Do you have a retirement number? I have mine and it’s $1,777,777. A big number but not so scary if you systematically plan for it. You may wonder how I got to this number and it’s pretty simple. It’s based on the retirement income I wish to receive before tax and the dividend yield I expect to receive.
- $80,000 is the retirement income I wish to have for our family and allow us to travel. $60,000 could have worked but I wanted some safety for luxuries like dining out and travel.
- 4.5% is the dividend yield I expect to have and it’s based on the retirement model portfolio I have put together.
Divide the income by the yield and you get the total amount needed in your portfolio. Before you ask about inflation, the dividend growth from the portfolio will grow the income every year and that’s enough to keep up with inflation. That’s a proven concept from my current portfolio – inflation is nothing to worry about.
Reaching the Magic Number
I am not starting from zero as you can imagine and assessing if the number is within reach is about using historical growth rate based on savings and rate of return.
I use the Rule of 72 to assess my trajectory with a few rate or return numbers. The Rule of 72 tells you the number of years needed to double your money based on a rate of return. My portfolio rate of return is 11.05% and has fluctuated between 10.00% and 11.50% and has rarely gone below 10.00% since 2009. Using 10% ROR, I would double my money in 7.2 years.
Do note that my rate of return is tracked since the inception of my portfolio in 2009. I have no idea what it is for 1 year or the last year and it’s not an important metric unless you work on wall street and get a bonus based on the yearly performance. I can tell you that I beat the indexes using my simulated index comparison with the portfolio tracker.
I am starting with $1,066,000 (dividend portfolio + company plan) and in 7 years I would reach the $2M mark without adding any more money. I don’t plan to blindly trust that and stop investing. Instead, I will continue to invest and see if I can reach our goal earlier.
In the meantime, my portfolio needs to transform itself from a 2.5% dividend yield to a 4.5% dividend yield. The strategy is that all new money goes into the retirement stocks I selected in the retirement model portfolio and also reduce my positions from the high dividend growth stocks like VISA NYSE:V or Canadian National Railway TSE:CNR in favor of higher dividend yield stocks.
Even at the current rate, my dividend income forecast is as follow and that’s with 2.5% dividend yield with high dividend growth. As I switch stocks for a higher dividend yield, I should be able to accelerate the dividend income but it will slow the dividend growth. It’s an inverse relation (high growth is low yield and vice versa).
- 2010 = $3,745.54
- 2011 = $4,752.90
- 2012 = $5,782.57
- 2013 = $6,303.70
- 2014 = $8,218.14
- 2015 = $10,563.88
- 2016 = $12,658.09
- 2017 = $15,703.71
- 2018 = $19,002.26
- 2019 = $23,090.85 (Forecasted)
- 2020 = $28,296.32 (Forecasted)
- 2021 = $34,675.27 (Forecasted)
- 2022 = $42,492.27 (Forecasted)
- 2023 = $52,071.47 (Forecasted)
- 2024 = $63,810.16 (Forecasted)
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.