Don’t miss this opportunity to earn extra income during your retirement

Jhe believed that running out of money during retirement keeps many people awake at night. If you take too much of your savings early in retirement, you risk rushing later to keep yourself afloat.

But life doesn’t have to be that way. You can arrange to earn an additional income stream in the form of dividends. This can give you access to a recurring stream of income for the rest of your life.

If you’re ready to create your retirement dividend income machine, we’ve compiled some tips to get you started.

Image source: Getty Images.

Dividends can support your retirement goals

Dividend-paying assets can be a great way to supplement retirement income. You can earn monthly or quarterly paychecks from your favorite companies as a reward for your investment. There’s also a chance of earning an automatic pay raise every year if you add Dividend Aristocrats and Dividend Kings to your portfolio. The best part is that the income keeps flowing (as long as the board declares a dividend) while you sit back, relax and enjoy your senior years.

To get started, calculate how much you need to supplement your retirement income each month and create a plan to achieve your desired goals.

For example, if you need to earn $1,000 per month in dividend income, you can set an annual dividend goal of at least $12,000. You can diversify your portfolio with multiple dividend-paying assets that can get you to the finish line. Create a dividend watchlist, do your research, design your strategy, and build your dividend portfolio.

Start with retirement accounts

You can get tax benefits when you put money aside in a retirement account to build your dividend portfolio. The retirement accounts you can view are:

If you open a traditional IRA or SEP, you will receive initial tax relief. You can pay money into accounts, defer your tax bill, invest in dividend-paying assets, and pay taxes when you withdraw your profits or dividend income.

On the other hand, you can view a Roth IRA if you meet the income requirements. This account is a treasure trove if you expect your tax account to grow later. A Roth IRA lets you take care of your tax bill now in exchange for tax-free income later. This means you can build a portfolio of tax-free dividends that allow you to fund your lifestyle without the IRS getting in your way.

Pension plans aren’t the only way to earn dividends

Retirement accounts come with contribution limits, which cap the dividend income you could potentially earn. That’s why you should also look into taxable brokerage accounts. If you decide to retire early, you don’t have to worry about a penalty for touching your money.

Let’s say you get a sudden financial windfall and decide to allocate $75,000 towards your dividend goals. You won’t be able to hide this money in an IRA due to contribution limits. It also exceeds what an average person can contribute to a workplace pension plan in 2022. A taxable brokerage account will allow you to invest your $75,000 however you see fit. You can get a mix of dividend-paying stocks, exchange-traded funds, and index funds.

Another advantage of a taxable brokerage account is that you can withdraw the money whenever you want. You will have to pay short-term or long-term capital gains taxes on the profits you withdraw. You will also have to pay taxes on your dividend income. If your dividend income meets the qualified dividend requirements, you can unlock the 0%, 10% and 15% tax brackets.

Here are the eligible dividend tax rates for 2022.

Single filers with taxable income of:

Married joint filers with taxable income of:

Heads of household whose taxable income is:

Qualified dividend tax rate

$0 to $41,675

$0 to $83,350

$0 to $55,800

0%

$41,676 to $459,750

$83,351 to $517,200

$55,801 to $488,500

15%

Over $459,750

Over $517,200

Over $488,500

20%

Data source: IRS. Table by author.

Don’t delay your dividends

If you want to build a massive dividend portfolio for retirement, start as soon as possible. Earning enough dividends to fund your lifestyle can take some time, so start creating a game plan now to get closer to your financial goals. Your taxable retirement and brokerage accounts can serve as your wealth partners as you begin to pave the way for an additional stream of income in your senior years.

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