Investor With $640K Portfolio Aims For Early Retirement – 'Hoping To Retire In 5 Years Or Less' But Faces Tough Choices – Reddit Weights In - Schwab International Dividend Equity ETF (ARCA:SCHY)

Many dream of retiring early, but making it a reality requires careful planning, especially when you want to rely on investment income.

For those who aim to leave the workforce ahead of schedule, a dividend-oriented portfolio is a great strategy as it provides a steady cash flow. Balancing the yield and risk is crucial, though, to enjoy the investment.

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One Reddit user, an investor with a $640,000 portfolio, is encountering this issue as he plans to retire in five years or less. Heavily invested in Schwab U.S. Dividend Equity ETF SCHD with smaller positions in Amplify CWP Enhanced Dividend Income ETF DIVO, Amplify CWP International Enhanced Dividend Income ETF IDVO, and Amplify CWP Growth & Income ETF QDVO, the poster’s portfolio generates $27,162 in annual dividend income.

His goal is to build a portfolio that provides inflation-beating dividend growth, but he’s wondering whether he diversified enough, whether he should introduce bonds when nearing retirement, and whether the current allocation can generate $75,000 per year.

“I try to live modestly. I live in a small house. No mortgage. No debt. My current nominal expenses are about $45,000 per year. I'm thinking about diversifying into [Schwab International Dividend Equity ETF SCHY] to get a little more international exposure,” he wrote.

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The Reddit community weighed in, offering advice and insights, so let’s analyze the suggestions below.

Can The Current $640,000 Portfolio Generate $75,000 Per Year in Dividends? Reddit Debates

Increase Yield with Higher-Paying ETFs And Stocks

Several users suggested adding higher-yielding assets to boost income, mainly since the investor’s 4.24% yield may not cover his $75,000 target.

“Try getting more yield exposure. [Broadcom AVGO], [Nike NKE], [Visa V], [The Home Depot HD]–all have high 5-year [compound annual growth rate]. Yield: [MPLX LP MPLX], [JPMorgan Nasdaq Equity Premium Income ETF JEPQ], [Guggenheim Strategic Opportunities Fund GOF], [Ares Capital Corporation ARCC], [VICI Properties VICI], [PIMCO Dynamic Income Fund PDI],” a suggestion reads.

A Redditor advised the investor to allocate two parts of the portfolio to a covered call ETF and a high-yield fund since they pay well and the gains are great.

“Add JEPQ and [Goldman Sachs S&P 500 Core Premium Income ETF GPIX]. You will have good gains from those and they pay a lot.”

A commenter suggested Ares Dynamic Credit Allocation Fund ARDC, a business development company because it offers nearly double the yield of SCHD.

“ARDC is a monthly payer, now at a good entry point at $14.14-ish with a 9.9% dividend, currently paying $0.1125/share monthly. Just went x-dividend. I hold 5,000 shares of ARCC (for several years) and 5,000 shares of ARDC (a more recent position),” he said.

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Focus on Dividend Growth and Compounding

Many Redditors suggested that dividend growth stocks and ETFs are ideal for long-term retirement income, with many sharing what they do to ensure compounding growth for their portfolios.

“A well-diversified dividend portfolio with a disciplined reinvestment rate should be easily able to weather most storms. And you become a net buyer of shares every year, not a seller. That $640,000 could easily and safely do 8.5% gross and provide a 25% reinvestment rate and still net $40,000/year. I’m living it,” a Reddit user said.

“Nice and consistent portfolio. SCHD, DIVO, and IDVO are very consistent in growth and dividends. Don't know much about QDVO, but I am sure if it's similar to DIVO it's a good pick. I like your portfolio!” another commenter wrote.

A retiree shared that his income from dividend-focused shares continued to pour even during market corrections and that he’s reinvesting part of his distributions, growing his wealth year after year.

“My dividend income didn’t miss a beat during corrections in 2022, etc. Since I retired 15 years ago, I never sold shares except to rebalance. I reinvest part of my distributions during dips, like now, resulting in my portfolio being over twice what it was when I retired,” he said.

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