Want to Collect $30,000 in Dividends per Year in Retirement? Here's How You Can Do That.

The big incentive to save for retirement is to be able to have a huge nest egg to live off of, so that you’re not dependent on other sources of income. And if you’ve accumulated significant savings, then you can use that to generate a lot of recurring dividend income.

Below, I’ll show you how you can bring in at least $30,000 in annual dividends by the time you retire, assuming you have at least 30 investing years left.

Investing in a growth-oriented fund can help maximize your long-run returns

For long-term investing, an exchange-traded fund (ETF) can be an ideal investment to put into your portfolio. It can be a fairly safe way to grow your savings for years. A diversified ETF has a big advantage over stocks in that it offers much more stability; there’s less risk that there might be a big one-day drop in value due to a bad earnings report or company-specific news.

One of the best ETFs for investors to consider is the Vanguard S&P 500 ETF (NYSEMKT: VOO). It tracks the S&P 500 index, which is made up of the largest and best stocks on the market. With this investment, you’ll get exposure to tech stocks and many other sectors. And to simplify your long-term investment strategy, or if you’re not comfortable with picking individual stocks, you can just put money into this one ETF.

Over the long term, the S&P 500 has generated average annual returns of around 10%, and the ETF has done a good job of mirroring the index’s performance, which is what it’s set up to do.

VOO data by YCharts.

You can invest monthly or through a large lump sum

To be able to generate significant dividend income in retirement, you’ll need to build up a large balance — ideally, at least $750,000. To get there, you can invest on a monthly basis or invest a large lump sum today. And you can always add to your position over time if you’re able to do so.

If you were to invest monthly into the Vanguard S&P 500 ETF, and assuming that it grows at an average rate of 9% per year (which factors in a potential slowdown in the markets), then you would need to set aside roughly $410 per month. And here’s how that size of an investment might grow over the years.

Calculations by author.

Another option is to invest a large lump sum today and allow it to grow. In this case, you would need to invest approximately $57,000 today under the same assumed growth rate.

Calculations by author.

Under both scenarios, you can end up with more than $750,000 after 30 years. And that is ultimately the key — being able to build up a considerable balance that you can then use in a dividend-focused fund.

Turning that balance into a steady stream of dividends

Once you have a sufficient balance, finding safe, income-generating investments to put that money into is crucial. One ETF that may be suitable for that purpose if you’ve got your $750,000 today is the SPDR Portfolio S&P 500 High Dividend ETF. As the name suggests, it offers a high yield — roughly 4% as I write this. If you have $750,000 that you can invest in the fund, that would produce nearly $31,000 in annual dividends, based on that payout.

There will likely be many other ETFs and investment options available in 30 years that provide similar yields. The key point is that when you’ve built up such a large balance, there will be many ways to generate significant dividend income; ETFs that yield 4% are often less risky than higher-yielder funds. You wouldn’t want to invest all your money into a single ETF, and should look to diversify. The goal when investing into dividend ETFs is to find diversified options that will keep your original investment safe while still providing you with stable, recurring cash flow.

Regardless of which funds you choose to invest in, the necessary ingredient in all of this is to build up that large balance. And even if you can’t afford to make a big investment in the stock market today or make regular recurring investments, you’re still better off investing whatever you feel you can afford. Putting that money into a solid S&P 500 ETF can help you grow your savings over the long term without putting your money at unusual risk.