Should I invest in dividend producing stocks for retirement in five years?[ Edited ]
I have about 100k sitting in a money market account. I was thinking of using some of it to increase my stake in some of my dividend stocks ( wisconson energy, micro soft, altria, ) and just let the dividends re-invest for the next 5 years until I retire. that should give me about 20k more per year for my retirement. do you see a problem with this idea or do you know of a better 1. I have no debt, I have enough emergency cash I believe, all bills are paid w/cash left over.
$100k in cash, no debt, a reasonable emergency fund, and money left over each month? Sounds like you’ve got a pretty solid day-to-day financial situation! On the flipside though, I'm having trouble tracking with you on how you could invest $100k for 5 years and have the result equate to and extra $20k per year in retirement. That would have to be one heck of a return!
In either case, your question about if you should invest this money remains a good one. And even though I don't have quite enough information to give you a specific answer, what I can do though is give you some points to ponder to help you decide, so let’s dive into that.
Time for some serious planning
One of the first things you can do to help with your decision is some serious number crunching for your retirement. There are two primary goals here:
- Determine your needs from your portfolio – To know how you should invest your retirement funds, it helps to first know what you need those funds to do for you. To determine this, you want to compare your expected level of fixed income in retirement to your planned level of expenses in retirement. Add up things like Social Security and pension income and compare this total to the standard of living you wish to maintain. Assuming your planned expenses are higher than your expected income each month or year, you need your portfolio to provide to you the difference.
- Determine if portfolio can support your needs – Once you know what you need to get from your portfolio, you can then make two assessments: Is your portfolio large enough to provide your needs and how should you invest it to cover your needs? As part of these assessments, you’ll have to decide whether you only want to spend earnings from your portfolio or if you’re okay spending down your principal as well. If you choose to spend only earnings, your portfolio will typically have to be larger than if you’re alright spending the principal too.
After working through these points, you should have a better handle on how your money should be invested and consequently, whether or not adding in more dividend-producing stocks to your mix would make sense.
In deciding what to do, I strongly suggest that you look at your complete retirement portfolio from a diversification perspective. Generally speaking, you’ll want your retirement portfolio to include multiple asset classes so that you’re not putting too many of your eggs in one basket. Again, since I don’t know what else you have, I can’t offer any insight into how you’re currently doing in this area but I can’t stress it’s importance enough. Load up on too much of one type of investment and have it go south and your retirement dream can quickly turn into a nightmare.
Finally, if you’d like to get some assistance with the calculations I’ve discussed as well as how you might construct your portfolio for your specific situation, I encourage you to contact our team of Financial Advisors here at USAA. They can be reached at 800-771-9960.
Thanks so much for your question. I wish you all the best in pulling this together!