Is it possible to solely rely on dividends to retire? - Seedly
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Anonymous

Asked on 28 Sep 2020

Is it possible to solely rely on dividends to retire?

Hi i actually already know the answer which is yes. however i wan to calculate how much capital i would need to achieve that.

im looking for dividends that are worth investing in

do provide some insights if u have any! thank u 🙏🏻

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Hi anon,

I'm going to throw in an alternate view point here; while you can do so, doesn't mean that you should.

Dividends are never guaranteed. Unless your dividends far outstrip your expenses (and I am looking at x2 or more), and you are just sitting on the unused portion, there will come a day when one or more of the following will happen

  • Dividends get cut (look at our banks now)

  • Dividends get suspended (HSBC is a prime example)

  • Dividends frequency gets reduced (look at REITs)

  • The company goes into decline and you lose capital

  • You physically go into decline (dementia, etc) and are unable to effectively manage your portfolio

There's probably more depressing stuff than that, but I think you get the idea.

So always make sure to have dividend income one of the many streams of income in your retirement. The allocation is really up to you, but I would want to ensure that guaranteed income from CPF LIFE and retirement plans form at least enough income (inflation adjusted as well) to ensure that my basic needs are met. Then the rest of my dividend income will be used to fund things like vacations, fine dining, etc.

You'll realize that this is really up to what you envision in retirement, if you think you'll need $2K for the core expenses and $1K for a better standard of living, work towards having $2K/mth of guaranteed income and $1K a month (or more) of non-guaranteed income from dividends. At least if something goes wrong, you still have money to meet the basics.

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Of course, depends on:

-absolute investment sum

-dividend yield (historic)

-and most important: factual dividends in the future. there remains the risk that because of economic downturns dividends are not distributed and of course that the prices of the stocks/ETFs

could drop importantly

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