DGI When You Are Nearing or in Retirement
People require income — personal cashflow — to pay for the necessities and luxuries of life. Capital tied up in stocks (or any investment) must be converted to cash to be of any use.
The unique thing about dividend growth stocks is that they provide cash flow organically: Dividends are declared by the companies themselves, and they are sent to you directly by each company.
Dividends don’t flow through the market, and they are not affected by the market. The market has nothing to do with dividends. They come from a different mechanism altogether: Companies send them straight to their shareholders.
Therefore, you don’t need to sell assets to receive your cash.The dividends come to you without any action needed on your part.
If you reach a point that you can live on the organic income from your investments (when added to other income such as pension or Social Security benefits), you will achieve financial independence. You won't need to sell your assets for spending money, so your assets will never run out. Inflation won’t bring you down, because studies show that in most years, the rising dividends grow faster than inflation.
Many professional advisers refer to the retirement years as a “decumulation” phase. That means that they portray retirement as requiring a sell-off of assets to provide the income you need. The main question becomes, at what rate can you liquidate your assets without running out of assets to sell while you are still alive?
Most DG investors don’t look at retirement that way. Their assets – DG stocks – send them money, and the amount increases each year. Under normal circumstances, such retirees don’t have to sell anything to fund their retirements.
Some people say, “A dollar is a dollar, why do you care where it comes from?” But the difference is important. The difference is that if you are selling shares to fund retirement, you are depleting your assets. Conversely, the retiree who simply collects dividends is not depleting his or her assets.
A common analogy to DG investing is the case of a landlord. There is an obvious difference between a landlord who slowly sells off his or her rental properties compared to a landlord who collects the rents and does not sell their properties. The first landlord will eventually run out of properties to sell. The second will not.
One will often hear that living off income is only for the very wealthy. That misses the fact that you don’t need to be any wealthier to build a portfolio that pays you than a portfolio that does not. The only difference is what kind of stocks you own.