Retirement isn’t easy. Many times, folks don’t start thinking about retirement until late in life. It’s only natural; we all have a neverending cascade of problems to deal with on a daily basis. 

This leads many to procrastinate their retirement planning — after all, isn’t student loan debt, a mortgage that costs double the borrowed amount after interest, maintaining job security, taking care of children, remodeling the kitchen, and trying not to get hit by a tailgater on the way to work enough? 

Well, no. We all need to think about our retirement; and if you’re reading this article, that means you’re already one step ahead of the game. 

As you prepare for retirement, it’s important to take into consideration your income needs, potential streams of income, and potential problems regarding those streams of income. For instance, your social security may only provide you with $2,000 per month. In this case, you’ll likely need to find other ways to supplement your income. This is where dividend stocks come in, and how planning in advance can help you retire with dividend stocks.

What Are Dividend Stocks?

Dividend stocks are any shares of a company that pays out dividends for owning them. Dividends are shares of profits or earnings that a company pays out to shareholders, typically quarterly. 

Different companies pay out different amounts based on their company policy and stock performance. Since dividends are often paid out four times per year, they’re a good way to supplement your retirement income with regular cash flow.  

Rather than having to rely on your shares’ value increasing and then selling them, you can simply hang on to the shares and count on regular income from them during retirement. 

Think of your dividend stocks as a rental property; you own the property, and therefore you get to earn rent payments each month. Then, if you choose to, you can sell the property for a lump sum at any time.

In this article, you will learn everything you need to know about retiring with dividend stocks. We’ll also cover the best dividend stocks for retirement, whether you can retire early with dividends, how dividends work in a Roth IRA, and more.

How To Retire With Dividend Stocks

How to Retire With Dividend Stocks

When planning for any retirement, there are several things that should be carefully considered. First, what does your risk tolerance look like? 

Your risk tolerance is the amount of risk you’re willing to deal with (or tolerate) regarding your investments. It’s important to note that nearly every investment carries some amount of risk, other than federal treasury bonds. 

However, holding your money in cash, despite being considered safe also carries some risks — the biggest being inflation. Estimates for cumulative inflation from 2000 to 2022 are above 70%, with inflation hitting 9.1% in June 2022. 

In other words, the buying power of the dollar will likely be nearing half what it was in 2000 within a few years. If something cost $100,000 in 2000, it would, on average according to inflation, cost over $170,000 today. 

This is why investments are so important to retirement. If you planned to retire for up to 25 years in 2000, inflation would eat away much of your money’s buying power if it wasn’t invested. This is where stock dividends are helpful: dividends tend to increase over time (assuming the value of your shares increases) unlike the interest earned from bonds. 

So, if you put your money into a successful company (or a portfolio of them), your stocks will increase over time, usually even faster than inflation, as well as the dividends on them. This remains one of the main advantages of investing in stocks.

So, how do you retire with dividend stocks?

Well, first you need to find some good dividend stocks to invest in. The easiest way to predict your dividend payouts is by looking at a company’s annual dividend yield. A company’s dividend yield shows you the percentage of a company’s share price that is paid out in dividends each year. 

Generally speaking, a dividend yield of 2-4% is strong, though there are certainly many that surpass that. That being said, a dividend yield that is too high can be a sign that the company is risky and may have poor financial stability. 

If you’re looking for some suggestions, here are some of the best dividend stocks for retirement as of the writing of this article.

Best Dividend Stocks for Retirement

When looking at dividend stocks for retirement, there are a number of factors that should impact your investment decisions. 

When looking for these kinds of investments, you should generally be picking stocks with strong financials and industry authority. The best dividend stocks for retirement usually have:

  • Low debt-to-equity ratios, usually under 2.00 
  • Long-term profitability (not a brand-new tech startup) 
  • Proven ability to weather bear markets 
  • Strong cash flow and earnings growth expectations 
  • A long track record of paying dividends with strong dividend yields

Here are 10 strong, reliable dividend stocks that are worth bringing up to your

investment advisor:

1. Procter & Gamble Co. (PG) 

2. 3M Co. (MMM) 

3. American Electric Power Company Inc. (AEP) 

4. United Parcel Service, Inc. (UPS) 

5. Southern Co. (SO) 

6. T. Rowe Price Group Inc. (TROW) 

7. Coca-Cola Co. (KO) 

8. Prudential Financial Inc. (PRU) 

9. Johnson & Johnson (JNJ) 

10. Paychex, Inc. (PAYX)

Retiring with dividend stocks

You see, the key to retiring is having enough passive income to cover your expenses. This is where dividend stocks come in. With most people’s idea of traditional investing, you’d buy stocks, then hope they go up in value, and then sell when you need the money. The problem, of course, is that you don’t have a steady stream of income to cover your daily expenses.

With dividends, however, you can amass enough regular income to cover your day-to-day retirement lifestyle, while also holding stocks that increase in value. Furthermore, your dividends should increase over time — which will help you avoid the invisible tax of inflation.

So, to calculate how many dividend stocks you must own, you’ll need to first figure out how much monthly income you’ll need from them. For instance, let’s say you’re going to make $2,000 per month from Social Security during retirement. You need $4,000 per month to live comfortably. Thus you’ll need to make an average of $2,000 per month from dividends. 

However, you will likely want to err on the side of caution. Since dividends are involved with the stock market, your dividends may temporarily go down during periods of economic slowdown or recession. Therefore, you want to make sure you’ll have enough even during the worst-case scenario.

Since dividends are typically paid quarterly, you’ll want to take your desired monthly income from dividends and multiply it by three. This will give you the average quarterly dividends you hope to make. It’s important to note, however, that some companies pay dividends semi-annually, annually, or even monthly. Be sure to pay close attention to when your stock dividends are paid and in what amount. Keeping a spreadsheet can help you keep track of this as well as regularly meeting with a financial planner/investment advisor. 

