☕️ Sunday Coffee: Why Living Off Dividends Beats Selling Stocks for a Chill Retirement
The 4 Percent Rule: A Successful Solution or a Path to Bankruptcy?
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Let’s talk retirement income strategies—specifically, the dividends vs. selling stocks debate. Now, if you ask me, dividends are where it’s at. Why?
Because they give you steady, predictable income without the drama of having to sell stocks. Let me break it down for you, with all the juicy numbers and facts.
Intro
I will tell you exactly how I feel. I hate selling my favorite companies. I feel terrible at the thought of having to sell my favorite company when it is growing. I will forever regret that I sold a great company during growth and missed the opportunity to increase my capital.
The same goes for selling during a crisis. It would be very hard to think that I would have to sell a great company for 30-40% less than the purchase price simply because I do not have enough income to live on. It destroys my mental state.
Dividends: Your Steady Retirement Paycheck 📆
Here’s the thing about dividends—they’re way more predictable than stock prices. Dividends are based on a company’s cash flow, which is like the heartbeat of the business. And that cash flow? It’s a lot less jumpy than stock prices, which are constantly at the mercy of Mr. Market’s mood swings.
Take Apple (AAPL), for instance. That stock price can swing between 15x and 35x earnings in a single year, depending on how investors feel about the latest iPhone or their AI plans.
But the dividend? You can count on it being there, come rain or shine. It’s like having a friend who shows up on time every time, instead of one who changes plans based on the latest trend.
And here’s why that matters: dividends are directly tied to the company's performance, not to the market’s daily rollercoaster. That’s why dividends tend to stay stable while stock prices bounce all over the place.
With dividends, you’re collecting a piece of the company’s actual earnings, not just the market’s guesswork on value.
Why Dividends Are Golden in Retirement 🌟
Imagine you’ve built a portfolio that brings in $60,000 a year in dividends. That’s $5,000 a month coming in, month after month, regardless of what the stock market is doing.
Market takes a dive? You’re still getting paid. Market soars? You’re still getting paid. It’s a beautiful thing.
Plus, here’s the cherry on top: many blue-chip dividend stocks tend to increase their payouts over time.
That means your dividend income can grow, helping you keep up with inflation without lifting a finger. Selling stocks, on the other hand, is a whole different ball game.
If you’re selling shares to fund your lifestyle, every market dip could mean having to sell more shares just to cover the same expenses. Not ideal, right?
The 4% Rule: Not as Safe as It Sounds 🚨
You’ve probably heard of the 4% rule. It’s this idea that you can safely withdraw 4% of your portfolio every year, adjust for inflation, and still not run out of money. But here’s the catch: it only works if the market plays nice.
Let’s say you retired with $1 million in the S&P 500 at the end of 1999
Following the 4% rule, you’d have $330,000 left by 2023. That’s because stocks took two big hits: the dot-com bust and the 2008 financial crisis.
Now, let’s say you’d put that same $1 million into Dividend Aristocrats
The crème de la crème of dividend stocks that keep raising their payouts year after year.
You’d have over $5.25 million by 2023. That’s a whole different ballgame, right? Dividends don’t just help you survive downturns—they actually help you thrive through them.
We follow all the best dividend companies in the world. They are all collected in MaxDividends.
List of Undervalued Dividend Stocks (November 24)
Undervalued ⭐️ MaxDividends Top Stocks (November 24)
Undervalued 👑 Dividend Kings (November 24)
Undervalued 🎩 Dividend Aristocrats (November 24)
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⚠️ List of Dangerous Dividend Stocks (November 24)
The “Sequence of Returns” Trap
Now, here’s another reason I’m all about dividends: sequence of returns risk. It’s a fancy way of saying that if you retire right before a market crash, you might be forced to sell stocks at a loss.
And if you’re depending on selling shares to fund your retirement, a market downturn can seriously mess up your plan.
Imagine you’ve saved up $2 million and plan to sell $60,000 worth of stock each year to cover your expenses. Sounds fine, right? But then a bear market hits, and your portfolio takes a 25% nosedive.
