Dear DTA,

My goal is to survive monthly bills and retire early. I’m 55 years old.

-Francesca P.

Hi, Francesca. It’s great to hear from you. Thanks for writing in to us.

We dearly appreciate readers just like yourself, and we’re doing our best to reach out and help in any way possible.

It’s great to hear that you’re interested in retiring early.

As someone who retired from my career at 32 years old to focus on building a life that includes more freedom, happiness, and personal fulfillment, I’m wholeheartedly excited for you.

Since I walked this same path a couple decades earlier than you, I think I’m in a pretty good position to provide some valuable information.

Now, one major part of my entire plan was to learn how to live on less.

Wants are insatiable, yet needs are actually quite cheap in a developed country like the United States.

Comfortable housing, three square meals a day, and transportation can all be had for relatively little money.

Of course, a mansion, regular restaurant visits, and a sports car will all be expensive.

So it’s really important to right-size your lifestyle.

When you’re able to spend less, you’re able to save more. When you’re able to save more, you’re able to invest more. And when you’re able to invest more, you can build more passive income that much faster.

Moreover, spending less means you need less passive income to live off of.

Thus, living on less means more investment income for you at a faster rate, which itself will go that much further when it has to cover less expenses.

This can compress the time line to early retirement on both sides of the equation (earning and spending).

As such, it’s important to ask yourself what really matters in your life.

Does superfluous consumption matter more than your life and time?

When you’re able to get the spending down, it’s time to invest your excess capital.

The investment strategy I personally chose to support my own early retirement is dividend growth investing.

This strategy involves buying (and holding) shares in high-quality businesses that pay their shareholders increasing dividends (which are funded by the growing profit these high-quality businesses generate).

You can find more than 800 US-listed dividend growth stocks by perusing David Fish’s Dividend Champions, Contenders, and Challengers list.

Taking a look at Mr. Fish’s list will reveal a number of well-known, blue-chip companies.

Investing in great businesses is a fairly straightforward proposition.

But investing simply is not investing poorly.

Some people believe successful investing must be complicated, but that’s just not true at all.

In fact, it’s often the opposite.

Just take a look at the common stock portfolio built by Warren Buffett – you’ll notice many high-quality dividend growth stocks in there.

Seeing as how Buffett is the most successful investor of all time, I see investing in a similar manner as a very intelligent thing to do.

Indeed, by living below my means and aggressively investing in high-quality dividend growth stocks, I’ve been able to build a six-figure dividend growth stock portfolio that generates five-figure passive and growing dividend income on my behalf.

And most of this portfolio was built in about six years’ time.

I’m able to cover my core personal expenses with that passive income because I don’t spend much; I live in a small apartment, I take the bus, and I eat at home a lot.

But I’m happier than I ever was when I was working a lot and earning/spending much more.

So you can see that it doesn’t take years and years to build a fairly significant source of passive income and retire early.

The good news for you is that you’re still young.

If you’re able to commit just five years to a plan like this, you could be sitting pretty at 60.

And retiring at 60 still qualifies as “retiring early” in my book, as many surveys and studies are indicating that many people out there are never able to actually ever retire.

Plus, you being a bit older than me is an advantage in some ways.

While I have just my portfolio to generate passive income for me for the next few decades of my life, you’re not far away from collecting Social Security income.

That means retiring at 59 or 60 years old would involve figuring out how to fully cover your bills for just a few short years before SS would kick in.

And this is before factoring in any traditional retirement accounts (IRA, 401(k), etc.) or pension income you might also have access to.

If you have a 401(k) and/or an IRA, you can start withdrawing from these assets (without paying penalties) at 59.5 years old.

In fact, due to your age, it makes sense to aggressively use any tax-advantaged vehicles you have available to you (IRA, Roth IRA, 401(k), etc.), as they’re all going to be fully available in less than five years.

A great exercise that you can do right now would be to take a look at all of your assets and potential passive income.

Then compare that to your anticipated expenses in early retirement (after factoring in any necessary cuts to expenditures).

Any assets (like index funds in a retirement account) that don’t generate substantial organic dividend/distribution income could probably be thought of as generating 4% annual income as a proxy, as multiple long-term studies have shown some measure of safety when drawing down 4% of one’s assets in retirement.

Looking at these numbers will tell you what kind of expense coverage you have (passive income/expenses).

While a coverage ratio of 100% is always preferred, you’re not far away from a big income kicker down the road (SS). So that should be factored in.

All in all, you’re likely in a great spot.

But you’ll want to remain healthy (to limit healthcare expenses), right-size your lifestyle (learn how to live on less), and make sure you’re making the most of your excess capital (by investing intelligently, such as dividend growth investing).

A great resource to help with that last part is fellow contributor Dave Van Knapp’s dividend growth investing lessons, which is a series of articles that collectively highlight how dividend growth investing works and why it’s such a great long-term investment strategy.

And then if/when you’re ready to put capital to work, I reveal a compelling long-term investment idea every Sunday as part of the undervalued dividend growth stock of the week series.

I know almost nothing of your financial situation, so much of my advice is designed to be as broad as possible.

That said, if you really give this idea maximum effort and totally commit to the plan, Francesca, I’m fairly confident you’ll end up surprising yourself with how much success you’ll experience.

But the key will be starting as soon as possible.

I wish you luck and success.

Jason Fieber

[ad#agora]

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.