How to Build a 6 Figure Income Dividend Portfolio With $600 per Month

by: The Dividend Guy

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:

- A lot of time
- A lot of capital
- A bit of luck
But since I like the idea of building a kick-ass dividend portfolio earning 6 figures annually, I thought of running a few scenarios to understand what was required to achieve the ultimate 6 figure income dividend portfolio!
The first thought I had was to begin with the end results in order to start my calculations. So how much investment do I need to generate 100K per year? We’ll start our first assumption with a dividend yield of 3.5% as I don’t want to take much risk while picking my dividend stocks. So at first, if you divide 100k by 3.5%, you get the incredible amount of $2,857,142. This would be the capital required to create a 6 figure income dividend portfolio. Discouraged? I’m with you… this is quite discouraging. But now, let see if we can crunch the numbers a bit.

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!

What about dividend growth?

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.

How To Build a 6 Figure Income Dividend Portfolio
As you can see, retirement calculations will definitely depend on the 3 points I mentioned at the beginning of this article:
- Time (the amount of time you are saving before retiring)
- Capital (how much are you able to save per month?)
- Luck (this is with regards to your investment yield).
I think it’s pretty obvious that if you want to build a 6 figure income dividend portfolio and live only on the dividend payout, you’ll need a darn good job in order to be able to save this much. However, if you plan on withdrawing $100,000 per year, this is another story. You will need a lot less capital, time or yield to achieve it.
I ran some quick calculations to see how much you would need to save per month in order to be able to withdraw 100K per year from your portfolio until you are 85 or so. I best scenario I found was the following:
Investment yield: 7%
Time: 37 years
Savings: $750/month

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.
Have you run other type of calculations? Have ever considered how much you need at retirement? I’m curious to know what your plan is?