Can I retire on $300k and make it last?

Can I retire on $300,000 and make it last?

It is possible to retire on $300,000 and make it last. You can invest in a growth portfolio and withdraw 4% every year. Alternatively, you can invest in dividend paying assets which will continue to pay you for ownership in the company.

Imagine, being able to live and retire on a $300,000 portfolio. You can even go see some of the most traveled places in the world.

Retiring on $300,000 isn’t easy, but it is possible. 

Luckily for you, I’m going to show you how to retire on $300,000 and make it last. I’ll show you some of the advantages and disadvantages of growth and dividend portfolios. A smart investor may even see growth of their portfolio.

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Can I retire with $300k?

It is possible to retire with $300,000 using the 4% withdrawal rule or by investing in dividend paying assets. Living on $300,000 will usually mean living on a tight budget. Some retirees use location arbitrage to live in low cost of living countries where the US dollar goes further.

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Retire with a $300k growth portfolio

The 4% withdrawal rule estimates that you can withdraw 4% of your portfolio over the course of 30 years. Basically, indexes like the S&P 500 have historically grown an annualized return of 10%. Therefore, your portfolio  increases in value by roughly 10% while you’re only withdrawing 4%.

For example, every year you withdraw $12,000 from your portfolio to live on. If your invested assets increase by 10% then your portfolio would be worth $316,800. As you can see, you are living on $1,000 per month while your stock portfolio should be increasing in value.

However, you won’t always get a guaranteed 10% return on investment. Some years you might have amazing growth and others with negative returns.

Retire with a $300k dividend portfolio

Alternatively, you can invest in dividend paying assets and live off the dividend yield. Essentially, these companies are paying you for being an owner in the company.

Let’s assume, you have invested your $300,000 across 10 different companies with an average yield of 7%. As long as these companies maintain their dividend payment, you will receive 7% of your initial investment every single year. Therefore, you would receive $21,000 every year by being an owner in these companies.

Use location arbitrage in retirement

$12,000 or even $21,000 may not seem like a lot of money to retire on. Therefore, you can live in a low cost of living country where your money goes further.

For example, it is estimated that you can live on $1,000 to $2,000 per month in Thailand. As you can see, a dividend portfolio would easily pay you $21,000 per year or $1,750 per month.You could easily live in Thailand while still contributing to your Investment Portfolio.

Let’s assume that you are able to live comfortably on $1,300 per month in Thailand. Therefore, you would have an extra $450 which you can reinvest. Reinvesting your dividends is going to make sure you have more dividend-paying assets later.

What is the return on $300k investment?

Most investments return around 10% annualized returns. Therefore, you can expect yearly returns averaging $30,000. Remember, some years will have returns greater than $30,000 in other years will return much less than $30,000.

The stock market is always fluctuating. Therefore, it is hard to say what your actual returns will be. However, the average over the course of many years has been around 10%.

This can make planning for retirement very difficult. Ideally, after you retire you would have stock market gains over 10%. However, the stock market might be having a few down years where the average might be 4%. 

How long will $300k last in retirement?

A $300,000 portfolio is estimated to last at least 30 years using the 4% withdrawal rule. Investing your $300,000 into a dividend-paying portfolio will last if you manage to live off the dividends and not touch the principle.

The 4% withdrawal rule was determined based on the Trinity study. The Trinity study looked at past stock market performance and determined that 4% was typically a safe withdrawal rate for a 30-year period.

Investing in dividend paying companies can provide you with a long-term income solution. As long as these companies maintain their dividend and stay in business, you’ll keep getting paid. The goal is to live on dividend payments and not touch your initial investments.

What is the best way to invest $300k?

The best way to invest $300,000 is in the S&P 500 or other growth funds if you are not looking to retire anytime soon. However, investing for near-term retirement should invest in income-generating assets.

Young investors will want to take advantage of growth which can outpace dividend payers. For example, the S&P 500 may increase by 25% in a year. However, your dividend investment might pay 7% in the same year.

Most investors take advantage of growth for their early years. When the investor is nearing retirement, the assets are typically shifted towards income producers or less volatile assets.

Personally, I like to keep a mix between growth and dividend paying funds.There are times when dividend payers may outperform growth companies. However, it is typical that growth companies outperform. 

Usually, I buy the asset that is currently down in price because it’s like you’re getting it at a discount. For example, if the S&P 500 just took a 30% drop, chances are I’m buying the S&P 500 because I believe it will continue to increase.

Investing $300k for growth 

The most reliable way to invest $300,000 for growth is the S&P 500. The S&P 500 has historically received annualized returns of 10%. Therefore, invest in the S&P 500 by using a low-cost exchange-traded fund like VOO.

VOO is the Vanguard S&P 500 exchange traded fund. It tracks the performance of the S&P 500, with a low expense ratio. Therefore, you aren’t getting charged very much for your investment.

Alternatively, you can buy small, mid, and large cap growth funds. These funds purchase companies depending on their size that are focused on rapid growth. Typically, small cap companies grow much faster than large companies.

Investing $300k for income

You can invest $300,000 for income by investing in dividend paying stocks, business development companies, and covered call exchange-traded funds. These assets pay a high dividend yield which can pay income in retirement.

Dividend paying stocks are just companies that pay cash payments to shareholders. Companies like AT&T are currently paying a 7% dividend yield. Therefore, for every $1,000 invested in AT&T, you would earn $70 every year.

When investing in individual companies, it is important to maintain a diverse portfolio. you want to spread your risk across multiple companies. Typically, risk involves the company going bankrupt or cutting their dividend payment.

Business development companies are individual companies that invest in other companies. These companies lend money to companies who are too small to be publicly traded and too large to secure financing otherwise. BDCs are required to pay 90% of their earnings to shareholders.

Covered call exchange-traded funds are built with income in mind. These assets have a fund manager who sells call options against an index. The income is then passed down to shareholders.

Where can I retire with $300k?

You can retire on $300,000 in a low cost of living area like Thailand. Alternatively, you can live in the United States if you are able to live on $12,000 or less every year. Use location arbitrage to retire on $300,000 and continue to let your portfolio grow.

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Summary: Retire on $300k

As you can see, it is possible to retire on $300,000 if you are willing to make some changes. The biggest change is taking advantage of location arbitrage to live in a lower cost of living area or country. You can retire by withdrawing 4% of a growth portfolio or investing in income-producing assets.

You will have to decide if growth or dividend investing is the right path for you. Growth portfolio has assumed that the stock market will continually increase in value. A dividend payment portfolio will keep paying you as long as the company exists and pays a dividend.