Yes, You Can Retire on Dividends
Bob Baker, a retired aerospace engineer, regularly taps his small pension and Social Security income to help cover his living expenses.
But he also relies on a steady dose of stock dividends, something he started to zero in on when he retired in 2015. “Once I fully understood the significance of dividends from quality companies, a priority focus for me was not to have to sell any shares of any holdings,” says Baker, 72, who lives in northern Virginia with his wife.
Dividends from his retirement accounts are transferred every month into a taxable account to cover required minimum distributions, or RMDs—which kick in after a retiree hits 72, up from age 70½ previously. His holdings include PepsiCo (ticker: PEP), CVS Health (CVS), and Prudential Financial (PRU)—longtime dividend payers that sport yields well above the S&P 500 index’s average of about 1.5%. The yield on the dividend stocks in his portfolio was recently 4.5%.
The notion of using dividends in retirement, either as a way to complement other financial assets, as Baker does, or perhaps rely on them for an even larger percentage of income, is drawing plenty of interest these days. Yields on many traditional income investments are now near historical lows, and the onus increasingly is on individuals to secure their postcareer income. The strategy has spawned something of a movement, encompassing investors of all ages and levels of sophistication. There are Facebook groups devoted to the topic along with blogs, newsletters, books, and various other platforms.