Residual Payments: How to Live Off Your Dividends?

Saturday, November 10, 2012, 2:00 AM | 1 Comment

It is almost a universal wish to live a peaceful life post retirement. Our entire working life is dependent on that one goal, “our life post retirement”. However as difficult and demanding it is to invest and invest well, the more challenging it is to live off that investment once you retire.

The methods used include a combination of spending the interest income from bonds and selling funds and stocks to cover the rest. It is also optimally important while planning your retirement that you take into account the 4% rule which is also considered as the golden rule for investment.

Bring out your maths strategies: The 4% rule

According to this rule, you are eligible of withdrawing 4% of the total money invested without causing too much harm to the original capital. This means that if the total investment for you is around 100 thousand per year, you are eligible of withdrawing 4000 of your dividends on an annual basis without denting the overall capital. This means that you have adequate supply of money whenever you need it during the entire course of your retired life.

Investing in dividend paying stocks

Another way of increasing your income post retirement would be to invest in dividend paying stocks and mutual funds. The cash flow generated from these dividends can be an adequate source of money enabling you to spend a luxurious lifestyle post retirement.

Ensuring dividend growth is the ultimate aim

Concentrating on dividends can ensure high returns for you. Unlike bonds, that have the tendency of giving returns at much lower rates, dividends can help you achieve much higher return within a lesser period of time.

What is more significant is that stocks have the tendency of providing high returns even during periods of inflation making them inflation-proof. Thus, post-retirement you don’t even have to worry about inflation because your stock investment is going to take care of that as well.

The part of this strategy includes using the stock dividends to buy new stocks so that you can receive more dividends and buy even more shares. After all, the ultimate aim of post-retirement life is survival for the lengthiest period possible.

Investing in DRIPs

DRIPs or Dividend Reinvestment Plans are based on the concept of compound growth. By this process you are eligible of reinvesting dividends into new shares to increase growth.

It is the same process as reinvesting mutual fund or index fund distributions into new units. Most dividend investors depend hugely on the growth that they can attain from DRIPs to increase their portfolio value over time.

However, the amount that you invest and the return on dividends you expect depends firstly on the dividend yield or the rate of return on the entire portfolio and secondly the original amount or capital that you put in.

The initial investment should in fact be capable of covering your entire life span. Stock dividends are the additional aspects of the capital investment.

Living off the payments received on received on dividends is therefore based on a few critical issues. Keeping these things in mind could ensure a care-free and luxurious post-retirement life for you.

Author’s BIO

Edward Gary from GetPRed.com is an avid blogger and the author of this post. He has been using the binary options website for a smarter and efficient way of making profits.

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