How To Retire Early & Live Off Your Dividends

First Published August 28th, 2022 by Ben Reynolds for SureDividend

Some people retire much earlier than their 60’s.

Many people are retiring in their 50’s, 40’s, and even 30’s in some cases.

And the reality is you don’t have to be ultrarich to retire early. But, you must be disciplined and invest wisely.

What makes me hopeful is that both discipline and wise investing are teachable.

This article includes tips on how to retire early and live off your dividend stocks.

Note: Click here to download a PDF article covering the real world example of ‘Early Retiree Reality’ who retired at 45.

What Does Retirement Mean?

First off, lets define retirement. It doesn’t mean sitting on the couch all day every day. Retirement means you are financially free to live the life you’ve chosen. Simply put, retirement means you don’t have to work.

Retirement does not mean you won’t work at all. Those who retire early often work – doing the things they want to do, rather than what they have to do.

“If you’ve got the money, honey, I’ve got the time”
– Willie Nelson

You may be compensated monetarily for your passions; that’s not bad at all. You can be retired and get paid – if it is on your terms.

Early retirees often want to enjoy things when they are younger rather than older – it’s much easier to do a 12 mile hike when you are in your 30’s, 40’s, or 50’s rather than at 75.

Note: With that said, there’s no reason a fit 75 year old couldn’t do a long hike!

Time is the ultimate currency of life. We only get so much of it, and then it’s gone.

Time is valuable. Few would disagree that someone who spends 1 hour a week making $75,000 a year will likely be happier (all other things being equal) than someone who spends 80 hours a week to make $75,000 a year.

One needs a balance, however. If you spend all your time providing value and saving money, you will have no time to enjoy the fruits of your work. On the other hand, if you don’t provide any value and make no money, you will not be able to do much with your time.

A balance between money, time, and life is critical. Passive income is the short-cut through the work-life balance conundrum. Passive income is money you make without having to spend additional time to make the money.

You are truly free when your passive income covers your expenses. This is when you have the ability to retire.

Early Retirement Calculator

Exactly how much do you need to invest to live off dividends in retirement?

Use the link below download your copy of the early retirement calculator spreadsheet and fill in the numbers for your specific situation to find out.

Download Early Retirement Calculator

The early retirement calculator can be used to calculate how many years you have until retirement, given your current income, expenses, expected dividend yield at retirement, and expected inflation rate and total returns.

As a side note, most financial advisors and retirement planners have a ‘4% rule’. This rule says that you can safely withdraw 4% of your account value every year to live on during retirement without ever running out of money. If you plan on implementing the 4% rule, just change the expected dividend yield in the spreadsheet to 4%.

The 6 Factors That Determine When You Can Retire

The secret to early retirement is covering your expenses with passive income. There are 6 factors that determine the time it will take to reach a sustainable retirement:

•Working income
•Savings rate
•Expenses
•Starting investment account size
•Investment returns
•Investment portfolio dividend yield

The more money you can save, the quicker you can build your passive income. It really is that simple. The only way to save more is to either:

•Reduce expenses
•Increase income

Controlling expenses is critical to retiring early. The more you cut down on expenses, the sooner you can retire.

Small cuts here and there coupled with examining what you really need – and what you don’t – go a long way toward reducing budgets.

Lowering expenses is the single fastest way to retirement. That’s because you get a dual benefit from lowering expenses.

First, you have more money to invest every month. That means more money to build your retirement portfolio.

Second, the amount of passive income you need every month to cover your expenses is reduced. Lower expenses simply means an earlier retirement.

There are nearly infinite ways to raise your income, but they are beyond the scope of this article.

They all boil down to the same thing; the more value you provide, the greater your income will be. The more efficient you are with your time, the greater value you can provide per hour worked, and the higher your income will be.

The passive income aspect of early retirement involves investing wisely. This will be discussed in detail below.

