When I envisioned my retirement years, I dreamed of being so unbelievably wealthy – so fabulously rich – that I’d happily live off the income generated from my multi-million dollar investment portfolio. As I began my investing journey, the idea of living off dividends had tremendous appeal. After all, what retiree wouldn’t love the thought of collecting a steady stream of dividend cheques while their principal investment remains intact?

Why Living Off Dividends No Longer Appeals To Me

There were also some crazy assumptions about what it would take to generate the kind of income I’d need to maintain my lifestyle in retirement. Looking back, it was foolish to assume that a $1,200,000 portfolio can produce up to $90,000 in income each year, when less than half that amount is more realistic (assuming a 3.5% yield).

Related: Financial independence – Why I pushed it back five years

Living Off Dividends No Longer Appeals To Me

The trouble with the “living off dividends” approach is that I’d have to save too much in order to create my desired retirement income. For example, I’d need to save between $2.5M and $3M in order to generate $90,000 per year in dividend income. Alternatively, I could get the same $90,000 per year by simply withdrawing from a portfolio of $1.45M (assuming 5% annual growth and the portfolio lasts 30 years).

At my current savings rate I could hope to reach $1.45M by the time I turn 57. To get to $3M I’d have to work and save for another decade, or else increase my savings rate by a factor of 2.25 for the next 22 years. Not ideal scenarios.

That’s why I’ve adopted more of a total-return approach to my investments now that I’ve shifted gears from dividend investing to my two-ETF solution. Rising dividend income is meaningless when I’m in my mid-30s and looking for growth from my investments.

Sure, there are many retirees in Canada who live off the dividend income produced by their investment portfolios and do just fine with that approach. Add in the dividend tax credit and there’s further incentive to create a dividend income stream in retirement.

But living off dividends no longer fits into my retirement plan. Unless the goal is to leave behind a million-dollar estate to your kids, there’s no need to save so much that you’ll never have to touch the capital.

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