Dividend Growth Investor: Living Off Dividends In Retirement Vs. Selling Stock

Investors have several ways to grow their wealth. Growth can ensure that the value of investments grows far beyond inflation. But value stocks tend to hold up better during market downturns.

Both growth and value stocks can also become dividend stocks. And dividends offer investors a source of income. During working years, that can be reinvested for further gains. In retirement, dividend income can be moved towards living expenses.

There’s a good reason why. Dividend income can be more stable than stock market prices. And it can be more reliable, especially for investors with a basket of dividend growth stocks.

Share prices can remain volatile. And those who retire with growth stocks could see a big swing lower early in their retirement. That could radically reduce the available capital for living expenses.

With a high stream of dividend income, investors may not need to sell stocks in a given year. That’s good in a down market, as it means the position can have time to recover. In a bull market, dividend investors will likely see continued dividend increases in addition to capital gains.

Investors who retired near the market peak of 1999 with $1 million had two outcomes. Growth investors who sold off 4% each year ended up with $330,000 at the end of 2023. Investors with a dividend portfolio would have seen their position grow to $5.25 million.

To read the full analysis on the tradeoff between growth and dividends in retirement, click here.