Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

A “Dividends Only” Retirement Plan

By Contrarian Outlook (Brett Owens)Stock MarketsJan 11, 2022 04:06AM ET
www.investing.com/analysis/a-dividends-only-retirement-plan-200614302
A “Dividends Only” Retirement Plan
By Contrarian Outlook (Brett Owens)   |  Jan 11, 2022 04:06AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

I was waiting in line at the California DMV recently, idly flipping through my phone, when I ran across this headline:

There Are More 401(k) and IRA Millionaires Than Ever …

Fidelity Investments—apparently happy to share its customers’ financial info anonymously—says it has more than 750,000 seven-figure 401(k) and IRA accounts.

A chunk of money is great, especially when we can leave it untouched and let it grow. That was no doubt the “secret” of 99%+ of these retirement millionaires. They socked away money for decades and rode the market higher. (They didn’t chase the crypto du jour!)

Soon it will be time to convert the pile of cash into cash flow that can pay the bills. Many retirees buy stocks and “hope” they’ll go up in price.

Problem is, hope is not an ideal retirement strategy, especially as we roll into 2022, a year in which stocks face a high bar after posting double-digit gains in both 2020 and 2021.

It was dollar-cost averaging that built these Fidelity fortunes. These investors bought a set amount of stocks and funds every two weeks, every month, every year. They did this systematically, which secured them more shares when prices were low and fewer when they were dear!

Traditional retirement “advice” would say that you can live comfortably doing the exact opposite. Sell 4% per year and hope that you don’t outlive your money.

Wait, what?

This is reverse dollar-cost averaging. It is the inverse of the wealth-building technique that minted these millionaires!

By selling a set dollar amount of shares every month, quarter, or year to pay the bills, these investors are being advised to sell more shares when prices are low and fewer shares when prices are high.

What a disaster.

A better bet? A strategy to retire on dividends alone that leaves that beautiful pile of cash alone.

This is why money manager Tom Jacobs and I wrote the book on this. In How to Retire on Dividends: Earn a Safe 8%, Leave Your Principal Intact, we outline our “no withdrawal” approach to retirement:

  1. Save a bunch of money. (“Check.”)
  2. Buy safe dividend stocks with big yields
  3. Enjoy the income while keeping the original principal intact.

Step number two is a tricky one for many investors. A million bucks is great, but after all those price gains I just mentioned the S&P 500’s dividend yield has been whittled down to just 1.2% today. A seven-figure nest egg in the popular “low cost” S&P 500 index fund, the SPDR® S&P 500 (NYSE:SPY), will land you in the low-income bracket with just $12,000 a year.

That will keep your taxes low. And your quality of life!

Blue-chip dividend payers like Pfizer (NYSE:PFE) are better, but not by much. PFE yields 2.7%, so it will dish the millionaire $27,000 in annual income.

To make that million last, and our working life worthwhile, we really need yields in the 7% to 8% range. We don’t typically see these stocks touted on Bloomberg or CNBC, but they are around.

Of course, there are plenty of landmines in the high-yield space. Some of these stocks are cheap for a reason. Which is why we need to be contrarian when looking for income.

We must identify why a yield is incorrectly allowed to be so high. (In other words, we need to figure out why the stock is priced so cheaply!)

Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."

A “Dividends Only” Retirement Plan
 

Related Articles

Craig Erlam
Another Blow To Sentiment By Craig Erlam - Jan 21, 2022

A turbulent end to the week with widespread selling as underlying anxiety in the markets once again takes hold. The hope going into earnings season was that companies were going to...

A “Dividends Only” Retirement Plan

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Al Ose
Al Ose Jan 11, 2022 6:59AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Good points all
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email