Dividend Stocks for Passive Income

Can you retire early on dividend stocks? As this article discusses, passive income is critical for early retirement. And dividend growth stocks make excellent investments for growing passive income.

Passive income is scalable; investing $1,000,000 in 3M (MMM) stock and receiving over $40,000 a year in dividends takes just as much time as investing $100 in 3M stock and receiving less than $5.00 a year in dividends.

Passive income does not take up your time. Once you are invested in a dividend stock, you don’t have to do anything else to receive your dividend payments.

This is the opposite of being paid for your time – how most people generate income.

There are a nearly infinite amount of different styles of investing. I believe dividend investing in general – and investing in high quality dividend growth stocks specifically – to be the best fit for many individual investors; especially individual investors looking for growing passive income streams.

Here’s why…

Dividend growth stocks are able to grow their dividend payments over time.

Take PepsiCo (PEP) as an example. In year 2005, the company paid shareholders $1.01 per share in dividends. Now, the company pays its shareholders $4.60 a year in dividends. In 2005, PepsiCo shares traded around $55. Investors who purchased PepsiCo shares in 2005 are now enjoying a yield on cost of 8.4%.

You didn’t have to be some sort of genius to buy PepsiCo stock in 2005. The company has been a well-known blue-chip stock for decades. PepsiCo wasn’t extremely cheap in 2005 either – it was trading for a price-to-earnings ratio around 20. This is the type of ‘average’ performance one can expect from investing in high quality dividend growth stocks.

PepsiCo is a member of a select group of stocks called Dividend Aristocrats. These are the ‘gold standard’ of dividend stocks. To be a Dividend Aristocrat, a stock must pay increasing dividends for 25 or more consecutive years, be in the S&P 500, and meet certain minimum size and liquidity requirements.

Dividend Aristocrats are by definition high quality businesses… How else could they raise their dividends for 25+ years in a row? They are also very shareholder friendly; again, as evidenced by their 25+ years of rising dividend payments.

Investors who stick to purchasing Dividend Aristocrat stocks and other blue-chip dividend growth stocks will likely see rising dividend income over time.

Click here to download your Dividend Aristocrats Excel Spreadsheet List now.

You can learn more about how to generate rising passive income through dividend investing by watching the webinar replay video below.https://www.youtube.com/embed/WT58TtkKM-o

The 3 Best Dividend Stocks Now For Early Retirement

Dividend stocks with a history of rising dividend payments are a quality choice for passive income in retirement. But not all dividend stocks make equally good investments…

So what are the best dividend stocks for retirement?

The best early retirement dividend stocks will have a mix of a history of dividend growth for likely future dividend increases and a high yield for solid current income now.

Our 3 top dividend stock selections for early retirement are analyzed below. Each of these securities have 25+ years of rising dividends and dividend yields of 4% or greater.

Early Retirement Dividend Stock #1: V.F. Corp (VFC)

•Dividend Yield: 4.9%
•Consecutive Years Of Dividend Increases: 49

V.F. Corporation (VFC) is one of the world’s largest apparel, footwear and accessories companies. Its brands include The North Face, Vans, Timberland and Dickies. The company, which has been in existence since 1899, has a market capitalization of $16 billion and has generated nearly $12 billion in sales in its last 4 fiscal quarters.

On May 22^nd, 2019, V.F. Corp separated its VF’s Jeanswear organization, including the Wrangler, Lee and Rock & Republic brands. The new entity is Kontoor Brands (KTB). This move focused the ‘parent’ V.F. Corp. on its non-jeans brands in a hope to enhance long-term growth.

V.F. Corp’s stock should immediately appeal to investors looking to retire early. The stock offers a high dividend yield of nearly 5%. Additionally, the company has a long history of paying rising dividends, currently at 49 consecutive years. With one more year of rising dividends, the company will join the elite Dividend Kings list.

Click here to download our most recent Sure Analysis report on V.F. Corp. A preview of page 1 of 3 of the report is shown below.