Now your $2 million is down to $1.5 million. Suddenly, that 3% withdrawal only gives you $45,000, but your expenses are still $60,000. You’re now forced to sell even more shares at a lower price, eating into your principal.
With dividends, this whole mess is a non-issue. Your dividend checks keep rolling in, no matter what the market’s doing.
Building a Reliable Dividend Machine 🧱
Let’s talk about how much you need to invest to live off dividends comfortably. Here’s the math: for every $1,000 you put into a solid dividend portfolio, you can expect to make about $30 a year in income.
So, if you want $60,000 a year, you’d need to build up a $2 million portfolio. And remember, dividends often grow over time, so that $60,000 could turn into more as the years go by.
In the accumulation phase, you’re reinvesting dividends, buying more shares, and steadily growing that income stream.
The magic of compounding kicks in, and by the time you hit retirement, you’ve got a portfolio that’s like a money-printing machine. And the best part?
Dividend income is steady. No guessing, no market timing—just that sweet, reliable cash flow.
👉 My Own High Yield Dividend Growth Story
👉 All My Recent Purchases You can Find Here
The Resilience of U.S. Dividends 💪
One thing I love about U.S. dividends is that they’re pretty darn reliable. Even in 2008, when the stock market was down 60%, dividend income for diversified portfolios only dropped by 20%.
That’s why dividends are the ultimate cushion for retirees—they let you sleep easy, even when the market’s having a meltdown.
And get this: since the 1930s, U.S. dividend payments have stayed remarkably stable, with only a few minor drops. The big exception was the Global Financial Crisis, but even then, dividends recovered much faster than stock prices.
That’s a huge reason why dividends are my go-to strategy. They’re like the tortoise in the race—slow and steady, but they get you to the finish line every time.
Bottom Line: Dividends for a Peaceful Retirement
So here’s the bottom line. Dividends are the calm, predictable way to fund your retirement. You’re not betting on market timing or hoping for the best.
Instead, you’re sitting back and collecting a steady income that isn’t tied to market drama. And let’s be honest—who doesn’t want a retirement that’s actually relaxing?
With dividends, you and me know exactly where we stand. We know how much income we’re getting, and we’re not at the mercy of short-term market swings. If you’re building a retirement plan, dividends are the way to go.
Here’s to a retirement with zero market drama and a whole lot of dividend checks.
P/S
Our team has put together a list of ~150 excellent companies to build a dividend stock portfolio and kickstart a snowball of passive income from dividends.
👉 Here’s the List of These Top Dividend Stocks
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MaxDividends Idea
👉 My High Yield Dividend Growth Story
Retire Early and Live Off Dividends. $12,000 monthly for 120 months. No one wants to work forever. Make sense? Don’t hesitate to message me with any question.
MaxDividends Key Concept
Predictability in important things is the foundation of peace of mind. Peace of mind is the basis of financial well-being. MaxDividends is all about peace of mind.
At MaxDividends, we focus on a dividend growth strategy. It’s a great fit for investors who want capital appreciation, a decent level of safety, and growing income.
As the name suggests, dividend growth investing is all about finding stocks that pay dividends and can keep growing them over time.
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MaxDividends Stocks are Unique
They not only provide income but have a strong track record of increasing that income over the years.
Plus, investing in companies that consistently raise dividends has historically been a solid strategy. And the most important thing here is that not only I and my investments participate in the accumulation, but also the companies themselves.
👉 Full list of MaxDividends Stocks
Every week on Fridays, I make purchases according to the plan and post the strategy results on the MaxDividends blog. I enter my purchases in the MaxDividends App and it automatically calculates my dividend income forecast.
👉 All my recent purchases you can find here
Do you know what is the power of the MaxDividends strategy? It is that even if I stop investing right now, my dividend income will continue to grow. And even a conservative forecast says that in the next 10 years the growth will be 4 times.
Dividends provide a constant source of passive income, which makes dividend stocks an attractive option for conservative investors and those who are not ready to spend time on constant market monitoring.
At this stage in my life, predictable growing passive income is more important than the long-term price appreciation of stocks, because I plan to live off the dividends. And this is where MaxDividends shows its value.
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