Is it possible to live off of your Dividends? Well for a lot of people, no, this won’t be possible. But for the lucky few this would be possible.
Firstly you would have to ask yourself, how much do you need to live off? For me, I live a very low cost of living lifestyle, although, I do live in a very expensive country (Australia) and in one of the most expensive states (South Australia). Regardless of where you live it most definitely is possible to live off dividends. What we will look at is a few examples of how to work out how much you need to live off dividends and what yield would be required to live off those dividends. Makes sense?
So let’s work on how much is required to live off. Let’s take the median wage in Australia as a base point. In Australia the median wage in South Australia is $55,848 a year. This means 50% of people earn more than that and 50% of people earn less than that figure. We also have to take into account that the figure is before tax. We will assume that the shares that pay dividends have franking credits which means the tax will already be paid. So now we have to work out how much that figure is after tax. According to PayCaluclator – after tax the amount is $46,275.00.
This figure is basically a full time wage that you can receive without working. I believe you could save money on this, but for this example let’s just say this is how much is required for you to retire.
So to achieve that magical feeling of living off dividends your portfolio will have to be valued anywhere from $660k to $1.85m. This will take many, many years and for most people is unavhievable. But don’t let that discourage you from trying to achieve this goal. This does not take into account Dividend Reinvestment Plans, increases in portfolio and dividend payments. If your portfolio were to grow 7%+ a year, over 40 years this would be very achievable. So not all hope is lost. You just have to work at it.