Second Simple Step To Retire

Hi again folks

OK, so we are up to step two.

The original premise can be found at this short post here

Second Simple Step To Retire

The second step simply read like this: As a conservative, old-fashioned investor of fully franked dividend shares, then how many shares will I need to hold to give me that exact dividend income each year?

This method requires us to commit to an old-fashioned, very boring, repetitive purchasing of fully franked dividend shares, preferably Licensed Investment Companies (LIC's).

Why LIC's? Well actually not just any LIC's, specifically old, wise, stable  LIC's like Milton, Argo, AFIC, Whitefield and BKI would be ideal. All these have been around for decades, pay fully franked dividends twice a year, smooth out their dividend payments even in years of gloom and generally grow their dividends year on year. Yawn-worthy, utterly boring and terribly sensible grey-cardigan-and-sandals style holdings.

The beauty of these LIC's is that they are thoroughly reliable and have high integrity. Folk who hold these LIC's in retirement can rely on their dividends to come through twice a year pretty much regardless of what idiocy is occurring on the stock market. GFC? What GFC?  Frankly my dears, old LIC holders don't give a damn.

The Scary/Confusing/Weird Part .....

I have had several people ask me "how many shares do I have to buy to earn $X amount per year?  Well, as least as possible actually ..... (What the? How is that a helpful answer? Mr HM is avoiding a straight answer. Dodgy. Meh)

Well, if we were daft enough to wait till just before retirement to buy these LIC's to produce a dividend income, then we would have to buy hundreds of thousands more of them than if we had started well in advance. We'd have to purchase the whole bang lot ourselves - not wise. (That would be like buying an investment property after it had appreciated in value and after the tenant's rent had paid the loan off  - a really dumb move actually) e.g. You would need about 220,000 Milton shares to give an income of $60,000 a year. If we bought them all today in readiness to retire tomorrow, it would cost us roughly $1,041,000.00 based on current prices ..... yeah right!!! (gulp). What nonsense. We are NOT going to do that.

Here's The Twist

By buying the right LIC's early and over a period of time, we would be getting many of the required LIC's shares for free! The more LIC shares we get for free, the less we have to buy! Smart. (Enter smug smile).

By using conservative compounding calculations we would only need to buy half the amount of shares if we invested 10 years before we needed the income, or, less than a quarter the amount of shares 20 years before we needed the income - in fact, the earlier we start, the less and less we need to personally buy ourselves. (BTW, tell your children, to start today, seriously)

How do we get free LIC shares over time?

  •   Dividend Reinvestment Plans (DRP) twice a year.
  •   Dividend Substitution Share Plans (DSSP) as they are offered. 
  •   Buying up big in share market crashes (stockpiling LIC shares very cheaply when silly fools are selling them)
  •   Yearly dividend growth means that every time DRP happens, we get more for free each time.
  •   Compounding snowballs dividends - which means more and more and more free shares.
  •   Buy inside superannuation which has reduced tax and thus more  available money to reinvest.
  •   Holding these LIC shares forever and letting dividends compound over and over and over ..... all for free.
Why on earth would we be so silly as to pay for all the LIC shares we need when we can get so many for free in the above ways simply by just waiting. It takes time. Time is going to pass anyway - thus start today.

So, certainly work out (using very simple primary school math) how many shares are needed to earn the dividend income we require in retirement, BUT, don't buy them all ourselves, let time and compounding buy the lions share of them for us. The earlier we start buying LIC shares, the less we will personally have to buy.

Grab the calculator, sharpen the pencil, be frugal and work it all out on the back of an old envelope ;-)

Take care folks and stay nice

Mr HM (Phil)


  1. LOVE this Phil, I'm really listening, I just need to take action, it's just so bloody daunting!

    1. It is just the same as planting seeds. If you do not sow, you won't reap. Courage Cheryl.

  2. Thanks for making it so simple to understand. Definitely do-able, and not too scary. Thanks also for your reply yesterday. We are still going to power down the mortgage, but divert some more funds for the future as well. For the first time ever I put extra dollars into my super before the end of financial year and it was a good feeling.

    Madeleine :-)

  3. Hi Phil,
    Thank you for your blog. I love reading it and find it truly inspiring. On today's topic what happens if you are only a few years off retirement , would it still be worth buying some shares and just let the dividends keep turning over until you need to perhaps top up your super?

    1. That all depends what your other investments and retirements funds are doing. It is always wise to look at the big picture and see if dividend investing is right for you. Being close to retirement yo may be more comfortable with growth investing.

  4. "Sensible grey cardigan and sandals style holdings" I love this description Phil. :)
    I just wish I had started buying them years ago to get those returns, but at least I've waded in and feel it's the right way to go. And to Cheryl, you'll be surprised how simple it is with a Commsec trading account, and brilliant advice from Mr HM.

    1. Oh Sally, we all wish we had started when we were three. But hey, we can educated the next generation and change the fortunes of generations to come. Teaching children and grandchildren is high on my agenda.

  5. Hi Phil,
    Thanks for your blog. I’ve only just recently discovered it and am enjoying reading it.
    Do you have a strategy for deciding which of the LICs (Milton, Argo, AFIC, Whitefield and BKI) to invest in? Is it a good idea to spread $$ across a few or do you just stick with the one? I’ve recently started investing in AFIC each month but wonder if I should be looking at other LICs when the AFIC share price is high for that month. Any thoughts?

    1. Hi Leanne. I hold all those LIC's because they all can trade cheaper than NTA at different times which is a trigger to buy. Also, they can offer Special Share Purchase Plans from time to time and by holding more than 1 LIC you increase your chances at picking up these offerings as they become available. Also it smooths things out a little with regards to dividends and share prices as they are all doing slightly different things to each other at any given time .... it spreads what little risk there is across a few players. Essentially, when I save up my 'amount' that I like to invest, I then look at which one is trading cheaply at that time and buy it. Holding more than one LIC increases the probability of at least one of them trading cheaply when I am ready to buy. Did all that make sense?

    2. That makes perfect sense thanks Phil. Look forward to reading more of your articles. Leanne


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