Nobody breaks down how you can actually get to the point where you can live off your investments.
And while I’m not there yet, here’s my plan on how I’m going to do that.
Spoiler: it’s stuff most people aren’t doing.
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Most dividend stocks worth holding long-term are giving a dividend of about 2.5-4% as of the date of this article.
Let’s say you need about $60,000/year to cover your living expenses.
Step 1: Budget for taxes
For a traditional dividend stock or ETF, the taxes on dividends will be taxed at the long-term capital gains rate, which for most of us is 15%.
If you need $60,000/year to live off of, you actually need about $72,000 in dividends.
$60,000 x 0.15 = $72,000
Step 2: Figure out how much you need invested
To figure out how much you need invested to hit the number in Step 1, take 100 and divide it by the stock or ETF’s dividend yield.
On a 4% dividend yield stock or ETF, you’d divide 100 / 4 = 25.
Then multiply that number by the number you’re hoping to receive in total dividend income from Step 1.
$72,000 x 25 = $1.8M
Now that sounds like a big number — and it is. But what if I told you you could live off $500,000. That sounds a lot more doable right?
Understanding how to do this is the only way you’re going to be able to understand how to get to your Step 2 number FAST!
Here’s the exact funds I’m using in this strategy…
I love the consistency, reliability and stability of blue chip stocks and ETFs.
These also tend to have qualified dividends which is really important as well from a tax efficiency consideration.
You can find 5-10 high paying blue chip dividend stocks from the Dividend Kings List, or you can piece together 2-3 solid ETFs like I’m doing.
My three favorite: SCHD, VYM, and FDVV.
Let’s say you have $500,000 to invest.
For this, I’d want three different categories of ETF:
Value, Foundational and Growth.
For my Value ETF, I’m going with SCHD.
I’d put 33%, or $150,000 into SCHD, at a 3.5% dividend yield, that gives me $5,250 in dividend income per year.
For Growth ETFs, I’m picking a REIT (real estate investment trust).
I’d put 15% into this category, or $75,000. $75,000 invested with an average dividend yield of 7% — another $5,250 in dividend income per year.
In my Foundational ETF category, I’d want the most solid covered call ETFs as possible.
With 45% in these (my favorites right now are QQQI & SPYI), if I put $150K into each:
SPYI x 12% dividend = $150,000 × 12% = $18,000 in annual dividends
QQQI x 14.5% dividend = $150,000 × 14.5% = $21,750 in annual dividends
Then, I’d put the remaining 10% into the S&P 500.
So my total dividend strategy per year would generate:
SCHD: $5,250
REITs: $5,250
SPYI: $18,000
QQQI: $21,750
$50,250/year or $4,188/month in passive income!
The cool thing is this strategy is entirely customizable.
Now you know it’s possible to live off dividends at much lower portfolio balances ($500K vs. $1.8M).
If you want to work with me to help you put one of these strategies together for you, email me. I’ll send you my calendar and we can get it set up.
Hope that helps!
Your friend,
Charlie | Your Wealth Hype Girl
This article provides educational information about investment strategies, not personalized financial advice. Consult with qualified financial professionals before making investment decisions.