Dear DTA,
My goal is to survive retirement. I’m 57 years old. I had to retire early this year in order to take care of my mom, who has dementia. I am living off of a lump sum and also taking care of her. I need money coming in instead of constantly going out. She requires care 24 hours a day.
-Wanda A.
Hi, Wanda. It’s great to hear from you. Thanks so much for writing in.
My thoughts go out to you and your mother. That’s a very terrible situation.
But it’s wonderful that you’re doing your best to take care of her.
Let’s see if we can help you with this task in some capacity.
Now, your email doesn’t indicate what income sources you’ll be able to rely on once you enter a more traditional retirement age.
I don’t know if this lump sum was given to you in exchange of a pension promise.
Or perhaps you cashed out a 401(k) early?
As such, I’m going to write this response back to you on the assumption that the only other income source you’ll be able to rely on in the future is Social Security.
It would appear you were born in 1960.
That would mean your full retirement age is 67.
So that puts you 10 years out from that income assistance.
That said, you could take your Social Security monthly benefit as early as 62 years old.
That cuts your potential time frame (between now and receiving your benefit) in half.
However, that would, for example, reduce a $1,000 monthly benefit down to $700. So you’d have to decide as to whether or not gaining access to that income as soon as possible is worth the reduction in the monthly payout.
If you haven’t already, signing up with the Social Security Administration’s website is a great idea. It’s a fantastic resource that will give you real-life income projections, which can be based off of a full retirement age or even an early benefit.
Your SS monthly benefit could dramatically impact your future financial planning.
And if your monthly benefit is sizable enough, that could reduce a lot of your concern over long-term care for your mother (and how that will impact your finances).
Either way, it would be prudent to figure out how to reduce your financial footprint as much as possible, as soon as possible.
Said another way, you should start tracking every single penny immediately.
You’re concerned about how money is going out (instead of coming in). But it doesn’t sound like you’re totally aware of exactly how much is going out.
So the first thing you’ll want to do is start tracking every red cent.
Once you have a great idea of exactly what you’re spending (which should only take a month or two), you’ll be able to have an honest conversation about your finances.
What could be cut? Where could you spend less? What’s frivolous? What’s absolutely necessary? What are wants? What are needs?
These are questions you’ll have to answer after you see exactly – down to the penny – what you’re spending.
I can tell you from personal experience that this exercise is invaluable.
I started budgeting over seven years ago, after realizing that my net worth was negative (meaning liabilities outstripped assets). Being worth less than zero meant I was worth less than a baby. A baby is worth $0 (no assets and no liabilities). Yet I was almost 28 years old, and I was worth less than $0.
Budgeting allowed me to actually see where my money was going.
It’s like a road map; you can’t possibly know how to get somewhere if you don’t know where you’re going.
Likewise, you can’t save money and improve your financial picture if you don’t know where your money is going.
Budgeting is your road map to a better and brighter financial future.
Once you have your spending completely under control (assuming it’s not already), you can then start to really focus on the income side of the equation.
You say you have a lump sum. It sounds like you’re just spending this lump sum (i.e., it’s not invested and not earning any kind of investment return/income).
Well, reducing the spending of this lump sum will help you in two primary ways.
First, you’ll be spending less of the lump sum, which will mean that you ultimately need less income (the investment/passive income you’ll hope to generate from the lump sum) to cover your expenses.
Second, you’ll have more lump sum to invest (because you’ll have more of it after the reduced spending takes hold). That will increase the amount of passive income you can possibly generate from this money.
You see how this works. It’s a holistic approach where the spending helps the investment income, and the investment income helps the spending.
How you decide to invest this lump sum is totally up to you, but I can tell you that dividend growth investing is one of the best long-term investment strategies out there. And it’s also perfectly suited for your situation.
Dividend growth investing is essentially an investment strategy that involves buying and holding (for the long haul) shares in high-quality businesses that reward their shareholders with growing dividend payments.
See, high-quality businesses tend to increase their profit regularly, as they’re busy selling more products and/or services to more people all over the world, while the prices of these products and/or services are generally simultaneously increasing.
Well, shareholders are the collective owners of any publicly traded company. Shareholders thus technically “own” the profit of a publicly traded company. A dividend is just a shareholder’s cash flow (generated from the underlying profit) being returned to them. And as profit grows, so should a dividend.
It’s a strategy that I’ve personally used to build a real-life, real-money dividend growth stock portfolio that’s now valued at well into the six figures.
And this portfolio generates five-figure passive dividend income income on my behalf. Better yet, this income is growing totally organic (all by itself), due to the aforementioned business dynamics at play.
Incredibly, I’ve been able to build this portfolio in just a few years… in my late 20s and early 30s. It’s rendered me financially free at 33 years old.
I simply took my savings (from all that budgeting I just discussed) and invested that excess capital into high-quality dividend growth stocks like those you can find on David Fish’s Dividend Champions, Contenders, and Challengers list – a truly fantastic compilation of more than 800 US-listed stocks that have all paid their shareholders increasing dividends for at least the last five consecutive years.
Of course, one needs to understand what they’re doing before they go about investing any money. If you don’t feel like you completely understand how and why you’re investing, you shouldn’t invest one dime of your money.
Fortunately, we have a lot of resources that are designed to help investors achieve the knowledge and comfort necessary to invest.
One such resource is fellow contributor Dave Van Knapp’s lessons on dividend growth investing, which serve to educate an investor on the dividend growth investing strategy in its totality, discussing how this strategy works and how to successfully implement it in real life.
This strategy can convert capital into high-quality passive and growing income.
And that’s potentially what you need to do. Otherwise, your lump sum will eventually be totally spent.
Dividend growth investing has completely changed my life for the better.
I largely owe my independence – literally – to the investment strategy.
However, we’re obviously in different situations.
You’re older than I am.
And you’re also starting out with a lump sum.
A lot of research out there indicates that you’re almost always better off investing a lump sum all in one shot.
Otherwise, you’re simply taking on risk later.
And since the market rises far more often than it falls, you’re probably paying to take risk later.
That said, I can understand apprehension. It’s hard to invest a lot of money all at once. And the broader US stock market is at an all-time high right now.
So if you feel more comfortable, you can invest this money slowly.
But either way, you’ll probably want to start generating passive income as soon as possible, which will help delay (or even possibly wholly prevent) the evaporation of your lump sum.
And if you can start collecting Social Security (either early or at your full retirement age) with some passive income to bolster it, you could find yourself in a pretty solid financial situation in your 60s.
No matter what you choose to do from here (in regard to your spending, investing, Social Security, etc.), you’ll want to start making serious and consequential choices as soon as possible.
Time is of the essence, Wanda.
I wish you luck and success.
Jason Fieber
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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.