By the time I turn 50, I hope to be a wealthy man with early retirement on the horizon. One of the ways I focus on doing this is by regularly investing in stocks that have the potential to pay me a dividend or capital appreciation. Yet life has the potential to blind me before I reach 50. If something crazy happens I could end up with £0 in savings then. Even if that’s the case, here’s how I can still earn passive income for life to enjoy in retirement.
Have discipline and a plan
My idea centers around discipline with my finances and intelligence with my stock picks. As far as self-discipline goes, I’m going to have to spend less than I earn. This will help me generate a surplus every month that I can invest in the stock market.
Before I get to my stock picks, I also need to set a realistic time frame to reach my goal. For example, there is no point in me starting at 50 and building my investment pot, but only starting to take advantage of passive income at 80. Of course, from the age of 80, I will have an income for life, but I may not live as long afterwards!
On the contrary, if I reach 50 years without savings, I set myself an objective of 15 years of investment. At 65, I want to be able to enjoy the money afterwards for the rest of my retirement life.
Top Dividend Stock Picks
I can have my strategy mapped out, but if my dividend ideas are wrong, I won’t achieve my goal. Here’s how I filter out high-income stocks, which I believe are just as relevant today as they will be in a decade or more.
I exclude all stocks below the current average dividend yield of the FTSE 100. There are very few instances (eg if the dividend per share is rising rapidly) where I would buy a below average stock. I prefer to buy a FTSE 100 tracker and take the average return of the index.
I would also remove any stocks that have experienced a rapid drop in share price over the past few months. This artificially increases the dividend yield. Even though the yield may look juicy, if the company has a big problem, it will probably reduce the dividend payment in the near future.
Finally, I will sort the remaining stocks according to different factors. An example is sorting by the number of years of consecutive dividend payments. Another is to sort by the highest five-year dividend growth rate.
Passive income for life is not a dream
Putting all the numbers together, I think it’s clear that I can still enjoy a decent income even when starting late in the day. Obviously, there will be difficulties and problems along the way. But the concept is solid.
At 50, let’s say I’m downsizing and can invest £300 a month. Over the next 15 years, I put that into dividend stocks that earn me 5% on average. When I turn 65, I stop investing (and don’t reinvest dividends). If I stick to my plan, then I could enjoy £4,040 a year for the rest of my life.
The post office Without Savings at 50, I Could Earn Passive Income for Life Using This Idea appeared first on The Motley Fool United Kingdom.
Jon Smith and The Motley Fool UK have no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.
Motley Fool United Kingdom 2022