I used to think this way, however I don’t think it’s realistic to live off dividends and never touch your capital in retirement. First of all, any RRSP savings will eventually be converted into an RRIF and face stiff withdrawal rates. Second, what if you want (or need) excess capital in one year to pay for a car, new roof, large vacation, etc.? You’d probably look to sell off some stock to access the capital. Finally, there’s the potential to work longer than needed in order to reach a target dividend income stream. It’d take a million dollars in capital to spin off $35,000 to $40,000 in dividends. Why wouldn’t you want to tap into that million dollars?
I’m sure it’s just coincidence, but I’ve come across a lot of “When do you know you’re ready to retire?” articles the last little while. — EDIT: Just this morning, Robb at Boomer and Echo has written a post on this very topic. — After reading a few of these, it struck me that I had never really considered the question of when I would reach my (financial) retirement threshold. It’s not just because retirement is so far away, or because I haven’t taken the time to make a specific goal. The reason is because, as a dividend investor, the answer is so obvious that almost no thought is needed.
With the advent of the Internet, stock investing was suddenly democratized. In a very few short years, it became possible for “regular folk” to invest directly in the stock market. Individual investors were no longer obliged to trade through a stock broker. Mutual funds didn’t need to be bought through a bank. Fees and returns could be compared easily. Information about companies financial situations was available for anyone who took the time to visit a company’s website and spend the time reading the vast quantities of information posted there. All of this is great; more information is always better, right?
Well, no. Especially when you’re getting started. Too much information quickly becomes confusing, and very shortly thereafter, overwhelming.
Like anything else, too much information is a bad thing. (Caveat: This is true unless you’re a professional investor, or investing is your chosen hobby.)