I am a really big fan of investing in things that throw off tons of cash.
Pretend that you could give somebody a loan where they would pay you $4 every year per hundred until you asked for your money back as many times as you wanted.
Every 2500 you gave, you would get back 100 in profits per year without affecting the 2500 principal.
Every 250,000 would be worth 10,000. Every million would be worth 40,000.
That’s the kind of thing that I think people should be holding going into retirement.
There are a few different asset classes that are in that vein. A couple might be dividend paying stocks, bonds, and permanent insurance.
The key is to try to re-invest some of that return every year to give yourself some protection from inflation. If you could spare 25% of the returns to reinvest, it would go a long way toward ensuring that you never have to reduce your quality of life. Indeed, you might be able to increase it through retirement.
After you pass on, you would leave a rather large legacy behind as well. One that would still be paying the same amount it was for you. Your kids or a charity could do a lot with that sort of income stream.
If you had a substantial amount of permanent insurance and you were living off those dividends, your kids might end up with many millions after you passed on.
Either way, if you manage to live only off of the interest your investments are earning, you can guarantee that you don’t outlive your income stream.
There are also crazy statistics out there that like 80% of the gains of the stock market came from re-invested dividends or something crazy like that. If they are to be believed, hoping for price appreciation is a loser’s game.
You have a much harder time guaranteeing anything similar if you are trying to withdraw from accounts that don’t pay you periodically in cash.
If you are invested in things that you hope will go up in value, you necessarily have to subtract from the total number of things that can possibly go up in value over time. You by definition have fewer assets that can produce gains every time you take from your account. That is a lot more scary of a thing to rely on.
Side Note, if you are going to be getting a lot of stock dividends, try to get them inside an account where you don’t pay yearly taxes. The same thing for bonds. Accounts like 401k, and IRAs. It sucks having to pay taxes on the cash payments when you need to use those for compounding growth.