The Best Way To Retire Early

Includes: MO, PG, WMT, XOM
by: Doug Carey


Many people do not have enough retirement income to retire early.

A large portfolio of bonds will not be enough for most.

Dividend champions with a long history of dividend payouts are the best choice.

It's a fair bet to say that most people would like to retire before age 65, at least from a full-time job. Many people would like to end the grind of working full time and having a long commute, but would love to work a low-stress part-time job instead.

Unfortunately, the average retirement age has actually increased over the past ten years due to U.S. personal savings rates plummeting since 1980.

With savings rates less than half of what they were in the early '80s, more and more people approaching their 60s are beginning to realize they might not have enough money to retire early or possibly ever retire.

What Does It Take To Retire Early?

I want to look at some real numbers using the WealthTrace Retirement Planner. We can run an accurate retirement plan and figure out what it takes for most people to retire before age 60. In this case, I looked at a couple that is 52 today and wants to retire at age 59.

This couple has all of their money ($550,000) in IRAs currently, and they are saving $15,000 per year. You can see my other assumptions here:

Inflation (CPI)


Current Age of Both People


Age Of Retirement


Age When Both People Have Passed Away


Social Security at age 67 (combined)

$45,000 per year

Average Savings Rate

$15,000 per year

Total Investment Balance Today


Recurring Annual Expenses in Retirement


Investment Mix

70% U.S. Value Stocks, 30% Medium Term Treasuries

Investment Location

50% in taxable accounts, 50% in IRAs

Return Assumption Value Stocks

6.5% per year

Standard Deviation Value Stocks


Return Assumption Treasuries

3.0% per year

Standard Deviation Treasuries


I ran their retirement projections, and I found that they will accumulate about $725,000 when they retire. In this example, they are projected to never run out of money, but this only uses the base case assumptions and assumes that the rate of return assumptions are the same every year.

To get a better picture of their chances of retirement success, I also ran Monte Carlo analysis on their plan. Using historical data, this analysis runs 1,000 scenarios on their retirement plan and changes the rates of return on their investments in every scenario every year.

I found that their probability of never running out of money in retirement is only 67%. This is way too close for comfort, and it means that, currently, it would not be a good idea for them to retire at age 59.

How They Can Improve Their Odds

I would feel way more comfortable if their probability of never running out of money were closer to 80%. So, how can we help them? One problem with their portfolio is that treasuries are only returning 3% each year for them. That barely beats inflation each year. I found that their income is not covering their expenses every year, and thus they are dipping into investment principal. You can see their expenses each year compared to their income in retirement below.

Our first goal is to boost their income in retirement so they do not have to dip into investment principal. I realize this is easier said than done, but we can help them by moving some of their money into dividend champions that have a long history of never cutting their dividends, while almost always increasing them.

Dividend Champions To The Rescue

We need a way to help this couple make sure that their income in retirement covers their expenses. The key to living stress-free in retirement (at least when it comes to money) is to not eat into your investment principal. I ran some what-if scenarios, and I found that they can accomplish this goal if they save $2,500 more per year or if they retire when they're 64. But this couple is already saving all they can and, as we said at the beginning, their goal is to retire before age 60.

Their best option is invest in dividend champions that will pay out a rock solid (and growing) dividend over time for their entire retirement. I picked four of my favorites, as you can see below:


Dividend Yield

Growth Rate (Annualized)













The four companies I am highlighting here are Walmart (WMT), Exxon (XOM), Altria (MO), and Procter & Gamble (PG). In reality, we want a basket of dividend champions, and not just four stocks. In this example, I am creating a hypothetical dividend portfolio that has an average dividend yield and growth rate that is equal to the four stocks above.

I moved half of the couple's treasury holdings and half of their existing stock funds holdings to this dividend portfolio. I immediately saw a major uptick in income over time as you can see below.

I also ran Monte Carlo analysis again, and I found that their probability of never running out of money went up to 82%. This result is not too surprising because now this couple has more income in retirement and dividend champions have less volatility than the overall stock market due to their more consistent dividend payments over time.

Having enough income in retirement is key to retiring stress-free. With interest rates so low today, finding solid dividend-paying stocks is one of your best bets to retire early.

Disclosure: I am/we are long XOM, WMT, MO, PG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.