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.
Dollar cost averaging is one of the most powerful concepts that affects you as a retail investor. It is also one of the simplest, most effective, and virtually idiot-proof ways to get both time and math working for you.
You get time working for you, because regardless of how much money your have to invest, you can get started right now. Because you choose the amount you are able to invest, dollar cost averaging also allows you to make regular investments at a level that you can afford throughout the year. Once making these investments becomes one of your monthly money habits, you won’t even notice the “missing” money. Consider it a monthly bill; one that must be paid not to a bank or utility, but to your future self.
Dollar cost averaging gets math working for you because you automatically buy more shares when stock prices are lower, and buy fewer shares when stock prices are higher.