Social Security isn't going away anytime soon, but it probably won't cover all of your retirement expenses. This is troubling for those who count checks to make ends meet.
Nothing beats Social Security, but there are other, less labor-intensive ways to increase your retirement income. This is a strategy worth considering.
If you are new to investing or stock splits, you can always start small and then increase your holdings over time as you gain more confidence. But if you're planning to incorporate dividend stocks into your retirement plan, it's certainly beneficial to start now.
Dividends can bring you cash every year
Dividend stocks are stocks that pay dividends to shareholders, usually quarterly. Companies that do so are usually large stable businesses with extra cash. They choose to pass it on to shareholders, who can reinvest the money or use it as they please.
At first glance, dividend stocks may not look impressive, as you typically only earn a few cents to a few dollars per share. If you invest $100 in a stock with a 4% dividend yield, you'll only get $4 in dividends in a year. However, if you invest most of your savings in dividend stocks, it may increase over time.
If you invested $100,000 in dividend stocks with a total dividend yield of 4%, you would now have $4,000 per year, which you can use as much as you want. If you invested $300,000 in dividend stocks, you would receive $12,000 per year for a total dividend yield of 4%. That's not far off what some people get from Social Security in a year.
It might make sense to reinvest your dividends while you're still working, but once you retire, you can live off the money. Doing this allows you to invest your savings longer so they can continue to grow and earn more dividends.
Some notes
While dividend stocks can greatly add to your portfolio, it should be noted that dividends are not guaranteed. If companies are in trouble, they can reduce or even cancel their dividends, although many have gone to great lengths to avoid this.
Also, a high dividend doesn't necessarily mean a big stock. You want to make sure the company has the ability to pay dividends over time, and before you put your money in, it's a smart investment for your portfolio.
Start Invest in Dividend Stocks
If you want to add dividend stocks to your portfolio, the Aristocratic Dividend List is a great place to start. These companies have consistently raised their dividends for at least 25 consecutive years. There is also a list of Kings Dividends, which includes companies that have increased their dividends for at least 50 consecutive years. While investments are not guaranteed, working with some of these companies is a very solid option for those looking to make dividends an important part of their retirement income. .
Another option is to invest in a dividend index fund. An index fund is a portfolio of stocks bought together in order to mimic the performance of a market index. Dividend index funds focus on stocks that regularly provide dividends to shareholders. They're generally affordable and diversify your sources of funding, so no single stock will have much of an impact on your portfolio.