Personal Finance

I met a girl who retired early living purely off investments — how can I achieve that?

Joey Frenette

Published: December 22, 2024 8:47 am

Living off just one’s investment income is pretty much the holy grail of retirement. By living off one’s passive income (think dividends, royalties, distributions, and interest), one won’t break open their nest egg and risk running out of retirement at some point down the road.

Indeed, with all the passive income opportunities to be had in today’s higher-rate world, I’d argue that retirees can and should look to position their portfolios in a way that they can live off of the cash it produces. That way, a retiree won’t need to touch any of the principal. In fact, if the cash flow is larger than one’s expected expenses, such cash can be reinvested right back into the passive income generators, making the retirement snowball grow even fatter as time passes.

In this piece, we’ll look at the curious case of a retiree who’s 100% in U.S. securities (a good move) but actually lives in Japan, the U.K., and Monaco. Indeed, given the recent strength in the U.S. dollar, this retiree is getting an exclamation mark on their past two years of impressive U.S. stock returns!

As you may know, strength in the greenback versus one’s local currency stands to add to one’s U.S. stock gains! And while it’s typically smart to take profits after impressive upside moves (whether it be in the stocks themselves or the currency), I’d argue that it’s far better not to play the FX (foreign exchange) game.

Key Points About This Article

• Living off just the investment income is a dream for many. It’s a realistic goal that requires aggressive saving and smart investing over many years (and decades).
• Sticking with U.S. stocks seems wise, especially if the greenback has more room to run versus other currencies.
• If you’re also a prospective early retiree, take this quiz to see if you’re on the right track ^(Sponsored)

How can one put themselves in a spot to live off passive income from investments?

Aggressive saving, cutting debt, and investing in well-run companies to grow your nest egg are how one can get themselves in a similar situation as our featured retiree who’s living off investment income. Indeed, there are no shortcuts to getting to a nest egg that’s large enough to support you through dividends or interest alone. That said, over the years and decades, I firmly believe that the little steps can take you towards a retirement that’s right for you.

Meeting with an adviser to ensure you’ve got a realistic plan in place is one first step I’d take in a journey to building up an unbreakable nest egg.

The U.S. dollar has been incredibly strong. However, it can get a whole lot stronger under a Trump administration.

The strong U.S. dollar can and likely will strengthen further once Donald Trump starts the first year of his second term as president. Undoubtedly, just because the U.S. dollar has been strong doesn’t mean it’s overdue for a relative pullback or cannot continue to get even stronger as the Trump administration looks to leverage tariffs in negotiations with other nations (including Canada and Mexico). Either way, currency moves can be unpredictable. Often, it’s best just to play the long game rather than seek to make moves based on near-term flu.

Additionally, America’s impressive footing in the AI race could be key to further gains for the U.S. dollar over the long run.

Indeed, the U.S. is home to the Magnificent Seven and other top AI innovators in the world, making it the go-to place to invest for folks seeking robust, consistent results over time. As the AI dominance of the U.S. improves, as Trump seeks to get more firms to bring their production into the U.S., I’d argue a scenario exists such that the greenback could get a heck of a lot stronger over the next four years.

Don’t overreact to near-term currency swings

While rebalancing into assets in one’s local currency can make sense for diversification purposes, I’d not look to make such moves in pursuit of making a quick buck over the near term. I suggest this fortunate investor reach out to a financial adviser and a tax expert before making any major moves with their portfolio. Sometimes, it’s our lack of action that may be the best move.

If the U.S. dollar keeps appreciating versus one’s local currency, one may feel like they’re getting a raise every time the greenback treks higher.

Of course, withholding taxes on dividends is a concern that should be brought up with one’s adviser. In any case, I’d look more toward the potential capital gains and dividend growth to be had in top-tier U.S. stocks rather than just yield. In that regard, U.S. dividend stocks stand out as magnificent for any retiree seeking passive income and steady appreciation.