How Much Do You Need to Invest to Quit Work and Live Only Off Dividends?

40 years of work life is a long time. You can give up working before that. Here’s how you can invest and live off dividend income.

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Where do you see yourself 20 years from now? Are you relaxing on a beach or pursuing your hobby without worrying about daily expenses? You can make this dream come true with proper planning. To know how much you need to invest to give up work, you need to know how much you want every month and do a reverse calculation. If you want $60,000 a year, you need a $1 million portfolio giving a 6% yield. 

How to plan your investments to give up work early? 

This financial plan will need three stages: 

  • The growth stage, where you work towards making investments reach $1 million. 
  • The dividend stage, where you simultaneously start investing in the 6% yield. 
  • The third stage is growing your dividend income. 

If you want to live off your dividend income, ensure it grows with inflation. An average Canadian’s work life is 40 years (age 25 to age 65). You can retire in 25 years with the above plan. 

How to build a $1 million portfolio

Your Tax-Free Savings Account (TFSA) allows you to invest $6,000 a year on average. But that alone is not enough. Your salary and Canada Pension Plan (CPP) contribution grow every year, and so should your investments. If you grow your investment by 5% every year ($6,000 in 2023, $6,300 in 2024, and so on), you can accelerate your investments. 

Now, you may say my TFSA limit doesn’t permit it. You can use a combination of a Registered Retirement Savings Account (RRSP), TFSA, and any other registered account to build a million-dollar portfolio. 

YearInvestmentInvestment Return @ 12%Total Amount
2023$6,000 $6,000.0
2024$6,300$756.0$13,056.0
2025$6,615$1,566.7$21,237.7
2026$6,946$2,548.5$30,732.0
2027$7,293$3,687.8$41,712.9
2028$7,658$5,005.5$54,376.1
2029$8,041$6,525.1$68,941.8
2030$8,443$8,273.0$85,657.4
2031$8,865$10,278.9$104,801.1
2032$9,308$12,576.1$126,685.2
2033$9,773$15,202.2$151,660.7
2034$10,262$18,199.3$180,122.1
2035$10,775$21,614.6$212,511.9
2036$11,314$25,501.4$249,327.2
2037$11,880$29,919.3$291,126.0
2038$12,474$34,935.1$338,534.7
2039$13,097$40,624.2$392,256.1
2040$13,752$47,070.7$453,079.0
2041$14,440$54,369.5$521,888.2
2042$15,162$62,626.6$599,676.4
2043$15,920$71,961.2$687,557.4
2044$16,716$82,506.9$786,780.1
2045$17,552$94,413.6$898,745.2
2046$18,429$107,849.4$1,025,023.8
How to build a million-dollar portfolio.

Now that we understand the second column, the third column is the average return your portfolio is estimated to generate in 24 years. A 12% return is reasonable when you invest in equity. You can get a 12% average annual return by investing in a fundamentally strong growth stock for the long term. 

Invest in a growth stock for long term 

Tech stocks like Descartes Systems (TSX:DSG) and Constellation Software have given a 19-20% compound annual growth rate (CAGR) in 20 years. They still have the potential to grow double digits in the long term. 

Descartes stock keeps growing over the long term, as trade and logistics get complicated. Trade continues in a war or in a pandemic. Descartes offers supply chain management solutions to help companies adapt to these challenges efficiently. I expect Descartes’s stock to grow at a CAGR of 15% in the coming five years. 

While investing in stable growth stocks, consider investing a small amount (less than 5%) in stocks with higher growth potential. Keep booking profits at 50-80% in these stocks, as they may not sustain their peak price.

Invest in a growth stock for short term 

Hive Blockchain Technologies (TSX:HIVE) is a high-growth stock that can double your money in months. But it cannot sustain the peak as cryptocurrency has not yet achieved global acceptance. The best time to buy the stock is at or below $4 and sell it at $8. Do not keep holding unless there is a crypto boom. 

Among all crypto miners, I believe Hive can survive a recession because its exposure is in the most stable crypto, Bitcoin. Moreover, it is monetizing its graphics processing unit (GPU) powered data centres by opening them to developers for generative artificial intelligence and high-performance computing workloads. These two factors help the stock revive after every crash. 

As you book profits in growth stocks, you can invest the proceeds in a dividend-growth stock like BCE, which gives a 5% average yield and grows dividends by 5%. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Bitcoin, Constellation Software, and Descartes Systems Group. The Motley Fool has a disclosure policy.

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