When is it too late to invest in income-producing dividend stocks?
My husband is 66 years old and I am 70 years old and we have a registered self-directed retirement savings plan (RRSP) with $67,000. We have tax-free savings (TFSA) accounts with $75,000, some cash totaling $25,000, a small amount of gold bars worth $15,000, and we have invested in a condo with good resale potential. My husband is still working, but is semi-retired. We are currently investing the RRSP in several different sectors that have good dividends. However, the principle is not growing a great deal. Is this the best strategy for us at this late stage?
Dividend stocks can be a great investment for the right person regardless of their age. As an asset class these stocks are great for someone that needs some income from their portfolio and wants to see it grow slightly over time. Just like any asset class there will be times when they are in favor and times when they are out of favor.
The best part about being a dividend stock investor is even if they are out of favor and the stocks do not appreciate much, you still receive the dividend while you wait for the stocks to appreciate.
Just like any investment you should do the work on the companies you own because the biggest risk to dividend stocks is that the company gets into trouble and the dividend is cut. I have seen many people want to invest in a company because the dividend looks attractive. In most cases the dividend is attractive because there are some problems with the company and the risk of a dividend cut can be high. Owning sectors and ETF's is one way around the individual stock risk, but there are still things such as interest rates and commodity prices that can effect an entire sector.
It's always a good idea to invest in dividend-paying stocks. I think this is really a question about the appropriateness of investment risk as the investor ages. Risk is perfectly normal and natural and nothing to worry about, but you should have a reserve of funds that will not decline in value so you can tap it if the market is low and it's a bad time to be selling.
The issue with you and your husband is that it does not appear that you can afford to retire. You list $182,000 in assets, some of which will incur taxes when you withdraw. As a rule of thumb you need invested assets totaling 20 times your annual living needs in order to eliminate (or nearly so) the chance of outliving your savings. You don't list any sources of income in retirement other than those investments (plus Social Security, which you should deduct from total living needs when you do your budget). That means you should plan on taking no more than $9,000 per year, plus investment income. Can you get by with takng that little? If not, he needs to work for more years.