Early Retirement Dividend Stock #2: 3M (MMM)

•Dividend Yield: 4.6%
•Consecutive Years Of Dividend Increases: 64

3M (MMM) sells more than 60,000 products that are used every day in homes, hospitals, office buildings and schools around the world. It has about 95,000 employees and serves customers in more than 200 countries.

The company is currently composed of four separate divisions:

•The Safety & Industrial division produces tapes, abrasives, adhesives and supply chain management software as well as manufactures personal protective gear and security products.
•The Healthcare segment supplies medical and surgical products as well as drug delivery systems.
•Transportation & Electronics division produces fibers and circuits with a goal of using renewable energy sources while reducing costs.
•The Consumer division sells office supplies, home improvement products, protective materials and stationary supplies.

3M is currently facing several lawsuits, including nearly 300,000 claims that its earplugs used by U.S. combat troops and produced by a subsidiary were defective.

On July 26^th, 2022, 3M announced that Aearo Technologies had filed for bankruptcy as it looks to conclude lawsuits related to its combat ear plugs. But this move has so far not managed to protect the company the way 3M has hoped. Ultimately, it is our view that while these lawsuits represent an unknown liability, they are unlikely to seriously hamper the company’s long-term prospects.

Additionally, 3M is spinning off its Healthcare segment. The company is also spinning off its food safety division and combining it with Neogen (NEOG).

There are currently many ‘moving parts’ at 3M. But what stands out for us the most is the company’s incredible streak of 64 years of consecutive dividend increases, which speaks to the company’s long-term stability. Additionally, the stock’s current high 4.6% dividend yield should have great appeal for income investors.

Click here to download our most recent Sure Analysis report on 3M. A preview of page 1 of 3 of the report is shown below.

Early Retirement Dividend Stock #3: The First of Long Island (FLIC)

•Dividend Yield: 4.2%
•Consecutive Years Of Dividend Increases: 44

The First of Long Island Corporation (FLIC) is the holding company for The First National Bank of Long Island, a small-sized bank that provides a range of financial services to consumers and small to medium-sized businesses. Its offerings include business loans, consumer loans, mortgages, savings accounts, etc.

FLIC operates around 50 branches in two Long Island counties and several NYC burrows, including Queens, Brooklyn, and Manhattan. FLIC was a history of almost 100 years since being founded in 1927, and the company is headquartered in Glen Head, New York.

The company is significantly smaller than both V.F. Corp. and 3M. FLIC has a market cap of under $500 million. But the company’s small size means its incredible dividend streak is often overlooked. FLIC has increased its dividend payments for 44 consecutive years.

And, the company’s stock currently offers investors a high dividend yield of over 4%. The stock offers a rare combination of small cap exposure, long dividend history, and high yield.

Click here to download our most recent Sure Analysis report on FLIC. A preview of page 1 of 3 of the report is shown below.

Additional Resources

The early retirement and personal finance communities are very active online. Several quality sites and forums are listed below:

Early Retirement Extreme: This is perhaps the best resource on radical, early retirement. The entire site is excellent and gives you a completely different way of looking at money, life, and what we spend. Do not miss the site’s lively forum.

The Retire Early Home Page: This site features several calculators to help plan for early retirement. The site also features articles on the ‘4% rule’, social security, retirement books to read, and more.

Early Retirement Forums: These forums have a wealth of information on early retirement and retirement investing.

Money Ning: A personal finance blog where we share insights on carefully saving money, investing, frugal living, coupons, promo codes.

Mr. Free At 33: The story of Jason Fieber (formerly of Dividend Mantra) who retired at 33.

This article was first published by Ben Reynolds for Sure Dividend

Sure dividend helps individual investors build high-quality dividend growth portfolios for the long run. The goal is financial freedom through an investment portfolio that pays rising dividend income over time. To this end, Sure Dividend provides a great deal of free information.

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