How Much Money Do You Need To Live Off Dividends?

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Dividend investing is a popular passive income strategy that can be beneficial during your working years as well as retirement. However, it can require a large portfolio balance. 

If you want to live off dividends, here’s how much you will need to invest to earn a sufficient dividend income to pay your monthly bills.

How Can You Live Off Dividends?

While it is possible to live off dividends, you need to follow a few key steps in order to make this a viable income stream.

Determine Your Cost of Living

The first thing you need to do if you want to live off dividends is calculate your cost of living.

Tracking the most common monthly expenses can help with this, including:

  • Food (groceries and dining)
  • Housing costs (rent or mortgage, utilities, property tax)
  • Insurance (homeowners, renters, car, medical)
  • Personal (child care, commuting, debt)

Estimating incidentals such as car repairs, trips and gifts can add some cushion to your calculations.

This exercise is also an effective way to see if you’re spending your money the way you want. You can even look for ways to cut your expenses to have more cash for your financial priorities. 

Calculate How Much You Need in Your Portfolio

what is in your portfolio

After estimating your annual spending, the next step is to determine how much money you need in your investment portfolio. 

The quickest back-of-the-napkin math formula is to divide your annual expenses by the projected dividend yield.

Annual expenses ÷ dividend yield = Total portfolio value necessary

So, the formula for $60,000 in annual expenses and a 4% dividend yield is: 

$60,000 ÷ 0.04 = $1,500,000

Here is how much you will need to invest for $60,000 in annual dividends:

Dividend YieldMinimum Portfolio Balance
1%$6 million
2%$3 million
3%$2 million
4%$1.5 million
5%$1.2 million

Depending on your estimated lifespan, you might need to build a bigger nest egg to account for inflation, a higher withdrawal rate or if you want to live off of dividends for multiple decades.

However, this calculation is the easiest way to create your investment goal. Most likely, you will be able to achieve this threshold over a period of years through diligent saving and recurring investment contributions.

Identify Your Reasonable Dividend Yield

figure out yield

There are multiple ways to earn dividend income, and the potential yields vary by asset class. As a result, you should set realistic expectations of dividend yields to avoid underinvesting.

Unfortunately, dividend yields are lower than the historical average annual return for the stock market, so your portfolio performance may not be as high as an aggressive investor focusing on growth stocks. 

Additionally, diversification is essential, and you will likely have exposure to several assets, including stocks, bonds and real estate.

Here are the average annual returns for popular income-focused asset classes:

  • S&P 500 index: 1.8%
  • Dividend Aristocrat stocks: 2.4%
  • Investment-grade bonds: 2% to 5%
  • Small business bonds: 5%
  • Real estate index funds (REITs): 2% to 5%
  • Crowdfunded real estate: 3% to 6%
  • High-yield savings accounts: 2.50% to 3.60%
  • Term CDs (12-60 months): 3.30% to 4.05% 

Dividend yields fluctuate regularly and are contingent on several factors, including company earnings and the current stock price. 

Some assets pay quarterly dividends, while others only make an annual distribution. A dividend tracker can easily monitor your dividend performance. 

Remember that many dividend stocks and funds have a variable share price. A declining share price can exceed your yields and have an overall negative effect on your portfolio.

Simultaneously, appreciating share prices boost your cash reserves when you sell for a profit since your investment performance includes share price performance and dividend yield.

Evaluate Dividend Sustainability

It’s natural for investors to look for investments with the highest potential yields since these can make more money. However, a higher yield almost always implies more risk as the underlying asset is volatile or the company has poor financials.

Before investing in an asset with above-average yields, it’s vital to research why the dividend is so high and if it’s sustainable.

Here is a look at how high dividends can impact three popular sectors.

Real Estate

Many REITs and real estate stocks have annualized distributions from 5% up to 20%, but a broad-based real estate index fund such as the Vanguard Real Estate Fund (VNQ) and the Fidelity MSCI Real Estate Index ETF (FREL) yield approximately 3.90%.

These high-yielding securities usually specialize in mortgage-backed securities, mortgage servicing and (potentially) distressed assets.


Bonds with a worse credit rating have higher yields as they are inherently riskier. This is because the borrower is more likely to default. 

As a result, “junk bonds” have higher yields than investment-grade bonds. For instance, the dividend yield might be 5.75% for a junk bond ETF and 3.15% for an investment-grade ETF.


There are several reasons why an individual stock may cancel or greatly reduce its dividend payout.

These include:

  • Commodity prices drop
  • Poor financials
  • Growth pivots 

Thankfully, high yields don’t always present a red flag for dividend stocks. 

Well-run companies that fall into the “Dividend Aristocrats” or “Dividend Kings” have a history of raising their dividends for at least 25 to 50 years through recessions and bull markets.

