Can I live off of dividends?
It is possible to achieve financial freedom by living off dividends forever. That isn't to say it's easy, but it's possible. Those starting from nothing admittedly have a hard road to retirement-enabling passive income.
Here's a breakdown of how much you would need to invest based on different yields: For a 2% dividend yield, an investment portfolio of approximately $2,969,200 is required to generate $59,384 in annual dividend income.
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
Stocks in the S&P 500 index currently yield about 1.5% on aggregate. That means, if you have $1 million invested in a mutual fund or exchange-traded fund that tracks the index, you could expect annual dividend income of about $15,000.
If, for example, your portfolio gets to a value of $1.5 million, you could invest in a fund or multiple investments that yield an average of 3.3%. At that rate, you could generate $50,000 in annual dividends. With a lower portfolio balance of $1 million, you would need to target an average yield of 5%.
Look for $12,000 Per Year in Dividends
To make $1,000 per month in dividends, it's better to think in annual terms. Companies list their average yield on an annual basis, not based on monthly averages. So you can make much more sense of how much you might earn if you build your numbers around annual goals as well.
The Bottom Line
By investing in quality dividend stocks with rising payouts, both young and old investors can benefit from the stocks' compounding, and historically inflation-beating, distribution growth. All it takes is a little planning, and then investors can live off their dividend payment streams.
It's definitely possible, but there are several factors to consider—including cost of living, the taxes you'll owe on your withdrawals, and how you want to live in retirement—when thinking about how much money you'll need to retire in the future.
Even under very dire circ*mstances, there's almost no way that $10 million isn't enough for you to retire at 50. Even if you parked the money in a checking account and didn't use it to generate further returns, you could live on $200,000 a year for 50 years before you ran out.
Retiring at 50 is a great goal to have. If you have $3 million saved, it's likely that you'll be able to retire comfortably. You'll need to factor in your living expenses, inflation and the expected rate of return on your investments.
How much money do I need to invest to make $3000 a month in dividends?
If you were to invest in a company offering a 4% annual dividend yield, you would need to invest about $900,000 to generate a monthly income of $3000. While this might seem like a hefty sum, remember that this investment isn't just generating income—it's also likely to appreciate over time.
But even at 9.5%, we're talking about a middle-class income of $4,000 per month on an investment of just a touch over $500K. Below, I'll reveal how to start building a portfolio that could get you an even bigger income stream than this today.
To collect $200 every time the company makes a dividend payment, you would need to invest a little less than $14,300 into the REIT.
To generate $500 a month in passive income you may need to invest between $83,333 and $250,000, depending on the asset and investment type you select. In addition to yield, you'll want to consider safety, liquidity and convenience when selecting the investments you'll employ to provide monthly passive income.
That's right; you save over $30,000 if you want to create $400 per month in passive income. Furthermore, this could be cash set aside in your TFSA, meaning it would be all tax free, with plenty left over for other investments.
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
They're paid out of the earnings and profits of the corporation. Dividends can be classified either as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.
Dividends are typically issued quarterly but can also be disbursed monthly or annually. Distributions are announced in advance and determined by the company's board of directors. Companies pay dividends for a variety of reasons, most often to show their financial stability and to keep or attract investors.
Can an investor really get rich from dividends? The short answer is “yes”. With a high savings rate, robust investment returns, and a long enough time horizon, this will lead to surprising wealth in the long run. For many investors who are just starting out, this may seem like an unrealistic pipe dream.
Living off interest involves relying on what's known as passive income. This implies that your assets generate enough returns to cover your monthly income needs without the need for additional work or income sources. The ideal scenario is to use the interest and returns while preserving the core principal.
Can you live off dividends tax free?
Key Takeaways. Your “qualified” dividends may be taxed at 0% if your taxable income falls below $44,625 (if single or Married Filing Separately), $59,750 (if Head of Household), or $89,250 (if (Married Filing Jointly or qualifying widow/widower) (tax year 2023).
Some of the best data I can find indicates there are 1,821,745 households that have investment portfolios valued at $3,000,000 or more1. This means roughly 1 out of every 63+ households.
However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.
What is the average and median retirement savings? The average retirement savings for all families is $333,940 according to the 2022 Survey of Consumer Finances.
Most people in the U.S. retire with less than $1 million. $500,000 is a healthy nest egg to supplement Social Security and other income sources. Assuming a 4% withdrawal rate, $500,000 could provide $20,000/year of inflation-adjusted income.
References
- https://ttlc.intuit.com/turbotax-support/en-us/help-article/import-export-data-files/enter-2021-alaska-permanent-fund-dividend-alaska/L5dAGF25t_US_en_US
- https://www.nasdaq.com/articles/want-to-collect-%24200-in-dividends-every-month-invest-%2439700-in-these-3-stocks.
