Last week, I discussed how to build a retirement portfolio with dividend stocks. Since bonds and certificates of deposit offer historically low rates, chances are that retirees and future retirees will invest more money into “safe” dividend stocks. Following this post, a reader asked me how to build a 6 figure income dividend portfolio. First of all, this is not an easy task; making 100K per year from your investments requires 3 things:
In order to give us a chance to amass such an amount of capital (without a winning PowerBall ticket), I’ll assume that we will be saving for the next 35 years. After all, with our life expectancy playing with the century mark, it wouldn’t hurt if you start saving at the age of 30 and stop at the age of 65. You’ll probably have another 30 years in front of you to enjoy your dividends. If you use excel and make a quick calculation, you would need to save $2,000 per month at 6% during 35 years to reach 2,8M$ in capital. Once again, this is quite discouraging!
For those who think that I should use a higher dividend yield upon retirement based on dividend growth, I’d say that I have already factored in the growth with my 6% investing yield. If you insist, I can play around with the numbers and calculate using a 4% dividend yield portfolio and a 7% yield. This would require a capital of 2,5M$ instead of 2.8M$ and you would need to save almost $1,400 per month. Here again, it is still pretty high. However, if you are willing to save during 40 years, you drop the bar to $1,000 in savings (about $950 per month). Still too high? Yeah, I agree with you. However, I know how to build a 6 figure dividend portfolio.
And if you are willing to save during 40 years instead of 37, you need a monthly investment of $600. This becomes more attainable, right?
However, I must warn you of something very important: taxes and inflation were not considered in these calculations. And, personally, I found that 7% is very optimistic. I usually don’t push past 6% when I run investment calculations. These examples were not made to build your retirement plan, they are just presented to give you a quick view of how much you should be saving per month in order to have a comfortable retirement.