How to Live Off Dividends in Retirement

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Saving for a comfortable retirement can be a real challenge, and so can living off of your investment income once you finally do retire. One way to enhance your retirement income is to invest in dividend paying stocks and mutual funds. Depending on the amount you have invested, the cash flow generated by those dividend paying investments can supplement your Social Security and pension income or provide all the money you need to maintain your pre-retirement lifestyle.

Research several low-cost dividend mutual funds. Keeping your costs low is vital for a dividend fund, since high expenses can eat into your returns. Try to find funds with an annual expense ratio less than 0.50%. When evaluating funds, be sure to look at the current dividend yield of the fund, as well as the frequency of payouts. Some dividend-paying funds make monthly payments to shareholders, while others pay out once a year.

Request a prospectus from each of the funds you are considering. Review the prospectuses carefully to determine the annual expense ratio and the current yield of the fund.

Open a brokerage account if you do not already have one in place. Log on to the brokerage account and use the stock-screening tools to find dividend-paying stocks. The stock-screening tools provided by most brokerage firms allow investors to filter stocks based on a certain dividend-yield threshold, such as 4 percent, 5 percent or more.

Log on to your brokerage account and choose the stocks you want to purchase. Make sure there is sufficient money in the account to make the purchase, then review and confirm the order.

Go to the preferences section of your account and direct that the dividends paid into your account be sent to your bank account. Most brokerage firms allow investors to link their accounts to a bank account.

Choose the mutual fund you want to invest in and complete the application. On the application, direct the dividends the fund generates to be deposited to your bank account. Send the application and your investment to the address listed on the form. This approach uses dividend-paying mutual funds to generate dividend income. If you choose to invest in some individual stocks as well, you can direct the companies you invest in to send you the dividend checks directly.