When To Start Investing In Dividends to Replace Income In Retirement

Should You Use Dividends as Income Replacement In Retirement?

Here is the next installment in our Reader’s Questions Series, which highlight questions emailed to me by you, the readers of Money Q&A. This time we’re talking about income replacement with dividends when you retire.

Be sure to find out at the end of this article how you can receive a free copy of Dave Ramsey’s book, The Total Money Makeover. If you’re not familiar with Dave Ramsey’s book, you should run right out and get it. It is one of the best personal finance books that everyone should read. Now….on to our reader’s question. This week’s Reader Question is from Ralph who writes…

“I am 54 and planning on retiring in another 10 years. I recently read a book about income investing where you buy stocks that distribute income through dividends. And, you use that for any monthly shortfalls between what you receive in social security, 401k, etc. and what you need to live on. But, the book never said at what time to start doing this. Is it when you are retired, couple years before you retire?”

The short answer to Ralph’s question is that you should probably start investing in dividend paying stocks as early as you can in life. Like most investments, the best thing young investors have is time on their side.

I personally wouldn’t wait until you retire to start investing in dividend paying stocks, although you certainly can do that if you choose. It would take a lot of cash to buy enough shares of stock to generate the dividends needed for income replacement in one shot though. Buying a little along until retirement would be more feasible for most investors. Below are the details of what it would take.

Income Replacement with Dividend Stocks

Should You Use Dividends as Income Replacement In Retirement?

For most people, it will take a lot of shares of stock to generate the replacement income needed in retirement from dividends. Assuming that most investors won’t have piles of cash available invest in a lot of stock when they hit retirement age, it’s best to start buying dividend paying stock as early as possible.

“Earlier is better than later to start moving money into dividend paying stocks,” says Blake, publisher and blogger at the popular personal finance site, The Dividend Pig. “Or, if you have a large amount of cash and want wait, you can purchase shares as you get closer to retirement age.”

In that case, Blake recommends at least starting to research which companies you’ll want to own, at what price per share, and exactly how much income you will need to replace with dividends.

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Three Solutions to Save Our Savings – Empire of the Fund

Lending Club Passive Income With Automated Investing

The following is a guest post is by Professor William Birdthistle, author of the new book, “Empire of the Fund: The Way We Save Now“. You can find out more about Professor Birdthisle and his book at EmpireOfTheFund.com.

Empire of the Fund is an examination of the way we save now.  For a video précis of the book, here is a short trailer:

Over the past thirty years, America has embarked on a grand experiment – perhaps the richest and riskiest in our financial history – to change the way we save money.  The hypothesis of our experiment is that millions of ordinary, untrained, and busy citizens can successfully manage trillions of dollars in a financial system dominated by sophisticated investments firms – firms that on many occasions have treated investors shabbily. 

As ten thousand baby boomers retire from the workforce each day and look to survive for almost two decades largely on the mutual funds in their individual accounts. We will soon learn whether our massive experiment has been a success.  And if not, we will soon also discover just how large the costs of failure will be.

Three Solutions to Save Our Savings – Empire of the Fund

The End of Pensions

Empire of the Fund by William BirdthistleA generation ago, large numbers of Americans enjoyed the support of pensions offered by their employers.  Pensions, of course, guarantee their beneficiaries a steady stream of payments from their retirement until their death.  Together with the benefits of Social Security, pensions provided secure retirements to millions of working Americans.  The golden age of the pension, however, is effectively over.  And it may never have been all that gilded, as not once in the past thirty-five years did more than 40% of American workers ever participate in such a plan.

Today, the benefits of Social Security and pensions are alarmingly inadequate.  The average monthly benefit for retirees from Social Security is now $1,335, or just over $16,000 per year.  Pensions, meanwhile, have rapidly disappeared from our economic ecosystem: public pensions are underfunded by trillions of dollars, and the number of U.S. private-sector workers covered solely by pensions has fallen to just 3%. 

Americans in the future will have to support themselves far more on the success or failure of their personal investment accounts.

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Should You Move When You Retire?

You see them every year, returning in the fall with their tans and highlights. They’re the retirees who move to Florida for half the year when you retire. And, then there are those friends who packed up and moved to the locale of their dreams the moment they both retired. If you’re nearing retirement, you might be contemplating joining them. Here’s what to think about before you make the move to retire. Should you move when you retire? What Will Moving Cost You? Being retired doesn’t mean you can suddenly make frivolous financial decisions. If anything, you’ll have to be more frugal now than ever when you retire. Think long and hard about the true costs of moving when you … Read more

New Survey Shows Millennials Have Little Savings for Retirement

Maybe it’s because this generation makes less money than previous generations did, or maybe it’s because Gen Y burns through cash without saving much of it. But either way, millennials are not prepared long-term. This generation is pushing back the big financial decisions in life like buying a home and establishing a viable retirement plan. A new survey[1] from the Indexed Annuity Leadership Council (IALC) reveals that 15 percent of millennials have less than $25,000 saved. One-in-three millennials say they set aside no money for retirement and 24 percent say they owe more than they have saved. Across all generations, Gen Y is the least prepared, but the most optimistic about the idea of saving for retirement. Most millennials think … Read more

Is Geopolitical Risk A Danger To Your Retirement?

Is Geopolitical Risk A Danger To Your Retirement?

Is Geopolitical Risk A Danger To Your Retirement?Your retirement account is most likely the most important investment account you’ll ever have. The reality is that we work incredibly hard to retire; spending the vast majority of our lives working and saving so that we can enjoy our golden years. However, in times of geopolitical risk, unrest, and war, several people lose everything they’ve worked for; forcing them to work long into their retirement years.

The threat that geopolitical risk and unrest is becoming to retirement investments and how converting your 401k retirement plan and other qualified retirement accounts to gold can help protect everything you’ve worked for.

Is Geopolitical Risk A Danger To Your Retirement?

Russia vs. Ukraine

The first geopolitical issue on the chopping block today is the conflict between Russia and the Ukraine over the Crimea Peninsula. The Crimea Peninsula is property of Ukraine.

However, Russia claims that they have legal rights to the strategic land. As a result, months ago, Russia brought troops to the Crimea Peninsula. Since this move, we’ve seen military action from rebels and Russia and corresponding responses from Ukraine.

In an effort to end the crisis, the western countries have imposed sanctions on Russia for their aggression toward Ukraine. In response, Russia refused to trade many food products with western countries; ultimately leading to more financial troubles for the Eurozone.

In the beginning of this conflict, it was a major part of the stories we heard in the news. While news coverage has died down a bit, the conflict between the two countries is very much alive.

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The New Retirementality by Mitch Anthony – Your Retirement Is All Wrong!

Is our idea of retirement outdated? Is it absurd to have an arbitrary age, a mark on the wall, for retirement? Mitch Anthony makes the case that the retirement of our parents isn’t, and shouldn’t, be our ideal of retirement in the latest edition of his book, “The New Retirementality: Planning Your Life and Living Your Dreams…at Any Age You Want”. Age is just a number. Do you love what you do for a living? Why end your career simply because you hit 62 or 67 years-old? Why not keep working if you love it? Why not test out mini-retirements along the way? Are we doing it all wrong? Is our thinking about retirement all wrong? I recently talked to … Read more