If you want to achieve financial independence, it is essential to determine the amount of money you would need to have in your retirement account so that the dividend income generated by your investments will meet or exceed your annual cost of living without having to draw down your invested capital.

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For example, suppose your total annual cost of living is $75,000, including taxes. If you had $1,500,000 in investments that paid an average annual dividend yield of 5% ($75,000 per year) and the dividend income grew at least as fast as the rate of inflation, you would never need to draw down your invested savings,  making you financially independent.

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It is not necessary to have an exact estimate of the amount of savings you will require in retirement. In fact, it is a mistake to try to establish an exact amount, because there are so many things that will happen during your working years that cannot be predicted. Nevertheless, it is important to establish a reasonable target amount so that you can measure your progress and adjust your rate of saving and other factors, as the future unfolds.

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The number of years it will take you to accumulate $1,500,000 (or whatever amount you decide is necessary) will depend on the amount you can save each year and numerous other variables that are unique to each individual. Many books and articles are available that describe how to budget your income and maximize your savings, but that is not the purpose of this guide. However, the objective of this book is to show you how you can achieve a stable and growing dividend income by investing your retirement savings in a small number of financially stable companies that pay a growing dividend.

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Finally, keep in mind that it is easy to become so immersed in your daily activities that you forget your long-term financial goals and consequently never achieve them. Therefore, it is essential to take some time each year to reassess your financial goals, evaluate your progress, and adjust your activities and savings rate so that you don’t end up “someplace else.”

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 1. ​Attributed to Yogi Berra, a famous American philospher and part time baseball player.

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