GenExDividendInvestor: Retirement with Dividends vs Without
While some investors gravitate towards dividend stocks for their long-term appreciation potential, others may look for immediate income. But dividend stocks can also help to construct a portfolio for future retirement.
From a financial standpoint, retirement on one level means the loss of a major source of income. Even Social Security payments won’t fully cover that income. So replacing that income with dividend stocks, particularly ones that pay growing dividends, can provide a substantial benefit.
The trick? Start by investing in high-quality companies as early as your 40s. That ensures that you have time for the power of dividend growth to compound before it’s needed.
Ideally, that would include utilizing a retirement account, such as an IRA or Roth IRA. A Roth uses income that’s been taxed now, with the future gains being tax-free. That’s a better account for those investing in stocks for the long term.
Investors can look at dividend aristocrats and kings to build a portfolio. These are companies that have raised their dividends for at least 25 and 50 years, respectively. And it’s important to buy a few different companies across different industries for diversification.
Dividends that aren’t needed right away can be reinvested in the same stock, or can be used to buy stakes in new positions. But income from retirement accounts will eventually have to be used for distributions once the withdrawal age is hit.