Living Off Dividends in Retirement--Not so Fast

Living off dividends in retirement seems safe. Because you never have to sell shares of stocks, ETFs or mutual funds, you can never run out of money. Yet it's not quite that simple.

In this video we'll look at four major problems with living off dividends. Then will discuss why focusing on Total Return is a much sounder approach to investing in retirement.

Finally, we will look at some reasonably safe ways to increase your dividend yield if you must.

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ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

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[rob_berger]

Happy to respond to comments and questions. IMPORTANT: I will never leave a comment asking you to text or call me. If you see such a comment, even if it has my name and picture, it is spam. I delete them and report them to YouTube as I find them. Let's all be careful out there!

[Riggsnic_co]

The thing to me is, if you invest and have other income outside of dividends then you will be able to live off dividends without selling. Which means you can pass that on to your kids which will give them a leg up in life. $52k dividends received in 2022.

[henrymitchell]

4K shares of SCHD here! Just retired at 44.

[Daniellechris-tk]

As an lnvesting enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?.

[NicholasBall]

I started investing in dividends with my taxable account. I used the buy and hold strategy in my Roth, adding some Berkshire B stock, SCHD, and an S&P 500 and total market exchange-traded fund.

[johnlennon]

Like Warren Buffet said, dividends are only good if the business you’re investing into can’t make good use of that capital. So if you’re trying to invest into businesses with actual growth, looking at dividends is a waste of time. Why are you investing into a company if they’re returning capital to you because they think you can make better use if it than they can. It’s not much different from bond investing. The way I see it if you have a $1 million at some point, that’d be enough to create a portfolio that would pay you between 50k-70k in dividend income...

[vinylEarthlink]

Well, I have been retired for 7 years, and I've been living off dividends and SS. I have more income than I need, so I use a lot of my dividends to buy more stock. I think my portfolio is pretty conservative, and it yields 3.98% - I wouldn't touch high-yield with a ten-foot pole. Yes, it is a dividend portfolio - I have 41 different stocks. I am aiming to keep my financial assets and income growing by at least 5% a year. So far, so good!

[georgesontag]

So buy both funds, growth and dividend . When you retire and you need to withdraw, take from the growth fund when the market is high. Take from dividend fund when it's low.

[travisshooks]

My experience many ppl psychologically have a tough time selling shares, living off div can help solve that problem. This solution is not math based is SWAN based. Good div growth stocks are much more stable than SPY and div do not fluctuate nearly as much as the market.

[Jumpman]

I don’t think anyone intending to live off dividends is investing in VTI, VOO or any other broad market index. Sort of a silly thing to start your video with.

[briankolley]

If this mythical dividend investor is using 100% of their dividends to cover living expenses, then this implies that they are spending all of their social security income as well as all of their dividend income just to make ends meet. If someone is actually in that position in retirement and has no way of reducing their expenses, then the problem isn't their choice to do dividend investing, their problem is that they have zero safety margin and therefore have enormous risk. Ultimately, this really means that they don't have enough in their portfolio and it's too risky for them to be retired. It doesn't matter which investment method they chose, they simply lack the investment money to make it work over time. Either they make enough in dividends to pay the bills and risk dividend reductions, suspensions, or inflation, but don't have anything left over to reinvest, or they sell enough stock to pay their bills and don't have any means of replacing the shares they sold. Such a portfolio is very likely to decline in value over time unless some rare event gives it a big boost.

Since this video was made at or near the market peak in late 2021 or early 2022, and it's now the beginning of 2023, it's even more clear how dividend investing can offer better downside protection and risk management. From the vantage point of early 2023, your method requires the investor to sell shares that have fallen in value by 20% or more in an inflationary enviroment where their expenses have likely increased. On the other hand, the dividend investor is likely doing better since they may not need to sell any shares unless their dividends don't fully cover the increase in their expenses from inflation. It may well be that their dividends increased enough to cover the higher expenses.

I'm not saying that total return isn't the way to evaluate things, I'm saying that you've failed to account for risk in your analysis, and, as this last year has demonstrated, you can't ignore risk when making investment choices.

[clarkhall]

Great video! Actually convinced me that dividends will be an important PART of my retirement income strategy, with our social security and a 2 or 3% "spend down" withdrawal strategy, especially in go go years. I do have a mix of growth, value stock funds, international, bonds. One of my biggest motivators is hearing for years that a stock/bond mix and 4% drawdown is safe, and then 2022 happened!

[potatoesandgravy]

I think a lot of dividend investors will be using much higher yields respective to those first few examples. Plus, even in retirement you can reinvest what you dont need which will help out the portfolio through the years.

[MC-gjfg]

A comment I've recently heard that resonated with me is that value *is* growth. What most people think of as growth is in reality speculation on overvalued assets, and while these assets can grow prodigiously over short periods of time, they aren't going to beat the growth of underpriced and fundamentally strong value companies over the long run.

[skylinegt]

Great content! Subscribed. I'm 31 learning about this now so I can start asap. Seems like I have more to learn as now I see there are multiple options/funds/etfs. I'm glad I waited until watching this because I was about to invest in a few high yield.. hope to learn more in the next video

[davidless]

Great video, glad a stumbled on your channel, another perspective for my portfolio

[chrisc]

hi Rob, the flaw I see here is you are focusing on dividend funds instead of a basket of high quality dividend stocks that you can pick up when are under valued giving you a high yield

[garyfrompa]

Just my 2 cents. if your retired and using the dividends as added income then your probable don't need to have the growth.

[craigtaylor]

I’ve been loving your videos! Solid information. Keep it up.

[troyleevlogs]

Thank you Rob, I’m glad that I came across your channel. My future self thanks you