Because Investing in Dividend Stocks for Retirement Income is a Good Idea
The purpose of this article is to outline how to go about dividend investing for retirement.
To keep it simple, I have reduced it down to a 7 step guide. Better yet, I have linked each step in the guide to a more detailed article.
So, feel free to dig in deeper wherever you see fit. Because dividend-paying stocks for retirement income are a great option.
Let’s get moving…
Dividend Investing For Retirement – Your 7 Step Guide
To retire with dividends, follow these 7 steps:
- Make dividend investing for retirement part of your plans
- Determine how much you need to retire off dividends
- Choose a dividend investing strategy to achieve your retirement goals
- Pick the best dividend stocks for your retirement accounts
- Consider ETFs for ease and diversification
- Build and maintain the best dividend retirement portfolio
- Choose if and when to stop reinvesting dividends
Now, to help you on your way. I would next like to talk more about each step in this guide…
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
1. Make Dividend Investing For Retirement Part Of Your Plans
You can make living off your earnings from dividends a retirement reality.
Do it right. And there is a chance you can fund all of your retirement income needs with dividends.
On the other hand, dividend investing for retirement does not have to be an “all or nothing” proposition. Because you can supplement your retirement income from other sources, with dividends.
So, here are 5 things you need to work into your daily activities and retirement plans right away:
- Start dividend investing now
- Live below your means to feed your dividend stocks
- Watch out for high dividend yields
- Reinvest all dividends leading up to retirement
- Look to supplement your dividends with other income sources
Read more about: The Possibilities of Retiring on Dividends
Next, let’s address the question that is always on a dividend investor’s mind…
2. Determine How Much Money You Need To Retire Off Dividends
Specifically, how much money one needs to retire on dividends.
First, I can tell you this: the average household in the U.S. needs about $650,000 invested in the best dividend stocks for retirement.
Yeah. I know. That’s a lot of money. But don’t get discouraged.
Because everyone’s “number” is different. As a result, you need to calculate YOUR number. It may very well be lower.
Here’s exactly how to go about it:
- Calculate your household income requirements
- Determine your social security benefits
- Assess your other retirement plans – example: 401(k)
- Evaluate other potential income sources
- Understand your dividend stock portfolio’s yield
Now, you may think this is a difficult process to work through. But it’s not.
Furthermore, I explain exactly how to calculate your number in this related article…
Read more about: How Much YOU Need to Retire on Dividends
Next up, you need an investment approach…
3. Choose A Dividend Investing Strategy To Achieve Your Retirement Goals
Having success requires a dividend investment strategy. And sticking with that strategy over time.
An investment strategy is nothing more than a guiding set of principles you choose to follow. That governs your decisions about what to invest in.
Your strategy will depend on your age, current financial situation, and tolerance for investment risk.
For your consideration, I have defined and developed 3 dividend retirement strategies. They are…
High growth and dividend reinvestment strategy
This approach works well for younger investors. Specifically, those who are planning well in advance.
Also, it works for older investors. That have other reliable retirement income sources.
Finally, it is an excellent strategy for fighting inflation.
High dividend yield and dividend harvest strategy
This strategy is best for someone who needs to maximize their dividend income per year for retirement right now. Or, very soon.
To start taking dividends in cash. To pay the bills.
Balancing dividend growth stocks and income
And our final dividend investing strategy blends the best elements of the first two approaches. To maximize total return on investment.
So, what is your challenge?
It is picking the right strategy for your situation. And sticking with it.
To do so, I recommend you dive deeper. For making the best decision.
Read more about it: 3 Approaches to Dividend Investing
Next up, picking the best dividend stocks for retirees in the making…
4. Pick The Best Dividend Stocks For Your Retirement Accounts
There is a lot that goes into selecting dividend stocks for a retirement portfolio. But some things are more important than others.
Such as a stock’s…
- Dividend yield
- Historical dividend track record
- Dividend growth
- Safety as indicated by the dividend payout ratio
As an investor already living off my dividends in retirement. I certainly have some of the best dividend stocks from the stock market in my portfolio.
Including Dividend Aristocrats, Dividend Kings, real estate investment trusts, and technology companies for diversification.
