There are more sources of income out there beyond Social Security and standard investments like bonds and CDs. These additional sources of income are not right for everybody, but they are always worth exploring to see if they fit you and your situation.
One potential source of income are dividend stocks.
Dividend stocks are where a company pays out a percentage of their profits to their shareholders. Basically, this means that if you invest in a dividend-stock, you are sent a check or receive a direct deposit. What you do with it is completely up to you. (Pay your expenses? Take a trip? Re-invest? You decide.)
Different companies pay different amounts when it comes to their dividends, and their schedules may differ, too. For example, some companies pay quarterly dividends, while others annually or semi-annually. But whatever the schedule, dividends can provide you a regular stream of valuable income even after you stop working.
Here’s a quick example. Say you own 300 shares in a company that is currently trading at $100. The company pays a quarterly dividend of 2% per share. Multiply that dividend by the number of shares you own, and voila! Owning 300 shares nets you a payment of $600 each quarter. (Obviously, this example uses nice round numbers, but it gets the point across.)
It's usually recommended that younger people reinvest their dividends, meaning they use the money to buy additional shares instead of keeping it for immediate use. This is one of the most powerful ways to build up your wealth over time. But when you’re retired, income is often more important, so it may make more sense to treat your dividends as a kind of quarterly paycheck.
Now, keep in mind that dividends are taxable, and are usually classified as ordinary income. Furthermore, dividends aren’t guaranteed — a company may choose to raise, lower, or nix their dividend entirely. But many companies that pay dividends do so because they are large, well-established, and stable. For these reasons, owning dividend stocks are certainly worth considering if you are looking for more income in retirement.
