Dividend pension: Supplementing your pension with dividends

Not every pensioner is in the comfortable position of a financially good pension. Especially when there were inheritance failures it comes to this. Women live longer and tend to have gaps in their pensions more often due to motherhood. Today, more and more women are asserting their desire for a career. But the pension (or AHV in Switzerland) only goes so far and usually only covers part of the last income. How you can supplement your pension with dividends and build up a solid dividend pension is therefore covered in this article.

If you have more questions about dividend annuities, we'd love to hear from you in the comments!

Pension Deluxe: pension with dividend

An old adage among investors is not to keep all your eggs in one basket. Who knows how good or how high the state pension will be one day? We all know cases where the state pension is already insufficient today. What will it look like in 30 years? But we don't want to talk about the problem behind the state pension here, but about the "pension deluxe", i.e. a Retirement with dividends. In this way, we want to ensure that we do not have to rely on a single pension and can still embellish our well-deserved rest with a little luxury in old age.

How do we go about this? We build up a second source of income with dividend investments. This second source of income is independent of the pension scheme. This means that if the pension is not sufficient, there is still income via dividends.

How much capital should one invest now? This question varies from person to person, but here are a few tips to consider.

The more you want to supplement your pension with dividends, the more you need to invest. The 4% rule is often used as a rule of thumb.

For example, if you want to receive CHF 1,000 per month in dividends, you should have CHF 300,000 invested according to the 4% rule. The 4% stands for the dividend yield in percent, which is Realistic seen in the long term can be distributed by dividend shares without attacking the substance. (Calculation: 1,000CHF x 12 = 12,000CHF which equals 4%. 100% are according to this 300k CHF of invested capital in dividend stocks or approximately distributing ETF`s).

To determine your personal dividend amount, you should ask yourself how much you want to set as a goal and whether such a savings rate is possible. For example, is it the 300k from the example above and you still have 20 years until retirement? Then you should invest a good 1,000CHF per month from now on. Price gains will move you above the 300k over this term. But this gives you security for downward fluctuations or higher dividends when the stock market is doing well.

Think for the conversion absolutely also of the Pillar 3aas taxes can be optimised here. You can find concrete dividend stocks and ideas in the Dividend shares Article.

What should I look out for in a dividend annuity?

When are dividends paid out?

The next step you should consider is when the dividend will be paid. It's important to consider this because depending on your dividend investment, you may not receive a steady monthly stream of income. Many domestic stock companies pay their dividends 1x a year in the spring after the annual shareholders meeting. In the US, there are many companies that pay out quarterly. There are now also real estate funds (REITS) that specialize in this and distribute monthly income. Also special ETFs with regular distributions are available.

Consider fluctuations and failures

Stock companies can also have bad years where there are fewer dividends or none at all. Therefore: Spread your investment. An ETF which contains many hundreds of companies is therefore more recommended than 3 individual shares of companies that "normally" pay good dividends.

taxes on dividends

Dividends must be declared as income and are therefore subject to tax. 1,000CHF dividends are therefore net less than 1,000CHF. Keep this in mind if you are really tight on your pension. Want to spend your retirement somewhere else, like in the warmth of an island? Depending on where you live, you can benefit from tax advantages.

Improve your pension? Clear answer: Pillar 3a

Pillar 3a: Buy shares, save taxes

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Invest assets passively in the long term

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Conclusion on the dividend pension

Supplementing your retirement with dividends is a great way to diversify your income. Dividends can be earned through mutual funds, ETFs or, say, stocks. Consideration should be given to how much income is to be earned, when it is needed, and that it can fluctuate, as well as be taxed. The good thing about these investments? In the long term one can profit from positive stock market developments. Furthermore, the capital is not tied by the state and can therefore also be withdrawn in case of need.