Saving for retirement is boring. Somehow, at age 25, you are supposed to prioritize your retirement planning over buying a flashy car. This rarely works in reality because it’s a tough pill to swallow.
However, there is a different way, but it will take a complete shift in mindset. What if I told you that you could have retirement income today?
That’s right; you can save and invest for retirement while enjoying the fruits of your passive income today. It’s an amazing thing, and we call it income investing.
I Am Buying 30-Year Bonds Over 4%
A paycheck today and tomorrow. The goal of saving for retirement is to create income during the years you are not working.
Most people typically save for retirement in a 401K account. They work from age 25-66 while slowly saving 5% of their income inside their 401K.
As shown in the picture above (source), the median and average balances are low. If you have $255,151 in your account, it will only produce $850/month in income (withdrawing at 4%).
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Most people would rather enjoy their money today than wait for $850/month at age 66. It’s human nature to focus on today at tomorrow’s expense.
But what if we could have the income today and the security tomorrow? Can we really have it all by changing our mindset and habits?
The power of income. This month, December 2022, I will receive over $1,500 in dividend income. Not only will I receive my $1,100 in dividends from income investing, but my portfolio is also paying another $400 in special dividends.
Pumpkin Spice & Royalties 2
So what can I do with this money? I can do whatever the hell I want with this money. I can buy a Samsung Galaxy Tab S8 Ultra (my Christmas present). I can take my family to a fancy hotel and have an expensive dinner.
Life is great as an income investor, but I didn’t find these dividends randomly. I had to change my entire mindset to allow me to focus on tomorrow by budgeting today.
Increase your savings rate. The biggest shift will be to cut expenses and begin living below your means. To build income, you must invest cash flow.
Turkey & Turnkey 2
It takes years to build anything substantial if you are saving 5% of your income into your income portfolio. Don’t get me wrong; something is always better than nothing.
But if you can get your savings rate over 30%, you will build a massive paycheck quickly. In 3.5 years, my wife and I went from $0.25 in dividends (Aug 2019) to $1,500 (Dec 2022).
We did this by paying down all our debt, reducing expenses, paying off our cars, getting roommates, and starting a business.
We put $3,000 to $4,000 monthly into our income products to enjoy our dividends today and tomorrow.
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A paycheck for life. It’s hard to believe I already have a social security payment at age 41. That’s right; my income portfolio will probably pays me more today than social security at age 66.
More importantly, I can continue to grow my income by reinvesting some dividends. My wife and I spend about 30% of our dividends on frivolous stuff (for me, Taco Bell, and video games).
We reinvest the rest. So even without adding additional capital, at least $800 to $1,000 is going back into the portfolio. We will make over $10,000/month in dividends by age 66.
Fruits of the Dividend Growth Investing Tree
We will have much more than that by just staying the course and living humbly. But dividends also allow us to splurge from time to time.
Becoming an income investor. Do you need to do anything crazy to become an income investor? Absolutely not; you only need to determine your risk tolerance.
I have a very high-risk tolerance because I have a high-paying job and a military retirement coming my way. So, my dividends can disappear and won’t change my life (just piss me off).
The Magic of Compounding
However, if you will only have a 401K upon retirement, you need to gear your portfolio towards safety.
You will want to build a large emergency fund with high-yield savings accounts, CDs, and saving bonds. Also, add some 30-year bonds for good measure if the interest rates are decent.
Then you want to add some index funds and dividend growth to help your portfolio grow with the market. Don’t worry; I have all of these products as well.
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Finally, you can consider income investing once you establish your safety nets. It sounds like a long way to get to the fun part, but it is worth it.
Let’s say the emergency fund, index funds, and dividend growth requires $200,000. Those products will continue to grow in the background with little need for additional capital.
Conclusion. Now, you can focus extensively on investing for income. I use these six categories of securities to build my paycheck:
- From Dirt to Dividends 1: Gardening & Preferred Shares
- From Dirt to Dividends 2: Livestock & Closed-End Funds
- From Dirt to Dividends 3: Insects & Business Development Companies
- From Dirt to Dividends 4: Community Farming & Mortgage REITs
- From Dirt to Dividends 5: Composting & Dividend ETFs
- From Dirt to Dividends 6: Vermiculture & High-Yield Blue-Chip Companies
It’s a great feeling to get a paycheck and invest directly in products like PIMCO Dynamic fund (PDI). I buy knowing I am getting 12-13% yields for life.
Retire Rich, Retire Comfortable with a Business 4
Income investing is not for the average person. It takes a strong sense of purpose to understand the process. The prices of your securities will change, especially with rising and falling interest rates.
You must understand you are buying income products and not trading on emotion. It’s a tough road for most people, so I don’t expect most to practice income investing.
However, I am a proud income investor. My wife loves receiving her dividends today. There is no feeling like walking through the mall with $200 in your pocket from dividends.
You will feel like you can conquer the world because you have figured out the game of life. The American Dream is passive income, and income investing is the best way to obtain your dream. Good Luck!
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