Retire early? Here is a smart investment strategy to consider Private finances

Let the tax law work for you

Usually, early retirees may not earn as much money as they did when they worked full time. This can work to your advantage during tax time. When you trade with earned income against dividend income, you may be entitled to unlock qualified dividend tax rates for investments held in a taxable broker’s account. These interest rates – 0%, 15% and 20% – are the same as the coveted long-term capital gains.

Let’s say you and your spouse earned $ 50,000 in dividend income during your first year of early retirement. For 2021, shared files can skip taxes on qualified dividend income up to $ 80,800. That means you can fund your lifestyle without tax nuances bothering you.

A lifetime of benefits

Dividend investments can do wonders for your portfolio if you are trying to retire early. This extra income stream can fill the gaps to fund your lifestyle until your retirement benefits begin. Even if you do not have to use your dividend income as an early retiree, you can enjoy the benefits of dividends for the rest of your life.

As long as you are an investor and the company’s board continues to declare dividends, you will continue to earn dividend income – even if you never buy another dividend paying company again.