- https://ca.finance.yahoo.com/news/much-invest-400-month-dividends-223000565.html
- https://www.livenowfox.com/news/these-us-cities-pay-you-move-there-cash
- https://www.investopedia.com/terms/u/unearnedincome.asp
- https://www.suredividend.com/get-rich-dividends/
- https://www.paychex.com/articles/payroll-taxes/1099-vs-w2-when-should-employers-use-these-tax-forms
- https://www.ssa.gov/ssi/text-income-ussi.htm
- https://www.investopedia.com/financial-edge/0110/10-things-you-should-know-about-1099s.aspx
- https://www.investopedia.com/terms/a/alaska-permanent-fund.asp
- https://www.investopedia.com/financial-edge/0812/how-to-live-off-your-dividends.aspx
- https://www.pods.com/blog/states-pay-you-to-move
- https://www.taxesforexpats.com/articles/expat-tax-rules/earned-income-unearned-income-and-what-the-difference-means-for-your-taxes.html
- https://www.nerdwallet.com/article/taxes/kiddie-tax
- https://pfd.alaska.gov/payments/deductions
- https://finance.yahoo.com/news/genius-ways-1-000-month-105500970.html
- https://www.experian.com/blogs/ask-experian/states-that-will-pay-you-to-move-there/
- https://ttlc.intuit.com/turbotax-support/en-us/help-article/state-taxes/enter-alaska-energy-relief-payment-turbotax/L2aNN8VPU_US_en_US
- https://www.fhi360.org/wp-content/uploads/drupal/documents/cfpb_building_block_activities_distinguishing-earned-unearned-income_guide.pdf
- https://pstet2023.org/1312-pfd-stimulus-checks/
- https://pfd.alaska.gov/Division-Info/summary-of-dividend-applications-payments
- https://pfd.alaska.gov/application/applying-for-a-child
- https://alaskapublic.org/2024/03/06/legislative-budgeters-say-dunleavys-proposed-2024-permanent-fund-dividend-is-a-no-go/
- https://www.ramseysolutions.com/retirement/can-you-retire-on-1-million
- https://finance.yahoo.com/news/heres-investing-50-per-week-115500138.html
- https://pfd.alaska.gov/Division-Info/about-us
- https://apps.irs.gov/app/IPAR/resources/help/unearn.html
- https://www.cnbc.com/select/what-are-dividends/
- https://alaskapublic.org/2024/01/02/alaskans-begin-filing-for-2024-permanent-fund-dividends/
- https://www.forbes.com/advisor/personal-finance/alaska-dividend-2022/
- https://apnews.com/article/alaska-oil-wealth-fund-dividend-c512839da89902b06f39e87866733cf8
- https://www.nerdwallet.com/article/investing/the-average-retirement-savings-by-age-and-why-you-need-more
- https://thealaskafrontier.com/do-you-get-paid-to-live-in-alaska/
- https://tax.thomsonreuters.com/en/glossary/kiddie-tax
- https://finance.yahoo.com/news/many-americans-retire-million-dollars-140019814.html
- https://www.blm.gov/sites/default/files/documents/files/PublicRoom_Alaska_Homesteading_Brochure_2016.pdf
- https://taxfoundation.org/location/alaska/
- https://support.taxslayer.com/hc/en-us/articles/360015701112-How-do-I-report-my-Alaska-Permanent-Fund
- https://livingwage.mit.edu/states/02
- https://talkmarkets.com/content/how-much-money-do-i-need-to-invest-to-make-3000-a-month?post=431352
- https://www.joshuakennon.com/1821745-households-in-the-united-states-have-investment-portfolios-worth-3000000-or-more/
- https://finance.yahoo.com/news/10-million-enough-retire-comfortably-130058094.html
- https://finance.yahoo.com/news/3-million-enough-retire-50-130022627.html
- https://www.approachfp.com/retire-on-500k/
- https://www.ziprecruiter.com/Salaries/Hourly-Salary--in-Alaska
- https://alaskalawhelp.org/resource/my-pfd-was-garnished-for-unknown-reasons-and
- https://www.irs.gov/taxtopics/tc553
- https://ttlc.intuit.com/community/state-taxes/discussion/where-do-i-put-my-alaska-pfd-info/00/415463
- https://www.irs.gov/faqs/interest-dividends-other-types-of-income/1099-div-dividend-income/1099-div-dividend-income-2
- https://turbotax.intuit.com/tax-tips/irs-tax-return/taxable-income-vs-nontaxable-income-what-you-should-know/L0h4j5DZQ
- https://pfd.alaska.gov/payments/tax-information
- https://finance.yahoo.com/news/much-money-live-entirely-off-204845865.html
- https://www.ahfc.us/blog/posts/child-tax-credit
- https://medium.com/@Levente22/7-proven-ways-to-make-5-000-9-000-per-month-in-passive-income-1aafbf025154
- https://finance.yahoo.com/news/much-interest-earn-1-million-150000229.html
- https://finance.yahoo.com/news/living-off-interest-1-million-164122384.html
- https://www.irs.gov/taxtopics/tc404
- https://pfd.alaska.gov/faq
- https://www.cnbc.com/2024/02/23/how-dividend-investing-can-make-you-money-while-you-sleep.html
- https://blog.cmp.cpa/passive-income-tax
- https://www.thetaxdefenders.com/can-the-irs-take-money-from-my-bank-account-without-notice/
- https://www.nasdaq.com/articles/do-this-for-$4000-in-dividend-income-every-month
- https://finance.yahoo.com/news/500-every-month-passive-income-130041730.html
- https://www.fidelity.com/learning-center/personal-finance/kiddie-tax
- https://turbotax.intuit.com/tax-tips/investments-and-taxes/guide-to-taxes-on-dividends/L1jBC5OvB
- https://en.wikipedia.org/wiki/Alaska_Permanent_Fund
- https://www.royalalaskanmovers.com/alaska-permanent-fund-dividend/
- https://www.mdtaxattorney.com/resources/determining-income-type-earned-and-unearned/