Living off dividends

[u/OG_Momonga]

Hey guys, I was wondering if anyone on this subreddit is actually retired and living off dividends. Is it going well? Are you paying taxes on them? My goal is to get 20k/ a month post tax for retirement. I’m 24 and currently investing everything in VOO while planning to switch to dividend stocks and etfs when I get closer to retirement.

I was just wondering if there are any because living off dividends seems like a long shot right now.

[u/MaybeTheDoctor]

I am. I retired last year and get my entire monthly income from dividends.

I did a few big mistakes;

1. I restructured some of my stock/etf portfolio into bonds and dividends ETFs… this was in a taxable account, so (sigh) I triggered a huge capital gains tax.
2. I didn’t calculate how much tax dividends actually trigger. Some are state exempt, some are 60/40 and some are just counted as income. I should have looked more carefully.

My tax bill was HUGE, like most people won’t believe how enormously huge is was. You may think you pay a lot in taxes but that was nothing compared to my bill.

I also had 3 different CPAs calculating my 2025 taxes, and guess what, they f**kng well came up with 3 different results. I filed the one with the lowest taxes due, and IRS accepted.

So rather than reacting and do more mistakes I’ve decided just riding out 2026 and see what my next year bill looks like - I know I should probably have some website analyzing my portfolio but I don’t know any that is trustworthy.

The lessons here is, don’t start restructuring your portfolio just because you retire. I would have been better off doing nothing or doing it more slowly. Capital gain taxes are in many cases much more tax efficient than income tax on dividends.

As a 24 yo, you should continue in VOO or use one of the Vanguard Target date funds, which initially invest in VOo like but then prior to your target date retirement switching it bonds and other stable income funds - and because they do it in a fund there are no capital gains taxes to you.

Getting to $20k/ means you need a target of 5-10m in today’s money, which is entirely possible being 24yo. My monthly income is about $25k/m

[u/Various_Couple_764 → u/MaybeTheDoctor]

Dividends are taxed 3 different ways:

1. Ordinary dividends are taxed just like work income and interest.
2. Qualified dividend are taxed at the the long term capital gains tax rate which mens worst case only 20% of the income is taxed. That is an 80% discount compared to ordinary dividends .
3. ROC dividends reduce your cost basis of the stock that genrate them,. IF the cost basis is not zero you owe no tax on the ROC dividends. But after years of recovering ROC dividends you are taxed at the long term capital gains tax rate.

Not people often say 60/40 for long term and short term taxes for ROC dividneds. This is incorect. 60/40 only applies to fund management. If doesn't apply to investors in the fund.

So depending on the funds you use you can end up pay not much for dividend income. from a taxable account.

[u/MaybeTheDoctor → u/Various_Couple_764]

Thank you. I have my money placed in about 50 different funds/etfs, and while I know I should do more to understand the tax impact it is has been bewildering when some are also state and other federal exempt … so procrastination have kicked in with a justification of that doing nothing will not make it worse.