Final answer:
To advise Sean, factors such as consistent income needs, tax implications, and risk tolerance should be considered in light of his reliance on dividends to supplement Social Security benefits. Retaining dividend-paying stocks may be more beneficial for a steady, reliable income with minimal risk, rather than incurring capital gains taxes and altering his income structure.
Step-by-step explanation:
When advising Sean regarding his financial decision, it's important to account for several factors such as his need for steady income, tax implications, and risk tolerance. Elderly people often rely on dividends for a consistent flow of income to supplement their Social Security benefits. Dividends provide a less risky income stream compared to the potential high returns and associated risks of selling and buying stocks. Given that Sean is receiving Social Security benefits and has consistent dividend and interest income, we must calculate the impact of selling his stock on his overall financial situation.
First, we should assess how the immediate capital gain of $10,000 from selling his stocks will be taxed and how this transaction would affect his Social Security benefits. Additionally, the change in future dividend and interest income should be evaluated. Decreasing dividends by $1,000 and increasing interest income by $1,500 alters the overall risk profile and taxation of Sean's portfolio, since interest income is generally taxed at a higher rate than qualified dividends. It is also crucial to consider Sean's living expenses and whether the modified income structure meets his financial needs.
After consideration of these factors, a financial advisor can provide more tailored advice. However, if the goal is to maintain a steady, reliable income with minimal risk, retaining the dividend-paying stocks might be more advantageous for Sean considering the risks and potential increase in taxation from the other options discussed.