How Much Dividend Stock do I Need to Retire Right Now?

Calculating The Money Required To Retire Off Dividends

Today, I would like to answer this question: how much do you need in dividend stocks to retire?

First, you will learn what it takes to retire on dividends for an average U.S. household. But, as you read through the post, I will show you how to refine the calculation. For your exact financial situation.

So, let’s get moving…

How Much Dividend Stock Do I Need To Retire?

To retire off dividends, the average household in the United States needs to have $650,000 invested in dividend stocks. The amount is based on data shown in the table below…

+ Median household income67,500
– Average social security benefit(20,000)
– 401(k) plan withdrawals(5,000)
– Pensions, part-time work, etc.(10,000)
= Dividend income required32,500
/ Dividend portfolio yield5%
= Money in dividend stocks650,000

Of course, as a visitor to my website, you are anything but average. And your situation will most definitely be different.

So, let’s go through each piece of the calculation.

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Retirement Living on Your Dividends

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

Then when you are done. But before you go. Be sure to check out:

Dividends and Retirement: A 7 Step Guide

Otherwise, back to today’s topic…

5 Steps To Determine How Much You Need In Dividend Stocks To Retire

  1. Calculate your household income needs
  2. Subtract social security benefits
  3. Reduce income for any 401(k) withdrawals
  4. Subtract any other sources of retirement income
  5. Use portfolio dividend yield to calculate your investment required in dividend stocks

By following these steps, you will be able to determine exactly how much investment YOU need to retire off dividends!

Hopefully, you will find your required investment will be substantially less. I don’t know.

Regardless, you can then get busy building a dividend portfolio for retirement to make it happen.

Okay. Let’s discuss each step…

1. Calculate Your Household Income For Retiring Off Dividends

First, I started with the median U.S. household income. At the time of this writing, it was roughly $67,500. Source: U.S. Census Bureau

Median means exactly half of all households earn a higher income. And the other half earn less. Thus, it’s right in the middle.

Chances are you make more or less. So, here are a couple of suggestions to figure out your household income needs…

First, the easiest is by determining how much money you make from your work. You probably know that by looking at your pay stub.

Second, another and more accurate way is to estimate your expenses in retirement.

But be sure to carefully adjust for potential changes. Such as higher expenses for travel and leisure. And don’t forget about income taxes.

Also, eliminate any costs that will go away. Such as money spent on clothes for work. Gas for your car. And lunches out with your coworkers.

Pro tip: Using your income or expenses, determine your income needs in retirement.

Next, we want to look at other possible income sources. Before calculating the amount of money required to retire with dividends.

2. Determine Your Social Security Benefit In Retirement

Anyone who has paid into the social security system during their working years. Should be entitled to a benefit in retirement.

As of the time of this article, the average social security recipient was earning approximately $20,000 each year. Source: Social Security Administration

Pro tip: Determine your estimated social security benefit. There is an online calculator here.

Then, just like I did in the example at the beginning of the article. Deduct your estimated social security benefit from your household income needs from step #1.

Also, don’t forget that your spouse or partner may be entitled to social security benefits too.

Because a second income from social security will go a long way. To reduce the amount of investment required to retire on dividend income.

Okay. Let’s keep moving. And look at another possible source of retirement income.

Specifically, your 401(k) plan…

3. 401(k) Plans Can Reduce The Investment Required For Retiring On Dividends

If you or your housemate have contributed to a 401(k) during your working years. Then congratulations!

Because you have another source of retirement income before you need to start taking your dividends in cash.

And research shows that an individual nearing retirement has a median 401(k) balance of about $85,000. Source: Personal Capital blog

Dividing that amount by 20 years. A reasonable amount of time to live in retirement. Gives me $4,250 of income per year.

By properly investing in good funds in the stock market, that money will continue to grow over time. Up until and as you take withdrawals. However, as withdrawals are made, taxes will be due.

So, for purposes of today’s calculation. About how much money you need to retire off dividends. I rounded to $5,000 per year sourced from a 401(k).

Pro tip: Check your 401(k) balances.

