I Gave Myself the Gift of a Dividend Reinvestment Plan
Before I ever read the article on MSN Money entitled, “A DRIP is the best stocking stuffer around”, I had already set a retirement New Year’s resolution based around this form of investment.
My DRIP plan works for me by doing as it’s name (dividend reinvestment plan) indicates…reinvesting dividends. And the best thing about a DRIP, for me as a self-employed individual, is that it doesn’t take a lot of money to see my investment grow.
Making a retirement push
Retirement isn’t just going to happen on its own; and as a self-employed individual, there may not be a lot of extra cash to put toward a retirement plan. Having to pay both the employer and employee side of employment taxes (Social Security, Medicare), means that about 13 percent of each dollar earned is going toward funding these items, and this doesn’t even include things like state and federal income taxes.
Therefore, without an employer-sponsored retirement plan, and with Social Security expecting to only be able to pay 75 percent of estimated benefits by 2033, a self-employed individual like me can be put to the test to figure out how to properly fund their retirement future.
Understanding my DRIP
One of the best ways that I’ve found to better secure a retirement future on limited funding is through a DRIP (dividend reinvestment plan). To better understand my DRIP, I watch it in several ways. First off, I do a quick search of its share value progress after the markets close each night…it takes about 5 seconds to type in the fund name and get a progress report — higher, lower or unchanged.
I get a more detailed report monthly when I update our overall net worth number (comparing assets to liabilities), and quarterly when I investigate the fund(s) comprising my retirement account, the detailed holdings (individual stocks, bonds, cash), and their amounts. In this way, I know how much my fund pays out in monthly dividends, what percentage return it yields annually, and how the fund reacts to a rising or falling stock market.
Coming up with a reasonable and simple plan
The real challenge with my holiday retirement gift to myself was coming up with a contribution amount that was challenging, yet reasonable and simple so that I had to push myself to meet my goal, but didn’t find the process so difficult that I lost motivation and gave up part way through the year.
Therefore, I decided on a goal of $50 a week contribution to my retirement plan. My wife decided to join in with me to make it $100 a week. While it’s not a life-changing amount, we feel it’s one that can make a difference in our retirement future, and maybe more importantly, one that’s realistic.
Should we continue this contribution amount ($5,200 a year), at a return of 5.75 percent compounded annually over the next 30 years, we could be looking at over $415,000 by the time we retire, and there’s no denying that this amount won’t be helpful to our retirement future.