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Because I enjoy my job as a financial writer (over 20 years and still going), I haven’t given much thought to early retirement. However, having turned 55 this month, more options are now available. Even so, my wife and I don’t feel like we have enough passive income to call it a day yet.
Enjoying a flexible retirement
Fewer Britons are opting for full retirement at ‘normal’ retirement age these days. Instead, some people continue to work while receiving their pensions. Others work part-time, mixing earned and unearned income. And some Britons never stop working before they die.
Just turned 55, he gave me the option of early access to my occupational pension benefits. I have two ‘gold plated’ defined benefit/final salary schemes from many years working in the financial sector. In addition, I have built modest pension pots with my own contributions.
That being said, these sums are not enough to live until death. Also, I won’t qualify for my state pension until 2035, when I turn 67. So, what to do?
I need more passive income
In order to retire comfortably and/or early, I will need a lot more passive income. There are so many different ways that you could generate these additional earnings. For example, I could put my cash in a safe savings account and spend the interest. But I don’t know almost anyone who has gotten rich by not taking risks.
Alternatively, you could buy government or corporate bonds and live off the coupons (interest) that these fixed-interest securities pay. But even a 10-year UK government gilt pays less than 3.5% per annum before tax.
Another option would be to become a buy-to-let owner by renting out the property to tenants. When I was younger, I have seen the damage bad tenants can cause, both to the property and to the owner’s finances. This route is simply not for me.
I love sharing dividends
As a stock investor since 1986/87, my favorite form of passive income is stock dividends. These are regular cash payments that companies pay to their shareholders.
The biggest problem with dividend investing is that most UK listed companies do not pay dividends. Fortunately, almost all member companies of the FTSE 100 the index pays dividends, so this is where I look for my biggest payouts.
Another problem is that future dividends are not guaranteed, so they can be canceled or cut without notice. In fact, dozens of companies did this during the 2020 pandemic panic. However, the FTSE 100’s total dividends by 2023 are projected to reach a new annual record of £85.8bn.
Therefore, to increase our passive income over the next decade, my wife and I intend to invest heavily in dividend-paying stocks. In doing so, our goal is to reclaim a greater share of the cash flow generated by large, profitable companies.
For example, suppose we decide to buy a variety of stocks with different dividends. Let’s say these have an average dividend yield of 5% a year. So every £10,000 we invest would generate an additional £1,000 in passive income.
To generate an additional £12,500 of unearned income, we would need to invest another £250,000 in dividend shares. And this is now our main financial goal for the next five to 10 years!
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