Dividend Retirement Portfolio Intro

In addition to tracking my dividend empire portfolio on this website I have decided to also track my dividend retirement portfolio. The reasons for this are twofold. First, I am starting with a much larger amount of capital in my retirement account because I do not fully lean on what I get as life settlement. The second reason is that tracking my portfolio on my website forces me to stay organized, track my progress and justify all of my transactions. After retirement, people can also get estate planning lawyer’s help from here for some legal advice.

I will track these two portfolios separately because they serve very different purposes. The dividend empire portfolio is strictly for my descendants and I will never touch the funds. The current holdings in the dividend empire portfolio can be viewed HERE and the full story about why I started it can be viewed HERE. The dividend retirement portfolio will grow tax-free in my 401k and provide income for retirement. In this post I will describe my dividend retirement portfolio including where the funds came from, what the portfolio goals are and I’ll provide some conservative projections.

My wife and I both have company sponsored 401k accounts with generous company matches and calculated with a roth ira calculator. These accounts mostly consist of mutual funds that cover large and small cap domestic stocks, emerging markets, REITs, fixed income and some company stock. After studying dividend growth investing in detail I have decided that my best chance to have an early and comfortable retirement is to allocate some of our 401k funds to a dividend growth portfolio. I will keep 35% of current funds and continue to contribute 35% of future funds to small cap stocks, emerging markets, REITs and fixed income investments to maintain diversity. The remaining 65% will go to my dividend retirement portfolio. This currently equates to ~$35k for small cap, emerging markets, REITs and fixed income and ~$100k for the dividend retirement portfolio.

This will be a somewhat slow process that will occur over the next couple of months. As I mentioned earlier, all of these funds are currently in mutual funds in my core 401k account. Believe me I know a lot about mutual funds and the way they earn money. Parnassus endeavor fund performance can be an example of a fund that conducts fundamental research to determine a company’s financial health and its business prospects. These are the main factors to ensure the success of mutual fund investment. I have requested a self directed brokerage account in my 401k which will allow me to purchase any stock, ETF, mutual fund or bond that I choose. This provides much more freedom than the 20 or so mutual funds my core 401k account provides. It comes with a cost though. Commissions are $14.95 per trade (3 times higher than my TradeKing taxable account) and there is an annual fee of $125. These fees are acceptable to me because they are actually lower than mutual fund fees. Let’s say I initially set up my portfolio with 30 different stocks using $100,000. The commissions would be $448.50 + $125 annual fee which is only 0.57% of my investment. Moving forward I anticipate about 10 transactions per year ($149.50 commissions) + the $125 annual fee. These fees will become negligible as my portfolio grows tax free over the next 20+ years.

Once the self directed brokerage account is set up in my 401k I will begin re-balancing our 401k accounts. As I mentioned earlier, 35% of our current 401k funds and 35% of all future contributions will remain in small cap stocks, emerging markets, REITs and fixed income. The remaining 65% will go towards quality dividend paying stocks with a strong history of earnings and dividend growth, mostly following my current method of dividend stock selection. Over the next few months I will post updates and analysis on my purchases in the dividend retirement portfolio.

So what are my goals for retirement? My wife and I have the same goal – to retire at age 50. Since I am 5 years older than her, I will be retiring 5 years earlier. We will therefore live off of her income when I am 51-55. From age 56-60 we will live off of my 401k penalty free. Finally, age 60+ we will live off of both of our 401k accounts without penalty. I have calculated some conservative projections to see what these accounts will look like at retirement. I have made several assumptions in these projections:

  1. Starting capital: $100,000
  2. Initial portfolio yield: 3%
  3. Annual portfolio yield growth: 4%
  4. Annual stock growth: 5%
  5. Annual salary increase: 2.5% (determines contribution increases)


Dividend retirement portfolio projections
Of course these are just projections, but the results are encouraging. We will start with $100k, an initial portfolio yield of 3% and make monthly contributions based on our salaries. If the stocks appreciate by only 5% annually with an average dividend growth rate of 4% we should have a very comfortable retirement. When I am 55 years old we can start taking distributions from my 401k without a penalty. At that age, my projected portfolio value is ~$1.2 million + ~$160k from other investment vehicles. My projected yield on that money is around 7% which would put me close to $100k per year if I just take dividend distributions. When I am 60 years old we can take distributions from both 401k accounts without a penalty. At age 60 our projected combined portfolio value is ~$3 million + ~$270k from other investment vehicles. At a projected portfolio yield of ~7.7% that puts us right around $250k per year of dividend income. These incomes should provide a comfortable retirement even after considering inflation. I will overlay actual performance of the dividend retirement portfolio with these projections on a quarterly basis. Stay tuned for upcoming purchases as I begin to build my dividend retirement portfolio.

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40 Responses

  1. IT seems like you have a good plan for the 401K portfolio, and yes many people don’t realize that buying stocks is usually a 1 time trading fee compared to a consistent mutual fund annual fee. Good Luck and you’ll probably reach FI sooner than 50.

  2. Div4son says:

    Ken, I am in the process converting my 401k to dividend stocks. Actually to rollover to an IRA and then to dividend stocks. In my mind I am thinking of converting half to dividend funds and the rest to the market wide index. But for now, this is just in my head. I look forward to your process of conversion.
    D4s

    • Dividend Empire Dividend Empire says:

      Hi D4S – I think that is a great idea. I am currently doing ~65% dividend stocks and 35% other. “Other” consists of a mix of REIT funds, bond funds and small cap funds (since most dividend stocks are large cap and I want exposure to the rest of the market). I’m looking forward to seeing your conversion as well.

      Ken

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