Earn $2,500 in Monthly Retirement Dividends in 3 Simple Steps

For many people, a single source of retirement income may not be enough to live the life they envision in retirement.

Fortunately, with intentional investments and consistency, you can put yourself in a position to receive thousands of dollars in dividend income per month. Here are three steps to follow.

Image source: Getty Images.

1. Focus on a dividend-paying ETF

To prepare for attractive dividends in retirement, you should make a dividend-oriented exchange-traded fund (ETF) a key player in your investment portfolio. While many non-dividend-focused ETFs pay dividends, ETFs focused on companies that have consistently paid (and increased) dividends may be more lucrative for those seeking dividend income.

There’s no universally accepted dividend yield that’s considered “good,” but as a benchmark, dividend-focused investors should look for ETFs and companies that, at a minimum, yield 2.5% . the SPDR S&P Dividend ETF (SDY -0.14%) tracks the S&P High Yield Dividend Aristocrats Index and is comprised of companies that have increased their dividend payout for at least 20 consecutive years. With a dividend yield of 2.75%, it can provide decent payouts as your total investment grows.

Say you’ve accumulated $1 million worth of SPDR S&P Dividend ETF shares, which is entirely possible given its historical returns of over 9% per year since inception. With $1 million invested, a dividend yield of 2.74% would yield $27,400 per year.

Here are various annual dividend payments at different account totals.

Account Total Annual dividend payments
$1 million $27,400
$1.5 million $41,100
$2 million $54,800

Data source: Author’s calculations.

With these annual dividends, you can expect to receive monthly payouts of approximately $2,200, $3,425, and $4,500, respectively.

2. Use the cost average

Achieving the account value needed to produce thousands of dividends per month will not happen overnight; you’ll probably need time and consistency on your end. One of the best ways to do this is to use cost averaging, which involves making constant investments at regular intervals, regardless of an asset’s value at the time. Think of 401(k) plans: every paycheck you make contributions to your plan and it’s invested, no matter how expensive or cheap your selections are at the time.

You can choose to break down your investments weekly, monthly, fortnightly, quarterly or however you like. What matters most is that you are consistent and make the investments regularly.

Even if you take away the SPDR S&P Dividend ETF’s 2.74% dividend yield and focus on the 9% it historically yields each year, here’s how much you would have roughly accrued at different monthly contributions.

Monthly fee Annual return Expense ratio Account total after 30 years
$750 9% 0.35% $1.15 million
$1,000 9% 0.35% $1.53 million
$1,500 9% 0.35% $2.3 million

Data source: Author’s calculations.

If you are able to use dollar cost averaging and access these account totals, you can expect to receive thousands in monthly dividend payments. Add to that the compounding effect of the dividend yield, and the total goes up even more.

3. Make Roth IRA contributions

When deciding whether to contribute to a Roth IRA or a traditional IRA, consider when you pay taxes. With a traditional IRA, you may be able to deduct your contributions from your taxable income, so you receive your tax relief up front. With a Roth IRA, you contribute after-tax money and, in turn, your investments can grow and accumulate tax-free.

If you made the above investments in a traditional IRA, you would be paying taxes on the dividends you receive in retirement. If you invested in a Roth IRA, any dividend payout would be tax-free, which could save you thousands of dollars a year. There is an income limit to be able to contribute to a Roth IRA, so it would be best if you took advantage of it while you are eligible for it.

About Catherine Wilson

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