50-Year-Old Pours Cash Into SCHD, Plans Early Retirement Overseas – 'I'm Trying To Make About $25,000/Year In Dividends, Is This A Bad Idea?'

Dividend investing has long been a favorite strategy for those seeking a reliable passive income stream, especially as they approach retirement. By investing in dividend-paying stocks or ETFs, individuals can generate stable earnings while potentially profiting from capital appreciation.

Compared to growth-focused investments, the yield generated is often lower. Instead, this approach offers more safety and fewer risks and is a favorite of risk-averse investors.

In a recent Reddit post, a user shared his ambitious retirement plan: at 50, the investor has decided to put $3,000 a month into the Schwab U.S. Dividend Equity ETF SCHD to accumulate close to $1 million in 10 years.

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His main objective is to generate $25,000 annually in dividends, which, alongside his $2,000 monthly Social Security benefits, would provide him with a comfortable retirement income of around $4,000 per month, a good sum since he’s considering retiring to a low cost of living country like Mexico or Southeast Asia.

The investor is focused on SCHD, and despite his confidence in the ETF, he is open to feedback and alternative strategies, as he wants to ensure his plan is realistic.

His post has received a ton of advice and suggestions, so let’s dive right into that.

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$25,000/Year in Dividends With SCHD? Redditors Weigh In

Adjust Your Expectations

In an overwhelming majority, the Redditors who commented below the investor’s post agreed that the expectations he set were too high, so he needs to either adjust these or rethink his strategy.

“You'll reach half your goal if you're lucky in 10 years. Use a compound interest calculator and run numbers,” a Redditor wrote.

“Your calculations are wrong. $3,000/month for 10 years with 7% interest is $516,000," another comment says.

A user underscored the impact of inflation on the investor’s retirement income, calculating the yearly dividends he would get with his investment.

“At 10% returns, you will be just shy of $600,000. With a 3.5% yield, you will be looking at about $21,000 per year in dividends. This is not adjusted for inflation. Inflation-adjusted 7% return will get you $500,000. With a 3.5% yield, you will be looking at about $17,500 per year in dividends. It will help if you can increase the contributions for at least the first 5 years and do it for 12 years instead of 10 till you are 62 years of age,” he said.

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Look Into Alternative Strategies and Diversify

Several users advised the poster to diversify his portfolio beyond SCHD to achieve his aim because while SCHD is a solid choice for dividend income, the fund may not provide the growth needed to reach $1 million in 10 years.

“If you want income in the shortest period of time you should look for a fund with a higher yield such as [NEOS S&P 500 High Income ETF SPYI] 11% yield, [NEOS Nasdaq-100 High Income ETF QQQI] 13%, or [Putnam BDC Income ETF PBDC] 9%; Keep [Vanguard Total Stock Market ETF VTI] and drop SCHD,” a Reddit user suggested.

This comment recommended the poster use a balanced approach by combining three ETFs.

“Maybe add a blend like a 3-fund portfolio. 50% SCHD, 25% [Vanguard S&P 500 ETF VOO], and 25% [Schwab U.S. Large-Cap Growth ETF SCHG]. Work on compounding SCHD but get some growth and then convert it into SCHD in retirement,” the comment reads.

Another user advised the poster to move his money into a higher-yield asset as he approaches retirement.

“I had to reread your goal. My estimate is you will have around $600,000 in 10 years. Making $21,000 off of that is very easy to do if you move to a higher dividend fund like [JPMorgan Equity Premium Income ETF JEPI]/[JPMorgan Nasdaq Equity Premium Income ETF JEPQ] or SPYI. My average dividend income of $500,000 is $38,000 minus taxes. So well above what you expect. As you get closer to ten years, start moving into preferred stock or income funds mentioned above,” the user suggested.

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