Since I retired in 2005, everything has gone up except my available retirement funds, Therefore, I am looking for income-generating investments. I’m 75 years old, so I don’t have a lot of time to wait for growth.
Really great to hear from you, Brianna. Thank so much for writing in. And thanks for reading!
I can say for sure we have something in common.
Although I’m 40 years younger than you, I’m also “retired”.
I no longer have a day job at all.
And so I rely on income-generating investments to produce the passive income necessary to cover my essential expenses (housing, food, transportation, etc.) in life.
The income-generating investments I use can be found by checking out my personal portfolio, which is a real-life portfolio that I built with real-life money.
And the real-life passive income this portfolio generates for me pays real-life bills.
There are plenty of ways to go about producing income via investments.
At your age, perhaps a strong tilt toward fixed income (like Treasuries) might be prudent.
However, I also think the investment strategy I personally used to unlock retirement decades before most people works for all ages, and I intend to continue using this investment strategy for the rest of my life.
That investment strategy is dividend growth investing.
It’s a wonderful strategy for both early and traditional retirement income.
This strategy basically involves buying and holding shares in high-quality businesses that reward their shareholders with growing dividends, which are funded from the growing profit these businesses generate.
You can find more than 800 US-listed dividend growth stocks by perusing David Fish’s Dividend Champions, Contenders, and Challengers list.
You’ll notice that this list is chock-full of blue-chip stocks.
That’s because it takes a great business to generate the kind of steadily growing profit necessary to continue paying out ever-larger dividends year after year for decades on end.
While fixed income pays little due to low interest rates, many high-quality dividend growth stocks offer yields well in excess of 4%, which goes a long way in retirement.
Better yet, while fixed income is, well, fixed, dividend growth investing implies right in the name that you’re instead looking at growing passive income.
That works great for any retiree, because we know that expenses will only continue to grow over time.
Inflation practically guarantees that many of your essentials will cost more in five years than they do now.
Well, many of the highest-quality dividend growth stocks out there have been increasing their dividend payments every year for decades.
Johnson & Johnson (JNJ). 3M Co. (MMM). Procter & Gamble Co. (PG).
Each of these companies has increased its respective dividend for more than 50 consecutive years.
And they offer pretty appealing yields, too.
So you’re looking at healthy passive income today, along with a pretty strong assurance that this income will be more next year… and the following year… and the year after that. So on and so forth.
In addition, high-quality dividend growth stocks tend to increase their dividend each year faster than the rate of inflation.
While inflation has been tracking at somewhere around 2% per year over the last few years, many high-quality dividend growth stocks are handing out 7%+ dividend increases annually.
You can imagine what happens when your expenses are growing at ~2% per year while your income is growing at ~7% per year.
That improves your purchasing power over time – and it keeps your retirement on track.
It also allows for more flexibility down the road.
Perhaps you want to up your lifestyle a bit. Or maybe an emergency pops up.
Whatever it may be, generating more income and having more money can’t hurt.
And while you’re more interested in income than growth, you’ll find that many dividend growth stocks provide rather healthy capital gains on top of the passive income.
That’s because while these businesses are generating the increasing profit necessary to pay those growing dividends, they’re becoming worth more in the process.
Another great thing about this investment strategy is that it’s so intuitive and straightforward.
It’s not hard to understand how many of these companies make their money, and so you have some peace of mind when it comes to navigating these companies and relying on that dividend income.
For further peace of mind, however, I’d definitely recommend reading through fellow contributor Dave Van Knapp’s series of lessons on dividend growth investing.
These articles can teach even a novice investor how the strategy works and how to use it for one’s personal needs.
But you’re not alone, even if/when you’re ready to put capital to work and invest in dividend growth stocks.
We’re here to continue providing quality content and ideas.
In the spirit of that, I personally write an article every Sunday that highlights an undervalued high-quality dividend growth stock for that week.
These are actionable and compelling long-term investment ideas that appear to be great candidates for new capital at the time of publication.
I am truly sorry your retirement funds haven’t performed as expected, Brianna.
But – and this is from personal experience – dividend growth investing is a great investment strategy to provide the growing passive income necessary to pay those real-life bills in retirement, while also providing some measure of peace of mind that the income will continue to flow and grow.
That said, it’s up to you to do your homework and make the right investments for your personal situation.
You do have some excellent tools at your disposal, though.
No matter what you decide to do, the best time to start making moves toward a healthier financial future is today.
I wish you luck and success.
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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.