“My Plan to Transition to Living Off Dividends Before Retirement”

For many people, there isn’t a ton of familiarity with dividends, even though they can be a critical part of a portfolio strategy. If you happen to visit r/dividends on Reddit, you will see and learn all about how both retirees and those looking for passive income are making dividends work for them in any number of ways. 

The Current Portfolio 

This Redditor makes it perfectly clear that they have long considered themselves a growth investor. As a result, their current portfolio spread only has around 20% of investments focused on dividends, while the rest is focused more on growth. 

They are currently earning only around a 2% annual dividend yield on their total portfolio, a figure they aim to increase as they approach retirement. The goal is to be heavily focused on dividends as an income strategy for retirement, and the Redditor is asking others in the subreddit how they are breaking up their portfolios to accomplish something similar. 

As a reminder, a dividend yield is a ratio that indicates how much a company pays out in dividends each year to its stock price. 

Other Redditors Respond

It won’t come as any surprise to learn that other Redditors who visit r/dividends regularly started chiming in with their thoughts quickly. Unsurprisingly, the top-ranked comment in the Redditor’s post was almost spot on with what this individual needed to hear. Based on their holdings, they have a strong account that includes both dividend-paying stocks and growth stocks, such as Google, Amazon, Apple, NVIDIA, and others. Additionally, there are nearly two dozen dividend growth and income stocks to help create this portfolio. 

The thing is, this Redditor isn’t alone, as many different responses in this post highlight purchases like SPYI, JEPI, QQQI, SPYH, QQQH, and many others. If you spend even a few minutes searching through this comment section and other posts in the sub, you’ll find that these are pretty standard holdings among those living off dividends or using these investments as dividend income right now. 

Additionally, other individuals claim to earn around $50,000 per year in dividend income, which is precisely what the original poster wanted to hear. This commenter highlighted their desire to reach around $150,000 annually, a not impossible amount of money if they have enough capital to buy the right number of shares. 

The Best Advice

The best advice for this Redditor is to increase their dividend investments as they approach retirement age gradually. First things first, they need to know exactly what kind of income they are looking to earn annually and then work backwards to start picking out a portfolio.

From here, they can also consider ETFs that prioritize dividends, creating a reliable income stream that can be used as a source of income during retirement. If the Redditor does go down this road, which sounds likely based on their comments, they simply need to regularly monitor their portfolio to ensure the yield stays in line with their income and retirement needs.

Unfortunately, unlike investing directly in growth stocks, dividend yields as income are not a set-it-and-forget-it kind of thing. Instead, you have to rebalance the portfolio as needed to ensure you are getting what you need. The Redditor will also need to consider how to handle any tax implications related to the dividend income, alongside other income sources, including Social Security and capital gains.

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