can fall too, as 2022 showed. With the reserve in place you do not need to sell a share for three years, whatever the Nasdaq does next.

Move three: take the dividends at the 0% rate, then fill the room

The brokerage account’s qualified dividends, $28,897 from the Schwab fund, Procter & Gamble, Coca-Cola and Johnson & Johnson, are taxed at 0% for a couple whose taxable income stays under $98,900 in 2026. The couple’s ordinary income is $68,206: the $59,559 of dividends they withdraw from the IRAs, which you can do without penalty past 59 and a half, plus $8,647 of Realty Income’s brokerage dividends after the 20% deduction for real estate trust income. After the $32,200 standard deduction that is $36,006 of ordinary taxable income, taxed at 10% and 12%, or $3,825. Total taxable income comes to $64,903, under the line, so every qualified dollar is taxed at 0%. The federal bill on $99,265 of income is $3,825, under 4 cents on the dollar.

That leaves $33,997 of room under the $98,900 line. A Roth conversion of that size from the IRAs costs $4,080, or 12 cents on the dollar, and leaves the qualified dividends at 0%. The next dollar costs 27 cents, 12 on the conversion plus 15 on a dollar of dividends pushed over the line, so the room is the number to convert and no more. If you are 60 with 15 years before required distributions begin at 75 and no Social Security yet, you have the widest conversion window there is, and a down month for the rest of the market changes nothing about it.

Where the rule is weak

One month proves little, and the dividend names rose in part because they had lagged the AI names for three years. The rotation can reverse. Four stocks at $450,000 each is a lot of your money in four companies, and the Schwab fund’s 100 holdings carry the diversification. Realty Income’s dividend is ordinary income rather than qualified, which is why it belongs in your IRAs first. And before 65 your health insurance premium depends on this same income number, so make the conversion decision with that bill on the table. Graham’s own answer to a month like this one is in the same chapter: the defensive investor chooses by record and by price, and then pays little attention to the quotations.

The bottom line

In the month since the S&P 500’s record, the holdings that pass Benjamin Graham’s 20-year income rule beat the Nasdaq-100 fund by 22 points. A couple with $3,000,000 in five holdings that pass it ended Friday $263,461 richer, with $99,265 a year of dividends that covers 83% of their spending, while the same money in the Nasdaq-100 fund lost $408,958 and pays $12,210. Three years of the gap in Treasuries, $62,206, means no sale of stock for three years, and $3,825 of federal tax on the income leaves $33,997 of room for a Roth conversion at 12 cents on the dollar.

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