As the end of October draws near, I have now received all my dividends for the month, and the total received was £218.01, which is an overall increase of 21.4% compared to last October. As this month is actually my lowest paying month in the year to date, and Nov / Dec will almost certainly pay significantly more it will be the lowest for the whole year.
Receiving at least £218 each month even if I did absolutely nothing for the whole month is not a bad position to be in as even though it is my lowest monthly dividend income it still covers my monthly costs for Gas, Electric, Water, Telephone & Broadband and Home Insurance, which are the majority of my regular bills (except food, fuel for my car, local taxes and mortgage).
So far this year, I have received £4,367.65, and the monthly average for this year is likely to be over £440. This will actually pay all my regular bills (except food and fuel for my car), so at present if I wasn’t working, I would at least have somewhere to live and be warm and dry, but of course would go hungry.
Because I have money in my current employers pension scheme, to which I am adding almost £700 a month, and a final salary pension from a previous employer, I am getting close to being financially independent, and am confident that this will happen in the next 2 – 3 years (unless there is major economic meltdown).
I therefore have to start planning towards this point, and wondered what peoples thoughts are about asset allocation. The conventional wisdom (because of the security of the money) is to place pension monies in government bonds, but of course yields are so low at the moment, that this would seriously cut the income from my investments. I am currently considering taking the tax free pay out from my pensions but otherwise staying fully invested in shares (blue chips with a good yield) in order to maintain the income, and then once a year taking out enough cash to pay me for the next twelve months. I believe that if I can take out less than the dividends paid each year that this will actually increase the value invested as dividends should increase over time by more than inflation, thereby increasing the surplus being re-invested each year.
The main thing I have to work out at the moment is how to minimise the amount of tax I pay which means I need to put as much into my ISA as I can as all payments out of these are tax free, but I at least have 2-3 years to try and organise this.
Is anyone else close to living off their investment income, and what are you going to do as you get nearer to the actual date?