How Much Do You Need Invested To Retire Off Dividends

Speaker 1: I want you guys to think about what is your goal with investing your money, is it to have a little bit of passive income flowing through on the side as it’s as a safety net in case one day you lose your job? Or is it like mine to have your dividends totally replace your full time income? I’m making this video for the people in the last category. And what we’re going to do is answer the question, how much do you need invested in order to live off the dividends? So the very first thing you need to decide is how much money do you need coming in each year to live off? You see some people like myself and Graham, Stephen, we don’t need that much money to live off. We enjoy the simple things. And we’re not about buying the latest shows or getting regular Starbucks every day. Other people, they just love spending money. They’ll go to Starbucks, Louis Vuitton, they’ll check Amazon, see if they like anything on there.

These people, they need more money from their dividends to live off. But for the purposes of this video, we’re going to go with the average person. If we look at the Bureau of Labor Statistics, the median wage for workers in the United States is currently forty nine thousand seven hundred sixty four dollars per year. So let’s run that up to the average person lives of around 50000 dollars per year. Now, I want to be a bit prudent in this video. Remember living off 50000 dollars, some of that is going to your kids tuition and food sums, going to investments. You’re not actually using all of that money to live off.

So let’s say and I think this is appropriate, that you use around thirty thousand dollars of their income to live off each year. So we need 30000 dollars in dividends to replace that income in order for us to be fully financially free. So what’s our goal? How much do we need invested in order to get 30000 dollars in dividends each year? The first thing that you need to decide is your dividend investing strategy. Are you going to go for the rally high yields, the high risk companies, or are you going to be playing it more safe and go for the lower yields, the low risk companies? I personally prefer to go somewhere in between these two strategies. The companies that I like generally paying a nice dividend, but also they’re using some of their earnings to reinvest in the business if they’re paying all of their earnings as dividends. I think that’s really risky because you got to ask yourself, how are they going to keep growing as a business or are they just going to be one of those businesses that fade out after 10 years? I personally want to buy businesses that last a lifetime. For example, Warren Buffett’s Coca-Cola. Buffett first started buying shares in Coca Cola back in 1988. And this was a company that just had a strong business model behind it. Customers loved their products. So Buffett bought big into Coke. By 1989, he had purchased twenty three point three five million shares worth one point a billion dollars. And we all know the story. His profits said nineteen point four billion dollars in terms of share price increases. Plus, he’s received seven billion dollars in terms of dividends. For me, it’s a great example between paying dividends and growing the company. So let’s get back to our investment strategy. As I say, I like the companies that pay a nice dividend yield and are reinvesting in the business. So the question is, what do we consider a nice dividend yield that we can get in this day and age? To answer this question, we need to look at the big dividend ETFs around the USA. First, we’ll start with the S&P dividend ETF. This follows the S&P 500 composite index. There have increased dividends for at least 20 consecutive years. Currently yields two point nine two percent. The biggest dividend ETF is the Vanguard Dividend Appreciation ETF. This tracks the Nasdaq dividend achievers. Currently that’s yielding two percent. Lastly, let’s look at another big one, the Shub U.S. Dividend Equity ETF. This focuses on the higher paying dividend stocks and achieves a yield of three point six percent. So if you average all of those funds yields, you get two point eighty four percent. Now, let’s round that number up to two point nine percent, because I definitely think we can get a yield higher than the average if we invest smartly. But we’ll be conservative here. And let’s say we are average investors and we achieve a dividend yield that’s long term around the average. So how much do we need and total invested in? Order that our dividends fully replace our income. So if you can remember the start of the video, we decided that the average person lives of around 30 K a year. So we need two point nine percent of our total amount invested to equal thirty thousand dollars, basically, or we need to do here is some simple algebra. We just divide 30 K by two point nine percent and we get the figure of one million thirty four thousand five hundred dollars. That’s just over one million dollars saved up and invested in order to retire off our dividends. Now, there’s a couple of comments that I want to make on this figure. First of all, a lot of people will think it’s unrealistic to save up over one million dollars. That’s a total lie. Secondly, another group of people will think, hang on, I want to live off a lot more than 30000 dollars a year, which is a fair point. So let me answer both of those comments. The first thing is the silly statement that I hear people saying, no, I’ll never be able to save up to one million dollars.

That’s way too much money. It’s the same group of people who look up at a big mountain and think, oh, that’s impossible to climb. What they’re really saying is I don’t want to put their efforts or the time into climbing this mountain. You see, the one concept that these people don’t understand is compound interest. If you invest your money and give it the time it needs to grow. One million dollars is a feat that can be achieved by anyone in a first world nation. If you give yourself 40 years or you need to do is save up one hundred and seventy nine dollars per month and you reach that figure 30 years. Four hundred and eighty one dollars per month, 20 years, 1382 and 10 years. That’s almost 5000 dollars. If you give yourself enough time, let compound interest do the work. You can definitely reach that one million dollar mark. But the key with this is to start as young as you can teach your kids these concepts and they can retire from dividends when they’re extremely young. And let’s just say you don’t reach that one million dollar mark. Let’s say you only get to 500000 dollars. Are you really going to be complaining that half of your expenses can now be replaced from dividends, dividends, which you receive for doing absolutely no work? It’s not the worst idea to at least have a goal of retiring off dividends. And even if you don’t get there, you’ll still be in a great financial place. But that brings me to the group of people who say I want more than the thirty thousand dollars a month to live off. That’s a total fair points. But my answer to that as well, you’re just going to have to save more. Let’s say you want sixty thousand dollars a year to live off of. For that, you’d need double the amounts you needed for 30 K, so that’s about two million and sixty nine thousand total invested. If you wanted to live off 90 k a year, you’d need around three million. One hundred thousand. It’s just simple math. So now depending on your different expense needs, you know, the figure of the total amount invested, you need to achieve these goals. The next logical question you should be asking is how do you build up a strong dividend portfolio? The first thing I say to that is ETFs are a great way to start. For those who don’t know, ETFs are a collection of stocks that you can buy in essentially one single package. So let’s say you buy an ETF like the S&P dividend ETF ticker symbol for that is y you now own a bunch of high quality dividend paying companies and the S&P 500, your yield will be two point nine percent. But some of you rightfully will want to pick your own dividend stocks, build up your own portfolio. That’s a fine way of investing. The number one thing that I would say to that is make sure your knowledge on investing is strong before you start picking individual stocks. You don’t want to be playing poker and not know the rules of poker. You’ll end up losing. And it’s the same with investing. Once you build up a strong ground game to the basics of investing, then it is time to dip your feet in. Maybe start with stocks similar to Warren Buffett, like Coca-Cola, which has a strong history of paying dividends and has a great business model, or something like Johnson and Johnson, a great stock with a well diversified source of revenue streams and just generally a good company.

And once you start getting your feet wet, build from there and grow your portfolio. And the very last thing you need to give it is to. Continue adding, continue building your portfolio, and over time, you look back, you own a bunch of great stocks and hopefully you’ll be able to retire from those dividends.

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