Living The Dream

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The dream is financial freedom. 
The safety net is financial security. 
The life is a self directed life.

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Figuring out how much income is needed for retirement is a very personal dilemma for each and every one of us. It has a lot to do with our personal needs, wants and desires as we age. And it has a lot to do with our image of what retirement is supposed to be. What most of us find out as we approach retirement is that the image we had when we were younger isn't the image we have as we get older. Unfortunately for most of us, the retirement we wanted is rarely the one we get. But with a little bit of planning, anything is possible.

If you want to end up living the retirement you want, you need to start at the end and work the problem backwards. Figure out how much income is needed in retirement and then save and allocate your funds appropriately. For example, suppose an investor calculates that he needs $50,000 per year in income in order to retire comfortably. I've chosen that number because that's approximately what a family of 4 lives on in the United States today, according to the Bureau of Labor Statistics. So how does an individual dividend investor obtain this level of income?  The answer is fairly simple. Simply calculate the yield on your current investments and then calculate the sum necessary to produce $50,000 of income. (see table below)

If the yield you receive on your investments is:
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%

You need this size portfolio to produce $50,000:
$500,000
$555,556
$625,000
$714,286
$833,334
$1,000,000
$1,250,000
$1,666,667
$2,500,000
$5,000,000

When you finally get the appropriate level of income from an income producing source that grows at a rate equal to or greater than the rate of inflation, then you have arrived at your destination. You are now living the dream. You're financially free, financially secure, and you've earned the right to have a self directed life. 

Enjoy the freedom.