Dividends for retirement

Today I'm going to talk to you about using dividends to generate income for your retirement. Dividends are a more stable source of new money than capital gains, which is ideal for retirees. While stocks offer long-term returns of $101.3T per year on average, it is not uncommon for investors to experience severe losses followed by sharp gains. This roller coaster ride is risky for retired investors.

What happens if a crisis like 2008 hits just before you retire and the value of your portfolio collapses? Personally, I know that I will not have time to recover from another bear market. While stock markets always rebound, losing a third or half of the value of your portfolio when you should be able to rely on your capital to retire could indeed be particularly destabilizing.

To protect myself from another financial crisis, I therefore prefer to own only dividend-paying stocks. Although some companies cut or suspended their dividends during the last crisis, most continued to pay them. dividend aristocrats even increased them in 2008 and 2009! This is where dividend-oriented investors have the advantage. Regardless of the value of their portfolio, their income remains constant.

With dividends, retired investors know exactly when their investment is paying off.. This makes planning expenses much easier. In addition, dividend payments do not fluctuate like common stock prices. As a result, dividend investors receive a form of income that is stable, reliable, and deposited into their account at predictable time intervals. Furthermore, because dividend stocks represent a share of an actual company, companies can even afford to increase their distributions above the rate ofinflation.

In short, dividends are clearly an advantage for preparing for early retirement:

• You don't have to wait until a "fateful" age to start receiving dividend income.

• Dividend income is passive – you don’t have to do anything to receive it except own the stock!

• Research has proven that dividend-paying stocks perform significantly better over the long term than non-dividend paying stocks.

• Even if the stock price goes down, you still get your dividend income.

• Inflation protection: quality companies increase their distributions every year.

How much money do I need? It's obvious, but iIt takes money to make money... Below is an example from the US site MyMoneyDesign that shows how much money you will need to provide your desired after-tax income (assuming a dividend yield of 3%). The table also shows an estimate of how much you will need to save each year (assuming a compounded return of 8%) based on the number of years remaining until your desired retirement. 

But there's no way I can save that much money! Of course, the numbers don't lie... If I want to retire early, receiving 2,000 $ per month after taxes, I will have to save 20,567 $ per year for the next 20 years. I don't know about you guys, but that's still a bit of a grimace...

Don't panic. The above example unfortunately overlooks the power of increasing dividends, but also the various possibilities that the State offers us to achieve our goals more quickly. By following My method of investing in growing dividends, I will be able to retire in about ten years, before I turn 50, and I fully intend to do so. The method also comes with an Excel tool that allows you to precisely measure the time needed to achieve your goal based on your personal situation. So let's go on the road to financial independence!

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