Should I Reinvest Dividends in Retirement? (How To Decide)

To Reinvest Or Not To Reinvest Dividends In Retirement: That Is The Question

The purpose of this article is to help you decide whether to reinvest dividends in retirement, Or, not.

We will start with the most logical answer. Then move on to several special situations. That may influence your decision one way or another.

Regardless, when done. You will better understand if YOUR dividends should be reinvested during your retirement years.

Let’s get started…

Should I Reinvest Dividends In Retirement?

First of all, for anyone who has thoughtfully planned out a solid dividend retirement strategy. And worked toward the goal of partially or fully funding retirement expenses with dividends.

Then, the answer is no. You should not reinvest dividends in retirement.

Just take your dividends in cash. And spend them as you see fit.

Because you planned for dividends in retirement. Executed your plan over time. And therefore, you should take your dividends in cash vs reinvesting them.

But, don’t go. I have much more for you to think about…

a man reinvesting dividends in retirementPin

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

Other Tips For Deciding About Dividend Reinvestment In Retirement

Because that may seem like a clear and simple answer. Right?

Well, it is. However, there are other important steps to retiring on dividends to consider.

When deciding whether or not to reinvest dividends in retirement. Because your situation may not be so clear and simple.

As a result, let’s unpack this answer in greater detail. To determine, should you reinvest dividends in retirement…

3 More Good Reasons Not To Reinvest Dividends In Retirement

Besides the obvious answer to take your dividends in cash that I just discussed. Specifically, when your long-term financial plan was set up toward spending dividends for retirement living.

I can think of 3 more reasons you should take your dividends. And not reinvest them. Specifically, when you…

  1. Need the money
  2. Feel there are better investment alternatives
  3. Must diversify beyond dividend stocks

Let’s talk about these points a bit more…

1. You Need The Money

There can be some very good reasons for reinvesting dividends in retirement. But one thing in particular trumps all.

When you need the cash your best retirement dividend stocks are paying out. And you need it now. To cover important living expenses.

Maybe you had the well-laid plans to continue reinvesting dividends in retirement. By supplementing your income from other sources.

However, life can throw us curve balls. Emergencies do happen. Or, we all just have bills to pay.

When this is the case, you have no choice. Thus, take your dividends per share in cash. And use your dividend payments for living life.

Don’t worry about it. You earned the opportunity to do so!

In contrast, let’s make a new assumption. To discuss the next two situations: against retirees reinvesting dividends.

And that assumption is that you are fortunate. And don’t need the money from dividends right now.

However, taking the cash and not reinvesting it could be your best option. Here’s why…

2. You Feel There Are Better Places To Invest Versus Dividend Stocks

Dividend-paying stocks are not the only good investment option for retirees.

And as a do-it-yourself investor, you may feel there are better places for your money. For earning a higher or more predictable return.

When this is the case, take your dividends in cash. And invest them in whatever you think is the better investment alternative at the time.

3. Your Retirement Investment Portfolio Requires Better Diversification

Anytime, and especially as we get older. Diversification is critical for maintaining a productive retirement portfolio of investments.

Thus, it’s not the time in your life to forget about diversification. So, don’t get overweighted in any one asset classification.

Not even dividend stocks!

Maybe you need to hold more cash. Perhaps your bond allocation in your portfolio could use a boost from some additional funds.

Whatever, your situation. If you have too much portfolio value allocated to dividend stocks.

Then, by all means, take your dividends in cash. And invest it elsewhere.

Okay. That completes our discussion of several situations and reasons. For when and why you should take your dividends in cash during retirement. Versus reinvesting them.

That’s right. Taking dividends in cash vs reinvesting them. That is the big question.

So, let’s switch gears. Because I like to present a balanced argument…

woman retired and reinvesting dividendsPin

4 Reasons You Should Reinvest Dividends In Retirement

As a result, here are several good reasons for reinvesting dividends in retirement.

Most noteworthy, when you…

  1. Have other adequate sources of retirement income
  2. Retire early
  3. Anticipate enjoying a long life
  4. Desire to leave an inheritance

Next, I would like to discuss each of these cases FOR reinvesting dividends in retirement

1. Sufficient Income From Other Sources

I’m a big believer in having multiple income streams. And the most financially prepared retirees have just that.

