Set a Goal for Income Growth
Did you ever notice in sports that there is a goal? In soccer there is a defined place where you must get the ball. You will face opposition from the other team. In American football, you have to move the ball past a line or kick the ball between a defined bit of airspace over the goal area. You will face opposition. In baseball, the object is to get home plate. Home plate is a very small piece of real estate in a big field that is patrolled by your baseball enemy. In horse racing, there is a finish line.
Tennis players have a goal they must reach to win a match. In fact, I understand in tennis that when you have love, you have nothing. I’m not certain why they had to make it so obtuse. There are various reasons some think it came into being, but you did not come here to read about tennis.
Love Investing is Aiming for Nothing
When I say “investing love” I mean having an investing goal that is shooting for zero, or nothing. When you aim for nothing, and strive for nothing, you might get some success. It is far better to set a goal higher than zero income when investing. I came to that realization as I drew near my “retirement.” In the fall of 2015 I took a hard look at my income stream.
I started receiving Social Security in March 2014. I received $2,002 per month. Then in January 2015 the amount was raised to $2,036. How many groceries will an additional $34 buy? However, when I turned 65 in 2016, my Social Security was reduced to $1,915. Now I have to buy $121 fewer groceries per month. Why was this true? Medicare started grabbing some of the income. I knew all along that Social Security provided an insufficient income stream.
It is a sad reality that some rely entirely on Social Security to pay their bills in retirement. “Citing Social Security Administration data, CNBC reported this week (February 17, 2022) that about 12 percent of men and 15 percent of women ‘rely on their monthly Social Security check for nearly all of their income,’ with “nearly all” defined as 90 percent or more.” SOURCE: The National Interest
The New Written Goal was set in 2015
So in 2015 I created an income goal. My original goal statement said this: “Generate a steadily increasing stream of dividends paid by excellent, low-risk companies to reach annual dividend income of $60,000 in five years – when I would reach 70 years old. Furthermore, I aimed to have dividends withdrawn as RMD’s from the non-ROTH IRA account so that income-producing investments will not be sold to fund RMD’s if at all possible.”
Notice three things about my goal posts or home plate. 1) I said my focus would be on dividends and the investments had to meet some standards. 2) I set a numerical target of $60K to have a touchdown. To put some context on this number, our dividend income in 2014 was $40,818 and my traditional IRA income was a paltry $31,738. 3) I set a date where I wanted to say “touchdown” or “homerun!” It would be February 2021.
A Goal Requires a Plan
Many people set goals. They declare “New Year’s Resolutions.” They are well-meaning in these declarations, but without a plan, the goal is likely to be a fading memory. A plan is more than just a good idea. Consider the following quotes:
- “Always plan ahead. It wasn’t raining when Noah built the ark.” – Richard Cushing
- “By failing to prepare (plan), you are preparing (planning) to fail.” – Benjamin Franklin
- “A good plan today is better than a perfect plan tomorrow.” – General George S. Patton
My Notes to Define What was Included and not Included
I added some notes to my planning document. Here were my original thoughts: The goal should be easily achieved at 4% growth target and the dividends were to come from both my Fidelity IRA & brokerage accounts. The brokerage account would, however, contribute little due to the size of that account. My goal did not include interest from CD’s held at Fidelity. That was wise, as interest rates dropped to just about zero. The goal also did not include capital gain income or any capital losses or any Social Security income.
The Great Recession Woke Me Up
The following image shows the dividend growth and decline from 2003-2014. The Great Recession certainly caused me to sit up and take notice of the types of investments I was selecting. A significant change was needed.
The Four Percent Plan
This next image shows the plan to get to $60K from an estimated $50K in 2015. As I made changes, it became very apparent that my initial $60K goal was too passive. It was possible to do far more. Because of government changes to the RMD start date caused by the Covid impact on the stock market and investments, I did not have to take my first RMD as originally planned. In 2023 I will have to take it. The plan I put in place has caused my traditional IRA to reach an EAI of $90,000. So I beat the plan by $30K.
What Might You Do?
If I can offer a suggestion, it would be this: Find out your projected Social Security monthly income by registering on the Social Security web site or look at the statement they mail you. Then, look at your existing investments and the estimated annual income those investments produce. If you have Fidelity as your broker, your monthly statement will show you that information. Divide that EAI (note 1) number by twelve and add that number to your Social Security. Then answer this question: Can you live on that monthly amount today? Can you live on that same amount ten years from now, factoring in inflation? If not, it is time to set a goal with a target date and an income dollar amount. Don’t worry about your IRA or 401(k) account balances. Focus on the income strategy. After all, income is what you need to pay the bills.
Finally, if you have a mortgage, credit card debt, or car payments, resolve to get those off of your plate before you retire. You will be glad you did.
Dividend growth investing is not the only piece of my income growth strategy. Achieving $90K was not just about dividend growth. Since 2015 I have learned some other ways to increase income. In part three of this series I will talk about different sources of cash for dividend growth investing and other types of investing.
Note 1: EAI is “Estimated Annual Income.”