Reader Mailbag: “I retired 3 years ago, but had to go back to work. I want to quit but need to make enough money.”

Dear DTA,

My goal is to survive retirement without working. I retired 3 years ago, but I had to go back to work. I want to quit. But I need to make enough money.

-Donna G.

Hi, Donna. Appreciate your readership. And we appreciate you taking the time to write us.

Sorry to hear that you had to go back to work.

Staying at work is one thing. That’s hard enough, especially if you don’t want to work anymore. But having to go back after retiring is particularly difficult, as you get used to retirement.

I’m not privy to your financial information, so I’m not exactly sure why you had to back to work.

But being of retirement age (assuming you didn’t retire really early) means that one of the levers you can pull (time) is a bit limited, as your age and dissatisfaction with still working limit your opportunities there.

That said, you can still pull that lever a little bit.

But it’ll require you to get started right away.

The method I propose, which is a method I used to personally retire early and become financially free, is dividend growth investing.

This investment strategy basically involves buying stock in wonderful businesses that reward shareholders with a steady stream of increasing dividend payments.

It’s a fantastic investment strategy because it’s proven, robust, tangible, and practically foolproof.

You can find more than 800 dividend growth stocks by taking a look at David Fish’s Dividend Champions, Contenders, and Challengers list.

That list is an invaluable compilation of all US-listed stocks that have paid increasing dividends for at least the last five consecutive years.

You’ll find numerous blue-chip stocks on this list, Donna.

Procter & Gamble Co. (PG). Apple Inc. (AAPL). AT&T Inc. (T). Johnson & Johnson (JNJ).

The list goes on and on.

These are wonderful businesses that employ thousands of workers to go out and manufacture, market, and sell products and/or services to billions of people all over the planet… all on your behalf, to your benefit.

It’s a great arrangement. You buy the stock. And then you get paid more and more money… potentially for the rest of your life.

Better yet, the income you earn from these stocks – the dividend payments – is totally passive. You don’t have to call up Procter & Gamble for your money. They pay you without any further work on your part. It’s about as passive as it gets.

I’m not sure how much longer you want to or can keep working. I know you want to quit.

But the longer can you boost your income and invest that extra money, the more stocks you can buy. More stock means more passive income. And more passive income means more freedom for you once you retire.

The next time you retire, you want to do it permanently.

You and I have something in common.

I also retired three years ago. I was 32 years old when I pulled the plug on my career in the auto industry.

Although I didn’t have enough passive income to cover my bills at the time, I supplemented the passive income I was earning through dividends with writing (which I still do).

However, this passive income continued to grow as I added to the portfolio.

And in three years, I doubled the value of my real-money six-figure portfolio, as well as the passive dividend income it generates for me.

Within a couple years of retiring early, my passive dividend income began to cover my basic personal expenses (rent, transportation, food, etc.).

So you can see that it doesn’t take long to make great strides toward long-term financial objectives, buying more independence in the process.

But one lever – which will probably be far more important to you at this stage – that should really be maximized is frugality.

This will be key for you.

The less you spend, the more you can invest. And the lower your expenses, the less passive income that’ll be necessary to cover your lifestyle.

I’m assuming you have at least Social Security income. And investing aggressively over the next year or two could add a nice source of passive and growing dividend income for you.

Being able to build a portfolio of just $30,000 over the next couple years could generate $1,200/year in dividend income for you (assuming you’re generating a 4% yield on that capital).

That’s an extra $100/month that you could add to whatever other income you currently have (SS, pension, retirement accounts, etc.).

If you’re able to save and invest more, that’s even more upside.

Moreover, this $1,200/year will likely only grow over time – and probably faster than inflation.

If the dividend income compounds at 7% annually, that $1,200 turns into $1,284 the following year. $1,374 the next year. $1,470 the year after that.

So on and so forth.

You need to think not just of the Donna of 2017 or 2018. You also need to think of the Donna of 2027 or 2028.

Things will almost assuredly cost more in the future. You need to prepare for that.

But you can simultaneously make a big dent in your monthly expenditures, which will help expedite your back-to-retirement plan.

Just like it takes $30,000 in stock yielding 4% to generate that $100/month in passive dividend income, cutting $100 per month from your monthly bills means that’s essentially $30,000 less you need to save and invest.

And so going through your budget and cutting out $100 could save you $30,000 worth of hard work, saving, and investing.

The frugality lever will be far more powerful for you, as compounding needs time to work. While saving and investing can definitely still build wealth and passive income for you, the amount of time and effort you can throw at it is reduced relative to the possible effort and time you would have had 10 or 20 years ago.

And so to kind of make up time, cutting those expenses will likely be crucial.

In fact, frugality can be almost like a “time machine”, making up for lost time, investments, and passive income.

While your lifestyle might be less lavish than it otherwise could have been, study after study shows that it just doesn’t take that much money to be happy.

And I imagine you’ll be far happier once you don’t need to work anymore.

But before you invest any money, you’ll want to check out fellow contributor Dave Van Knapp’s dividend growth investing lessons, which is a series of articles that steers readers through the dividend growth investing strategy from start to finish.

These articles will outline why this investment strategy is so great, and how you can use it to achieve some of your longer-term financial goals.

Once you feel comfortable with putting capital to work, I personally highlight an undervalued dividend growth stock every Sunday.

These are compelling long-term dividend growth stock investment ideas that I share publicly.

While time isn’t necessarily the ally it was for you a couple decades ago, don’t let that discourage you. Investing is still an available lever for you to pull.

However, keep in mind that frugality will probably be the far more powerful lever, as it could allow you to make up for lost time and opportunities.

Pulling both with maximum effort will likely give you a great shot at retiring again… but permanently this time, Donna.

You’ll want to strongly think about getting started as soon as possible, as your future retirement still needs time and money to build out.

I wish you luck and success.

Jason Fieber


Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.