My (Future) Life of Leisure
Last month, I figured out what I want to do when I retire.
I plan on being a guest lecturer on cruise ships. You make some money, live the good life and see interesting places. Sign me up.
I discovered this while sailing with The Oxford Club Chairman’s Circle Wealth Cruise from Australia to Bali. We traveled aboard the magnificent luxury ship Crystal Symphony.
It was a pretty sweet gig. I spent my time eating, drinking, writing columns by the pool and socializing with fascinating people. And giving the occasional presentation on investing.
Retirement is still a few decades away, but that’s how I’d like to spend mine. Before I devote my golden years to my next career, though, I have to make sure there is enough money coming in to live that lifestyle.
Life Is Expensive
Between now and then, there are some big expenses coming up. Two kids’ higher education costs top the list. I plan on helping out with their weddings. Plus there are some big trips we’d like to take as a family before the kids get too old. We’re thinking about Italy next year.
And I need to be ready to handle medical costs, should something unforeseen happen.
So the way I’m preparing for my “retirement” speaking on the Crystal Symphony is to ensure that my nest egg spins off the income that I need, so I don’t have to touch the principal.
There are several ways to do this…
Buy an annuity. When you purchase an annuity, you give the insurance company a chunk of money in exchange for a guaranteed minimum return. A fixed annuity will pay you a guaranteed amount every month while a variable annuity payout depends on market returns, but with a minimum guarantee.
You pay dearly for that guarantee. Annuities have notoriously high fees and commissions.
But for those people who can’t sleep at night unless they know for certain (assuming the financial institution stays solvent) there is a specific or minimum amount of income coming in, it’s one way to go. It’s just very expensive.
Whole life insurance. This is sold as an investment product as well as a life insurance product.
Remember that old Saturday Night Live skit, “It’s a dessert topping and a floor wax”? Doesn’t make much sense, does it? Neither does an insurance product masquerading as an investment.
Like an annuity, whole life insurance costs a fortune. If you need life insurance, buy term life. It costs a lot less.
For example, financial advisor Wealthfront compared term and whole life insurance for a person holding both for 20 years.
In the example, the whole life customer paid over $8,000 per year and after 20 years had a cash value of more than $236,000.
The term life customer bought insurance for $672 per year and invested the difference between the two policies in the market (not in Perpetual Dividend Raisers). The term life holder ended up with over $77,000 more than the whole life investor. And had the term life customer invested in Perpetual Dividend Raisers, that figure would likely be even higher.
Chief Investment Strategist Alex Green wrote a column warning of the traps of whole life insurance last year. If you’re considering whole life, I urge you to read his column first.
Buy Perpetual Dividend Raisers. Buying stocks that raise their dividend every year is one of the most cost-effective strategies you can find.
Because it’s so cheap, you keep more of your money, which gets put to work in the investment, compounding over the years and adding more and more to your principal.
Furthermore, investing in dividend-raising stocks means you receive more income every year, increasing your buying power.
Many structured products like annuities and insurance policies don’t have an increasing benefit much beyond a cost-of-living increase, if they have any increase at all. But with a portfolio of Perpetual Dividend Raisers, you’re likely to get a 5% to 10% boost every year depending on which stocks you’re invested in.
For example, Genuine Parts (NYSE: GPC) has raised its dividend every year for 56 years. Its latest increase was more than 11%. That kind of hike will keep you ahead of inflation for sure.
Furthermore, whereas a bear market could crimp your returns with an annuity or whole life insurance, with Perpetual Dividend Raisers it could actually increase your return – as long as you hold the stock during the bear market and reinvest the dividends.
As the stock price falls, as long as it pays and raises the dividend – and hundreds of companies raise the dividend during bear markets – your dividend buys more shares.
The more shares you have, the more dividends you receive. So the compounding machine kicks into overdrive during a bear market.
Then, when you’re ready to retire, your income level is even higher because you own more shares of stock that are generating income for you from dividends.
I’m using dividend stocks that raise their payout every year to help me accomplish my goals.
So, 20 years from now, if you see me aboard your cruise ship with an ear to ear smile, you’ll know that not only am I living the good life, but each year, I’m receiving more and more income to do so.
P.S. You might be wondering where to find Perpetual Dividend Raisers, especially those with the cash flow to keep their dividends secure. I’ve got you covered. My newsletter, The Oxford Income Letter, has more than 20 great companies included in its three portfolios, and I’m adding new ones all the time. Click here to learn more.
About Marc Lichtenfeld
A master of the steady, reliable science of income investing, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report. He has also appeared on CNBC, Fox Business and Yahoo Finance. His book Get Rich With Dividends: A Proven System for Double-Digit Returns achieved best-seller status shortly after its release in 2012. He captures the hearts and minds of readers approaching their golden years in his daily e-letter, Wealthy Retirement.