Want to Collect $50,000 in Dividends per Year in Retirement? Here's How

The big benefit of starting early in long-term investing is that years from now, you can potentially retire early. You may even be able to generate recurring income that you can live off of. Depending on where you live and the lifestyle you want, generating $50,000 in dividends every year could be enough for you to get by without having to rely on other sources of income.

But how do you set yourself up to accumulate that much in dividends? Below, I'll show you how you can build your portfolio over the years to put yourself in a financially strong enough position where you can expect to generate $50,000 in annual dividends.

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Start by investing in a growth-focused fund

When it comes to dividends, you need money to make money. There's no way around that. But if you have a lot of investing years left, you don't need hundreds of thousands of dollars today. You can invest in an exchange-traded fund (ETF) that is focused on growth stocks and can result in a five-figure investment becoming more than $1 million decades later.

Although investing in the S&P 500 can be a safe option, an ETF such as the Invesco QQQ Trust (NASDAQ: QQQ) can be a better choice for the long term. The fund gives you exposure to the top 100 nonfinancial stocks on the Nasdaq exchange. This means you're investing in some of the best growth stocks in the world. Over the long term, this has been a great way to outperform the market.

QQQ data by YCharts.

Assuming you can collect a yield of about 4.5% in the future, that means you would need to aim for a portfolio balance of more than $1.1 million. That balance would be enough to convert a 4.5% yield into about $50,000 in annual dividends.

Let's also assume that the market won't grow at its historical rate of about 10% but instead average a lower return in the long run. However, if you're investing in the growth-focused Invesco fund, perhaps you may still be able to average an annual return of about 9%, which would factor in a slowdown in the future but potentially still outperform the S&P 500.

If you average a 9% return for 30 years, you need to invest about $83,000 today to get your portfolio to at least $1.1 million.

A dividend-focused ETF can generate recurring income and provide stability

When you get close to retirement is when you'll want to consider swapping out of a fund such as QQQ and into one that focuses on dividends. Investing in dividend stocks can lower your overall risk because these businesses generally are financially strong and posting regular profits. They are also often less volatile than growth stocks.

Decades from now, there may be many different options for high-yielding ETFs to choose among. But one example of a fund that would make for a good choice today is the Invesco High Yield Equity Dividend Achievers ETF (NASDAQ: PEY), which yields about 4.5%. As noted above, that would be a yield high enough to convert a $1.1 million investment into $50,000 in annual dividends.

You may, however, want to spread such a large investment over multiple ETFs to further minimize your risk. The hard part is building up that big of a portfolio balance to work with. But once you're at that stage, you'll have plenty of options and ETFs to consider.

Investing in the market can be a great idea, even if you don't have a big lump sum to invest

Many people won't have more than $80,000 to invest all at once in order to make this strategy work. Instead, a great way to build your portfolio is by making regular contributions every month and investing any tax refunds and other cash into a fund such as the Invesco High Yield Equity Dividend Achievers.

Regardless of how much you can afford to invest, regularly putting money into a diverse growth fund can put you on track to a much stronger financial future.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.