These blue-chip stocks tend to offer yields higher than the overall S&P 500 dividend yield.

As a long-term investor, you may also benefit from rising share prices from the best dividend stocks.

Dividend Tax Considerations

dividend tax considerations

It can be easy to forget that dividends are subject to ordinary income taxes or a capital gains tax when you invest with a taxable brokerage account or retirement account. 

Your tax treatment depends on whether it’s a qualified dividend or a non-qualified dividend.

Qualified Dividend

A qualified dividend is subject to a capital gains tax of either 0%, 15% or 20%. Your tax rate depends on your taxable income and filing status. 

While you’re still paying taxes on dividends, the tax rate is lower than for unqualified dividends. 

Three criteria define a qualified dividend:

  • Receive it from a United States-based company or a qualified foreign entity
  • It meets the IRS dividend qualifications
  • Own the security for at least 60 days (and 121 days since the last ex-dividend date)

Your year-end tax forms from your brokerage accounts detail your qualified and non-qualified dividend amounts.

Non-Qualified Dividends

A non-qualified dividend is subject to ordinary income taxes like the earned income from your day job or side hustle. The tax brackets go from 10% to 37%, with most households falling in the 10%, 12%, 22% or 24% brackets.

Some examples of non-qualified dividends include:

  • Dividends from REITs and MLPs
  • Foreign stocks
  • Special, one-time dividends
  • Short-term holdings (i.e., swing trades)

Your ordinary tax rate will be the lowest if you have a low taxable income and are eligible for married filing jointly status thanks to having a higher standard deduction. Tax deductions can also minimize the amount you owe.

How to Avoid Dividend Taxes

In general, a Roth IRA helps you avoid most dividend income taxes as you fund your investments with post-tax contributions. 

However, dividend income from Master Limited Partnerships (MLPs) is a notable exception if you receive more than $1,000 per year.

A traditional IRA or 401k helps you dodge the yearly tax reporting requirements, although your distributions are subject to income taxes.

Additionally, in most situations, you won’t be able to withdraw from your tax-advantaged retirement plans penalty-free until you turn 59.5 years old.

How Much Do You Have to Invest to Live Off Dividends?

how much do i have to live off of

These examples can provide an idea of how much you need to invest based on your background. As a disclaimer, these are estimates based on general consumer profiles. Your unique calculations will vary.

Also, keep in mind that these estimates can fluctuate as your expenses change. Life is not stagnant, and inflation or recessions can impact yields and the cost of living.

Single Person in Oregon with a High Risk Tolerance

An investor on the West Coast usually experiences a higher cost of living than the national average. Therefore, they may need to save more and potentially adopt an aggressive risk tolerance.

In this situation, a single person with a high risk tolerance has $48,000 in annual expenses while living in Oregon. Assuming a 6% dividend yield, they will need to invest $800,000.

$48,000 / 0.06 = $800,000

Single Person in Tennessee with a Medium Risk Tolerance

The Sunbelt states, like Tennessee, are some of the most affordable places to live in the United States. As a result, it can be easier to live off dividends or get by with a balanced risk tolerance.

A single, working professional living in Tennessee may have $40,000 in annual expenses. If they have a medium risk tolerance that lets them pursue a 4% dividend return, they will need to save $1 million.

$40,000 / 0.04 = $1,000,000

Married Couple in Massachusetts with a Low Risk Tolerance

Massachusetts can be pricey, but it is a gorgeous retirement destination and also a thriving New England hub for working professionals. A married couple without children and a low risk tolerance will need to save a decent amount.

With $72,000 in annual expenses and a 2% target dividend return, this couple will need to invest $3.6 million.

$72,000 / 0.02 = $3,600,000

Is It Possible to Live Off Dividends?

It’s possible to live off dividends, but it can be challenging for many single workers and married couples to save money quickly without a high-income job

Living off of dividends can be an effective strategy during retirement, and it can take a few decades to achieve this milestone.

Young investors might be better off focusing on an aggressive growth strategy where most investment gains come from rising share prices.

In time, you can rebalance your portfolio to gain more exposure to dividend-friendly stocks and fixed-income products that may have less volatile asset prices. 

You could also explore investments with monthly income. These income streams can provide more cash to reinvest or use to pay your recurring expenses. 


Do you still have questions about how to live off dividends? We’ve answered some of the most common questions about dividend investing to help you determine if this strategy is right for you.


Living off of dividends can be the ultimate dream of passive income of $50,000 or more per year. This strategy makes it possible to sell as few assets as possible, which leaves your nest egg intact. 

As a result, you will have more cash later in life. Alternately, you can leave it as an inheritance to your loved ones. 

Since it can take a long time to build a dividend portfolio to fit your needs, it’s best to start now and invest consistently in high-quality assets that suit your risk tolerance.