For example:

  • Social security benefits
  • 401(k) plan withdrawals
  • Employer pension plan payments
  • Earnings from part-time work

So, if any one or more of these income sources are enough to cover your expenses. Then reinvest your dividends in retirement.

Either choose automatic dividend reinvestment programs. Offered in most brokerage accounts.

Where you purchase additional shares. And sometimes fractional shares of the stock that pays the dividend.

Or, just let your dividends accumulate in cash. And invest it lump sum into a stock of your choosing. Especially when the stock market as a whole is down. Making it a good time to pick up stocks at lower valuations.

Finally, if you need a great free tool to understand your entire financial picture. I suggest giving Personal Capital a try.

Because Personal Capital is excellent for seeing your budget, spending, and investments. All in one place online.

You can learn more about Personal Capital here.

Next, I want to address the duration of your retirement. And do so by looking at it in two ways…

2. You Retire Early

First, let’s say you retire early. I will just throughout a number here. How about age 45.

A result of living below your means. Plus, saving and investing your money wisely for 25 years.

If this is the case. I must add my hearty congratulations!

But, be careful. With average life expectancies approaching 80 years. You may have 35 years in retirement.

So, I will suggest, if possible. That you reinvest your dividends for as long as you can after retiring early. Because this is a good time to continue buying dividend stocks. Through dividend reinvestment plans.

Thus, allowing your wealth and dividend income to compound for a longer time. Then tapping your dividends later in life.

3. You Anticipate Living A Long Time

And same goes if you think you are going to live a long time. Even if you retire at a more traditional age.

For example, my Dad retired when he was 62. For the most part, he was a healthy guy. And both his parents lived to be 96 years old.

Guess what? He’s still going in his early 90s.

And just like an early retiree, he has spent 30-plus years in retirement. Once again, with many years in retirement, it’s a good idea to reinvest dividends early on.

Of course, there are no guarantees here. None of us know exactly how long we will live.

So, it’s a good idea to plan for a few extra years. Rather than not having enough money from dividends for retirement while still living.

Okay. One last reason to reinvest dividends in retirement. Then I will wrap this up. I promise!

4. You Want To Leave A Financial Legacy To Hiers

This final situation is simple for choosing dividend reinvestment. Specifically, if you have the financial ability and desire to leave money to your loved ones. After you are gone.

Then reinvest your dividends. Better yet, do so in a Roth IRA (individual retirement account).

Allow your wealth to continue compounding. As you invest for the long-term well-being of the next generation.

When this is the case, you will want to continue selecting the best dividend stocks. And monitor your portfolio over time. Just like before you retired.

To do so, I have received some excellent stock recommendations from the Motley Fool Stock Advisor. Delivered right to my inbox every month.

Also, you may want to consider the Simply Investing Report and Analysis Platform.

Because Simply Investing provides recommendations on the best dividend stocks. And the best times to buy them.

All are packaged in an interactive database covering hundreds of dividend stocks. Complete with the latest dividend metrics. Perfect for monitoring all the stocks in your portfolio.

You can learn more about Simply Investing here.

Okay. That’s all I have today addressing the topic of should retirees reinvest their dividends.

So, please allow me to wrap up with some parting thoughts…

Conclusions: Should I Reinvest Dividends In Retirement?

Looking at this topic, should dividends be reinvested in retirement, from a big picture point of view. I see 3 main types of retiree dividend investors.

First, some must take their dividends. Because they planned to do so or have no choice. And need the cash to pay the bills.

Second, some fortunate people don’t need their dividends in retirement.

These folks have enough money from other sources. And can allow their dividends to reinvest. Or direct them to other types of investments as they see fit.

Third, some people may need their dividends. But should look first to other income sources if at all possible. Allowing their dividends to reinvest and compound for future anticipated spending needs.

I’m not sure what your situation is. But hopefully, this discussion has helped you decide. Whether to reinvest dividends in retirement or not.

Thanks for reading. And be sure to check out our other articles covering…

Tips and Tactics about Dividend Investing

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The article’s conclusion is indicated on a whiteboard

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.

Reinvesting Dividends In Retirement Explained