As stated earlier, the dividend yield of a company is the percentage of a company’s stock price that it pays in dividends each year. So, if you invest in a company that has a dividend yield of 4% and pays its dividends quarterly, you will receive roughly 1% of its share price per quarter.

Finally, you want to remember that dividends are usually taxed as ordinary income. So, when you’re ready to retire, you’ll want to look at the tax brackets for the current year and figure out which bracket you’ll fall into. 

If you’re right on the cusp of two brackets, you might want to aim for the lower one since any additional income you make that pushes you into the higher bracket might be eaten up in taxes anyways. 

How to Retire Early With Dividend Stocks

How to Retire With Dividend Stocks

So, now that you know the basics of dividend stocks and some of the best ones for retirement, you may be wondering… can I use dividend stocks to retire early? The answer is yes. However, like anything worth having, it won’t come easy. You see, there are a few main factors that determine your ability to retire.

The first is your income. Your income will determine how much money you’re able to invest in dividend stocks, a 401(k), how much social security you’ll get, and more. It’s pretty common sense. The more money you make, the more money you can invest, and the more money that your investments will make. If retiring early is a priority to you, increase your income any way you can.

Next are your expenses. Your expenses/lifestyle are one of the most important factors in determining your ability to retire. For one, when you cut back expenses, you have more money to save and invest. 

If you can spend $500 less per month, you can invest about $60,000 base income over the next 10 years — not including the compound interest that those investments make during those 10 years and after. When you realize that $500 per month can add up to hundreds of thousands of dollars in lost retirement revenue, you may think twice about your daily indulgences. 

The other way that cutting back your expenses helps you is that it gets you accustomed to a lifestyle that’s easier to sustain during retirement. Since most retired households spend less money than working households, it’s good to get used to that lifestyle now so you’re not stuck having to adjust during your golden years. 

Furthermore, there are some other things that can help you to retire early. For instance, if you get an inheritance, this can massively reduce your timeline for retirement by giving you a large starting investment account to work with. With compound interest, a sizeable investment can turn into a massive goldmine over a long period. The more capital you have to work with upfront, the more you’ll make and the quicker you’ll make it. 

For example, $10,000 invested in the S&P 500 in 2001 would be $50,913.05 by the end of 2021. However, if you had $100,000 to invest, you would have over half a million by 2021. While you certainly don’t need an inheritance to retire early, knowing how to invest it can save you years of saving if you do get one. 

The cherry on top? While your investment grows, so do your dividends. 

Roth IRA dividends

Roth IRAs remain one of the most popular retirement investment accounts and likely will for the foreseeable future. They’re particularly popular with dividend investors, as they allow you to reinvest your dividends completely tax-free. 

As stated before, dividends are typically taxed at an ordinary income rate. Furthermore, you can choose to automatically reinvest your dividends so that you don’t even pay a broker’s commission!

If you’re someone looking to invest less than $6,000-7,000 per year in a retirement account with dividend stocks, a Roth IRA is certainly one of the best options for you. 

You won’t pay any taxes on your reinvested dividends nor your capital gains when you withdraw from it. 

Can You Get Rich Off of Dividends?

How to Retire With Dividend Stocks

Yes. You can get rich from dividends if you regularly invest in strong dividend stocks over a long period of time. Dividends are particularly lucrative when reinvested; however, as they’re able to increase in value along with the rest of your investment, which compounds your money. Again, generating even more dividends — and the cycle continues. 

That being said, you don’t have to reinvest dividends into your stocks. Any form of passive income (which dividends are) will help make you rich. In fact, passive income is often exactly what separates the wealthiest people from the middle class or poor.

For instance, you may choose to use your $2,000 per month average dividend income to pay a mortgage on a new property you bought. You can now pay a mortgage on a new house without having to work for any of the money you use to pay it. As the housing market increases, you can walk away with hundreds of thousands of dollars in profit over 10-20 years.

The bottom line is, that dividends are passive income. And passive income is one of the most surefire ways for average, working-class people to become rich.

Can You Live Off of Dividends? 

Living off of stocks and in this case dividend stocks is one of the most attainable ways to retire early and retire in general. Simply continually invest in dividend stocks each month and reinvest dividends in the short-term. 

Over time, this can build a portfolio that will generate thousands of dollars per month in passive income that you can live off of.

Meet with a financial planner to map out your investment and passive income goals. They can help you figure out how much you need to invest each month to build up your passive income to enough to live off and retire.


Dividend stocks are an extremely powerful tool for retirement that can even bring you an early retirement if used with patience and good investment sense. In today’s era of information, anyone can research and keep track of their investments easier and quicker than ever before. 

With so many tools at your disposal, and Social Security more fragile and insecure than ever, now is the time to take responsibility for your retirement and be proactive in your pursuit of financial freedom. 

By starting early, you can save yourself thousands of hours at work, immeasurable stress, and constant worry through your elder years. The last thing you want to worry about during your golden years is whether you’ll be able to afford medical treatment or have to go back to work because you made poor financial decisions. 

Though it may sound dramatic, it’s a very genuine reality for many Americans in today’s economy. With pension plans going out of style, Social Security expected to run out, an ever-increasing cost of living, inflation, income inequality, rising life expectancies, and a host of other issues facing everyday Americans, retirement is a very big problem for many people. 

Nearly a third of senior citizens believe they will outlive their money — and the problem seems to be getting worse, not better. With no one coming to the rescue, now is the time to take charge of your retirement and begin investing in dividend stocks. Cut your expenses, save your money, and most importantly of all, invest it.