Pondering the Longevity of Dividends as a Sole Source of Income Post-Retirement
Hey there! Want to live it up without worrying about finances? Dividend stocks might just be your ticket — if you're willing to invest a good chunk of change and deal with some potential challenges.
Ever thought about quitting your job early and living off dividends? simple, right? Not always. You'll need a substantial sum to invest in stocks that pay dividends, the amount depending on the dividend yield you're expecting. For instance, if you aim for a $100,000 yearly income and anticipate a 3% yield, you'll need around $3.33 million. Ambitious, but possible for some, perhaps a stretch for many.
Want to retire early on dividend income but don't have enough dough? Then either try for a higher yield or scale down your expenses. A 5% yield would require only $2 million for that $100,000/year, while $70,000 would need you $2.33 million.
But remember, it's not all smooth sailing. Dividend yields might not remain as high in the future, and companies could cut their dividend payments or even suspend them entirely. In 2020, for example, Disney suspended its dividend program for three years due to the COVID-19 pandemic. Walgreens, another example, cut its dividend in 2024 as it was acquired and taken private.
Inflation poses an even bigger threat, eroding the buying power of your dividend income even without any changes to the dividends.
To mitigate these risks, diversify your investments. Investing in dividend-focused exchange-traded funds (ETFs) like the Schwab U.S. Dividend Equity ETF is a smart move. It owns 103 dividend stocks like Coca-Cola, Verizon, and Lockheed Martin, offering a dividend yield of around 4%, and an average annual return of around 12% since inception.
If you're after even higher yields and more diversification, consider closed-end funds (CEFs) like the Cohen & Steers Infrastructure Fund that offers a 7.2% distribution yield and an average annual total return of 9.5% since inception.
CAUTION! Many CEFs employ leverage, increasing their risk, and their fees are typically higher than ETFs.
Minimize inflation risk by investing in companies or funds with strong track records of dividend hikes, those that have consistently increased their dividends at a rate higher than inflation.
Oh, and remember: reevaluate your holdings regularly to keep up with market changes and protect that income stream. It's not impossible to live off dividends for life, but it does require some smart moves and frequent oversight. Happy investing! 🌟💸🚀
- To increase your chances of living off dividends for life, consider investing in companies or funds with a strong track record of dividend hikes, as they can help mitigate the risk of inflation.
- To achieve a $100,000 yearly income from dividends, you might need to invest a significant amount of money, such as $3.33 million at a 3% yield or $2 million at a 5% yield.
- Know that personal-finance outcomes like living off dividends aren't always straightforward. Markets can be volatile, and you may face potential challenges like companies reducing or suspending their dividend payments. To mitigate these risks, diversify your investments and regularly reevaluate your holdings.