Some examples of the best stocks for retirees include:
- American Electric Power (AEP)
- Paychex (PAYX)
- United Parcel Service (UPS)
If you are interested. Check out our full list of favorite companies that pay dividends below. Buy and hold these best dividend stocks for a Roth IRA and you won’t be disappointed.
Read more: 15 Top Dividend Stocks for Retirement Portfolios
Now just maybe. You are not interested in picking stocks.
And that’s okay. Here’s why…
5. Consider ETFs For Ease And Diversification
Because there are many great exchange-traded funds (ETFs) buying and holding dividend stocks. And paying regular dividends.
Furthermore, you can find funds that will fit with any of the 3 dividend retirement investing strategies. That I explained earlier.
The biggest advantage of ETFs is that they provide immediate diversification among dozens (even hundreds) of stocks. And the best dividend funds for retirement have very low investment costs too.
Feel free to check out my favorite 5 dividend-paying ETFs below…
Read more: Best Dividend Funds For Retirement Investing
Next, it’s time for dividend retirement portfolio-building…
6. Build And Maintain The Best Dividend Retirement Portfolio
Building a dividend retirement portfolio of stocks or mutual funds brings together much of what we have discussed already.
So when building your dividend portfolio for retirement, remember to…
- Think long-term
- Choose and follow an investment strategy
- Select the best stocks and funds
- Stay diversified
- Feed your dividend stocks with fresh capital
- Reinvest your dividends for as long as possible
- Monitor your investments periodically
Read more: Key Steps for Building a Dividend Retirement Portfolio
Finally, when should you stop reinvesting your dividends? Let’s touch on that topic before we wrap up…
7. Choose If And When To Stop Reinvesting Dividends
When planning for dividend payments in retirement. Stop reinvesting your dividends. Then use them to fund your living expenses when you are ready to.
After all. This is the goal: Using dividend income. To fund expenses during your retirement years.
However, there are some special situations. Where you may want to think more about whether or not to reinvest dividends after you retire.
For example, if you have other income sources. And do not need your dividends right away.
You still may want to take your dividends in cash.
So, stop reinvesting dividends if you:
- Identify better investment alternatives
- Must diversify beyond dividend stocks
On the other hand, you may want to keep reinvesting your dividends in retirement if you:
- Have enough retirement income from other sources
- Retire early
- Anticipate enjoying a long life
- Want to leave an inheritance
Do you want to explore dividend reinvesting in retirement further? Then check out this article…
Read more: Should retirees reinvest their dividends?
Okay. One more important topic. Then I will wrap up, I promise!
Best Resources About Dividend Investing For Retirement
Retirement planning is a big deal for all of us. Whether you choose dividends to partially or fully fund your retirement. Or, not.
So, don’t feel like you need to go it alone. Not when there are plenty of good resources to help you on your journey.
Here are some of my favorites:
First of all, you can access all of our articles about dividend investing. We cover dozens of important topics about dividend stocks right here. With more posts being added every month.
Next, for dividend stock picking, I like two resources in particular.
The first one is Motley Fool Stock Advisor. Great for stock dividend recommendations. Delivered to your inbox every month.
And second, I find the Simply Investing Report and Analysis Platform an excellent tool. For the best dividend stock picks and the best stock price for making a purchase.
Also, the Simply Investing real-time database is outstanding. Covering the latest dividend metrics for hundreds of companies.
Finally, there is more to retirement readiness. Versus just dividend investing.
That’s where the free online tool from Personal Capital comes into play. It’s perfect for bringing your finances and investments together in one place.
For budgeting, managing expenses, and seeing your total financial picture.
Okay. That’s a wrap for today.
So, please allow me to conclude with a few parting thoughts…
Dividend Investing For Retirement In 7 Easy Steps
Time passes so quickly. However, a long amount of time is your best friend. When it comes to dividend investing for retirement.
So, don’t delay. Get started today.
Do so by following these 7 tips to prepare for retirement with dividends:
- Make dividend investing part of your financial planning
- Determine the money required to retire with dividends
- Choose the right dividend investing strategy
- Pick the best dividend stocks
- Consider exchange-traded funds
- Create a dividend retirement portfolio
- Stop reinvesting dividends at the right time
Good luck with your retirement plans. And thanks for reading!
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.