Should You Sell Your Bitcoin and Buy Dividend Stocks Before You Retire?

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Achieving FIRE (Financial Independence, Retire Early) is a dream many have, but the journey is often decades long and brutally challenging at times. Hard work, smart financial decisions, and a little bit of luck, perhaps a home-run investment, can help speed things up.

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That's the position one Reddit poster finds themselves in. Years of hard work and an enormously profitable investment in Bitcoin have put them in a position to potentially semi-retire:

Tired. Can I retire?
byu/karl0525 individends

Would it be wise for this person, or anyone in a similar position, to sell profitable investments and shift their portfolio to dividend stocks? Here is some food for thought.

Image source: Getty Images.

Recharge and reflect

The first thing that jumps out to me about this Reddit poster is how hard they have worked for how long. It's a tremendous accomplishment to have a paid-off house, and over $1 million invested by your early 40s. Understandably, they feel a bit burned out.

That said, this person is still relatively young, with potentially decades of life ahead. It may not be wise to make such important life decisions when feeling this way. This person has earned the right to ease up a bit. Perhaps they should take a vacation, or cut back on their working hours and see how they feel.

After recharging their internal battery, they can sit down and reflect on what they genuinely want to do. It's crucial to plan your future with a clear mind so you don't make impulsive decisions that you regret later.

Consider these things before cashing in that lucrative investment

After that, people must consider several things before they start moving their assets around.

One must consider the tax implications of a major transaction. This person has $500,000 in Bitcoin. Assuming they sell their Bitcoin for a hefty profit, they could pay thousands of dollars in taxes on the capital gains. They also have a 401(k) retirement account with $600,000 in it, but are too young to make withdrawals without likely facing penalties.

In other words, cashing in on their investments at such a young age could be pretty expensive. The Reddit poster must decide whether it's worth doing. If they do cash in and buy dividend stocks, they could still face annual taxes on the dividend income they receive.

After factoring in any potential taxes or penalties, they must weigh their living expenses versus their expected income. Even $500,000 in a diverse dividend stock portfolio with an average yield of 4% would only generate approximately $20,000 in annual dividend income.

It's probably a good idea to get a professional involved

As you can see, this isn't a cut-and-dried situation. There is a lot to think through. Understandably, few people are experts in this stuff.

That's why it's probably a good idea to consult with one. A credentialed financial advisor can help you understand the choices before you and walk you through a process to arrive at the best decision for you. Remember, everyone's circumstances, goals, and financial situation are different, so no one plan fits all.

This Reddit poster may ultimately decide to scale back their career to part-time work, or that a much-needed vacation gives them a fresh drive that enables them to continue working and stacking assets. The world is truly their oyster at that age, with those assets, so as long as their decision makes them happy, it's genuinely hard to go wrong here.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.