65 With $900K in Retirement Savings—Can You Really Live on Dividends Alone?

Living off of passive income is something retirees do often. And with the right investing strategy, it’s something you can do, too.

But it takes a lot of money to be able to generate a decent amount of passive income. And if you’re 65 with $900,000 in savings, you may be wondering if it’s possible to live on dividend income alone.

The reality is that it may be possible to live on dividends alone if you’re combining it with Social Security. Otherwise, living on just dividends could prove tricky.

But there are a lot of variables involved when we talk about living on dividend income. So it’s important to have realistic expectations and to consider diversifying your income streams.

What living on a $900,000 dividend portfolio might look like

The amount of money your portfolio is able to generate in dividend income will depend on the specific assets you own. But let’s assume you’re able to generate a 4% dividend yield in your portfolio. That means you’re looking at $36,000 a year in dividend payments.

That alone is probably not enough to cover all of your expenses unless you’re leading a very frugal lifestyle. But if you combine $36,000 a year in dividends with Social Security, it paints a very different picture.

Social Security pays the average retired worker today about $2,000 a month. That’s $24,000 a year. Combined with $36,000 in dividends, that’s an annual income of $60,000.

It may be tricky to live on just $36,000 a year, but $60,000 a year is a different story. If you live in an area with moderate living costs, you have a paid-off home, and you’re generally able to keep your expenses on the low side, you may find that an annual income that size covers your needs.

Is it smart to live on dividend income only?

It certainly pays to hold dividend stocks or ETFs in your portfolio as a retiree. But you may want to branch out to other investments, too.

One thing to realize about dividend stocks is that those dividends are not guaranteed. Granted, if you choose to invest in quality businesses with a strong history of paying and, better yet, raising dividends, your chances of seeing that income stream continue are higher.

But also, do keep in mind that a 4% dividend yield, though attainable, is a bit on the generous side. Many quality companies pay lower dividends than that.

If you’ll be reliant on the income your portfolio produces to cover your retirement expenses, then you may want to put some of your money into bonds, which are contractually obligated to make regular interest payments. You can choose between corporate bonds, municipal bonds, and Treasury bonds, depending on your income goals and tax strategy.

You may also want to keep a portion of your portfolio in growth stocks, albeit a fairly small percentage due to the risk. And it’s also wise to keep some of your portfolio in cash, where your principal isn’t subject to market fluctuations.

Remember, dividend stocks can lose value, and dividend payments can stop. It’s feasible to live on the dividends a $900,000 portfolio produces, especially with Social Security factored in. But whether it’s smart to put all of your money into dividend stocks and ETFs is a different story.