Divide the total value by 20 years to get a rough idea of how much income they will provide each year during retirement. Then deduct the result from your required household income.

Just like you did with your expected social security benefits.

Pro tip: Also, I suggest you sign up for a free account with Personal Capital.

Personal Capital is an excellent tool to manage your expenses, budget, and investments in one convenient place. Perfect for anyone serious about retiring on dividends.

Next, let’s address some other sources of retirement income…

4. Other Income Sources Decrease The Dividend Stocks Needed In Retirement

I’ve hit upon your most probable sources of retirement income: social security and 401(k) plans. However, you may have others.

For example, if you have worked at your employer for many years. You may have earned a guaranteed monthly pension.

Pension plans have fallen out of favor. And have been mostly replaced by 401(k) plans. So, it’s unlikely you will have pension income.

But, if you do, get an estimate from your employer. Of the amount, you can expect to receive each year after you retire.

Another typical source of retirement income is money earned from part-time work. Or, a side hustle.

Here is the great thing about earning a side income in retirement. It is something that you control.

Unlike various other forms of retirement income. That will largely be determined by what you have done in the past before retiring.

Whatever your personal finance situation….

Pro tip: Take any expected annual earnings from pension plans and part-time work. Then deduct them along with social security and 401(k) withdrawals from your household income needs.

The Result From Steps 1-4: How Much In Dividends Needed To Retire

After you have made these calculations that I have just outlined…

  • Household income needs
  • Minus social security benefits
  • Reduced by 401(k) plan withdrawals
  • Less other income sources

you will have a good idea of how much money in dividends to retire. In other words, your annual cash flow requirements from dividends.

But, we are not quite done. Because the big question of the day is: how much to invest in dividend stocks for retirement?

However, all we know so far is how much dividend income you need for retirement. In my example of an average household, it was $32,500 each year from dividends.

While step 5 allows for figuring out the next piece of the puzzle. Specifically, the investment required to generate the necessary level of dividend income…

5. The Impact Of Portfolio Dividend Yield And The Money Required To Retire Off Dividends

To determine the amount of investment needed, make this calculation:

Dividend income required / Retirement portfolio dividend yield =

Investment needed to retire off dividends

Using my example, I get…

$32,500 / .05 = $650,000

Okay. So far, you know how to calculate the dividend income required. It may be more or less than the $32,500 I have calculated in the example.

But what about the dividend yield. Where did that .05 (or 5%) come from?

Well, that is simply the amount of annual income produced by all of the high-quality dividend stocks you own. Divided by the market value of all those same stocks.

So, you may be asking, why a 5%?

And I say that is a reasonable dividend yield to target. For anyone interested in retiring off their dividends.

Your portfolio yield may be different. It depends on your dividend retirement investing strategy. And the specific dividend growth stocks you choose to invest in.

Okay. There you have it. The level of dividends you need in retirement. And the amount of investment required to earn them.

Please allow me to wrap up with a few parting thoughts to help you on your way…

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Exactly How Much You Need In Dividend Stocks To Retire

Retiring on dividends is possible.

But first, it takes time and planning to have success with dividend investing. Especially when your goal is to pay for the lifestyle you desire with dividends.

And one of the most important things to know is how much to invest to retire off dividends.

To make your calculations, follow the steps below. And carefully consider the pro dividend tips I provided throughout the article.

5 Steps To Determine How Much You Need In Dividend Stocks To Retire

  1. Calculate your household income needs
  2. Subtract social security benefits
  3. Reduce income for any 401(k) withdrawals
  4. Subtract any other sources of income
  5. Use portfolio dividend yield to calculate your investment in dividend stocks

Thanks for reading. Now go work on your calculations. Because it’s fun to start turning your dreams about dividends into reality.

Finally, if you enjoyed this article. Be sure to check out some other…

Topics and Tips About Dividend Investing

Looking For A Few Good Dividend-Paying Stocks?

Be sure to fuel your dividend income with the best dividend stocks. Here are a couple of great resources I use for picking and monitoring mine:

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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.

How Much Dividend Stock You Need To Retire Explained