With stocks being as volatile as they sometimes can be, it’s important to look at other sources of „passive“ income to keep the cash flow running, and dividend stocks, with their unique traits, are here to help any investor power through their golden years.
Make sure the money keeps coming
The main reason to opt for dividend stocks is keeping your income constant, as you’ll likely continue to spend money long after you’ve stopped earning your monthly salaries, and your $1.5k social security checks just won’t cut it on their own.
With pensions only adding an approximate $15k to your annual income, chances are that you’ll eventually have to rely on your financial assets to provide any additional income for your household.
That being said, investment income usually comes in the form of interest and dividend payments, with bonds being more popular among people that can’t afford to risk too much as they fluctuate less aggressively than stocks do, making them a somewhat safe investment option.
Dividend stocks, on the other hand, have a much greater return, in exchange for experiencing drastic price fluctuations more often.
However, they usually belong to stable companies which had already made a name for themselves, so there’s little to worry about, as the company’s growth gets paid periodically via checks to its investors.
How dividend stocks help you mitigate tax season’s impact
Taxes come up more often than we’d like them to, but they’re a necessary evil, and any skilled investor knows how to use dividend stocks to reduce taxation, as the aforementioned receive preferential tax treatment.
If your retirement account is a Roth IRA, your dividend income will be fully tax-free, as the returns are distributed as non-taxable before turning 59 and a half.
Dividend income is also tax-deferred if you have a classic 401k savings account, but once you accept distributions from those accounts, the IRS counts it as ordinary income, which does give you an upper hand in controlling when the tax will be incurred.
Special treatment applies to regular investment accounts too, with many dividends qualifying for a capital gains tax rate rather than regular income taxes.
Slow and steady wins the race
Finally, dividends are famously known for demonstrating stable growth, being much more stable than regular stock and bonds alike in the department.
Growth is often put aside, causing losses for those who don’t account for certain rates of value fluctuation that comply with their cash needs for the next decade or so.
While dividend stocks don’t yield a massive return in a short amount of time, they allow you to play the long game, growing slowly and steadily without too much risk, which is particularly important for lower-income investors that can’t afford to make risky financial maneuvers.
Long-term growth can potentially outweigh the risk-reward ratio that comes with regular stocks, and this makes dividend stocks great options for developed investment portfolios of those looking to retire in the next decade.
In conclusion, dividend stocks are a great way to make sure your retirement savings keep growing, while providing investors with tax benefits and more predictable investments. Though the returns may be smaller than regular stocks, they often do better in terms of stability and long-term growth. Consider adding dividend stocks to your portfolio as a secure option for retirement. This way, you’ll have a dependable income stream that will help you enjoy your golden years.