By the time I hit 50, I’m hoping to be a wealthy man who has early retirement on the horizon. One way I’m focusing on achieving this is by regularly investing in stocks that either have the potential to pay me a dividend or capital appreciation. Yet there’s the potential for life to blindside me before I reach 50. If something crazy happens, I might find myself with £0 in savings at that point in time. Even if that’s the case, here’s how I can still make lifetime passive income to enjoy retirement.
Having discipline and a plan
My idea centres around being disciplined with my finances and smart with my stock picks. As far as self-discipline goes, I’m going to need to spend less than I earn. This will help me to generate a surplus each month that I can invest in the stock market.
Before I get to my stock picks, I also need to set a realistic timeframe to achieve my goal. For example, there’s little point to me starting at 50 and building my investment pot but only starting to enjoy the passive income when I’m 80. Sure, from 80 onwards I’ll have lifetime income, but I might not live that long afterwards!
Rather, if I reach 50 with no savings, I’m setting a target of 15 years of investing. At 65, I want to be in a position to then enjoy the money for the rest of my life in retirement.
Top dividend stock picks
I can have my strategy all laid out, but if my dividend ideas are poor, I’ll not reach my goal. Here’s how I filter for top income stocks, which I feel are just as relevant for today as they will be in a decade or more.
I exclude any stocks below the current FTSE 100 average dividend yield. There are very few cases (such as if the dividend per share is rapidly growing) as to why I’d buy a stock that’s below average. I’d rather buy a FTSE 100 tracker and pick up the average index yield.
I’d also cut out any stock that has seen a rapid share price fall in recent months. This artificially boosts the dividend yield. Even though the yield might look juicy, if the business has a big problem, it will probably cut the dividend payment in the near future.
Finally, I’ll sort the remaining stocks by different factors. One example is sorting by the number of years of consecutive dividend payments. Another is sorting by the highest five-year dividend growth rate.
Lifetime passive income isn’t a dream
By putting together all the numbers, I think it’s clear that I can still enjoy a decent amount of income even when starting late in the day. Clearly, there will be difficulties and problems along the way. But the concept is sound.
At 50, let’s say I cut back and can invest £300 a month. For the next 15 years, I put this into dividend stocks that yield me 5% on average. When I reach 65, I stop investing (and don’t reinvest the dividends). If I stick to my plan, I’d then be able to enjoy £4,040 each year for the rest of my life.
