Our 30s can push our finances to the limit; however, our 40s present a unique opportunity. We can set the stage for an extraordinary Happy Cash Flow Retirement during this decade.
The stock market will significantly contribute to our retirement success through growth and capital gains, but mainly through income.
Our income investing allocation should match our age; therefore, it should be between 40% and 49% in our 40s, depending on our age.
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Welcome back to the Stock Market Investing at Any Age Series (20s, 30s), where we extract our happiness from the market through dividends.
What’s important in our 40s? We used our 20s to learn about the markets and our 30s to survive the onslaught of kids, careers, and houses.
Our 40s present a time when we should have our spending habits under control. We shouldn’t have the urge to buy random expensive cars and boats.
Instead, we should be hyper-focused on preparing for retirement. Outside of paying for our kids’ college education, nothing should matter more than securing a financially successful retirement.
Let’s start with college for our kids. Why do middle-class people believe they can afford to send their kids to expensive colleges? This has always amazed me.
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Hopefully, you read my article, “Treasury Bond Face-Off: Savings Bonds, Treasuries, TIPS.” I placed some gems regarding saving for college.
If your future retirement looks fuzzy in your 40s, you will have to devise an alternate solution for your child’s college tuition. Sorry, that’s how life works.
The main option is for your kids to join the armed forces. This is the most rewarding way to earn money for college and other expenses. My son is 18 and is currently in the process of joining the service.
If the military is not an option, your kids can attend junior college. They don’t even have to take a full course load. They can work and pay for a couple of courses at a time.
I attend Pensacola State College, and it’s a good experience. I take one course in person and the other three courses online. The Department of Veteran Affairs pays me to attend ($1,800/month).
As your kids work through college, you can get a roommate to assist with saving for retirement, paying down debt, and funding college costs. It’s a family effort.
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Everyone’s top priority is to escape their 40s without taking on college debt—for the kids or the parents. With that goal in mind, we can move to stock market investing.
Income investing conquers all. It’s nice to sit on huge capital gains from index funds and growth stocks like Tesla (TSLA) and Amazon (AMZN).
However, the best feeling is receiving crisp monthly dividends to your account. My wife and I earn $2,200 in monthly dividend income, mainly from income-investing products.
Consider your future expenses in your 40s and create a budget that is future-focused. Let’s examine a typical 45-year-old’s scenario.
Bob and Jill have two kids over 18. One child is attending community college while paying their tuition via grants, scholarships, and working a job. The other child joined the US Marine Corps to do the Lord’s work.
Bob and Jill have 20 years left on their mortgage, for which they pay $2,000/month. Their total expenses, including bills, food, mortgage, and entertainment, are $8,000/month.
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Bob and Jill set their future-focused budget for their 60s at $5,000/month. That means they want to achieve $5,000/month in dividend income before they reach 60.
Over the years, they will need to cut expenses, not grow them. They will pay off their house and cars and potentially get a roommate as the children move out.
How to become an income investor. Bob and Jill should allocate 45% of their stock market resources to income-investing products such as closed-end funds, preferred shares, mortgage REITs, business development companies, high-yield dividend stocks, and dividend ETFs.
Their goal is to earn $5,000/month just from income investing, which is quite possible over 20 years. To reach this goal, they must invest $600,000 at 10%. They can do this.
They should start with closed-end funds and mortgage REITs like PIMCO Funds (PDO, PDI, PTY), Eagle Point Credit (ECC), Oxford Lane Capital (OXLC), AGNC Investment (AGNC), and Annaly Capital (NLY).
These super high-yield products produce massive dividends but can seem risky to some. Bob and Jill can diversify their income portfolio using the dividends to purchase preferred shares and baby bonds like Gladstone Investment Preferred “I” (GAIN-I).
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Preferred Shares and baby bonds offer lower risk while still yielding 6-9%. Bob and Jill will reach their income goals by using high-yield investments to acquire more high-yield investments.
Their other allocations. As important as income investing is to their retirement success, Bob and Jill will need to invest in speculative stocks, growth index funds, and dividend growth investing products.
They should allocate 5% to speculative stocks that just had an IPO or other cryptocurrency ETFs like Graystone Bitcoin Trust (GBTC).
They can dedicate 25% of their portfolio to index funds, such as the Nasdaq 100 (QQQ), Dow Jones Industrial (DIA), S&P 500 (SPY), and Total Stock Market (VTI).
Bob and Jill use speculation and index funds to grow their wealth using capital gains. They should not plan to sell shares of these funds.
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However, these funds will increase their net worth to sky-high levels that they can leverage to pay for college or home down payments for their grandkids.
Finally, dividend growth investing. Their final allocation is to dividend growth investing stocks like McDonald’s (MCD), Johnson & Johnson (JNJ), Home Depot (HD), and Tractor Supply (TSCO).
These stocks provide growth and income. When they are ready, Bob and Jill can turn off dividend reinvestment for these stocks and use the income to supplement their income-investing products.
Dividend growth investing is a powerful tool, but it requires a good 20 years to generate the type of income Bob and Jill will need to thrive during retirement.
By focusing on income investing, they can use current income in a pinch. Some examples are paying for school books, buying a used car, or saving for a vacation.
There is no substitute for income. Income is all that matters; we should all be laser-focused on growing our monthly dividend income.
Living a Happy Cash Flow Retirement
Today, I am taking my family of four—plus my parents and my son’s girlfriend—to Olive Garden for a $250 meal.
That’s okay because I received over $800 in dividend income from PDI, ECC, OXLC, and XLFT. I have long-term, recurrent, and sustainable income from the stock market.
Therefore, I can celebrate whenever I want because more income will arrive in my accounts before I get home. I’m letting my income products do the work for me.
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Conclusion. It all comes down to income and budget. You are financially free if your passive income from dividends exceeds your expenses.
As Bob and Jill retire, they hope to receive additional income from Social Security, pensions, and 401 (k)s; however, those are bonus payments. They can control their retirement by becoming income investors.
My next financial milestone is to earn $5,000 per month in dividend income. I believe it will take three years, and I will be 46. With this money, I will free my family forever. You can become an income investor in your 40s, too. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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