How I Plan to Retire Early and Live off Dividends while Holding Debt and Crypto

Net worth is a figure that includes not just the shares you hold but should include all your assets minus all your liabilities. This means that, for many people, their net worth includes assets that they have debt against (e.g. a property), assets they do not have access to until they are old (e.g. a retirement/superannuation fund), and assets that generate no passive income (e.g. bitcoin or dogecoin).

Even though the majority of my assets are in the stock market (mostly in ETFs), I have a margin loan, which means I have debt. Furthermore, even though it is possible to earn passive income from crypto, most crypto I hold earns zero passive income. Furthermore, there are many stocks or ETFs that pay very little passive income. For example, one of my holdings is the NDQ ETF, which tracks the tech-heavy Nasdaq 100 index. I invested in NDQ back in 2016 and it has been my best performing ETF.

Debt, superannuation funds, and low yielding investments present a challenge for early retirement if you plan to live off passive income from investments.

However, in my opinion, there is a simple solution to the problem:

Progressively sell off your low-yielding assets in a tax-efficient manner and put the proceeds into high-dividend ETFs.

Superannuation is simple. You don’t have access to it until you are in your 60s. I am in my 30s now and might retire in my 40s, which means I will need to wait about two decades before I have access to superannuation. Once I have access to superannuation, I will simply put everything into high-dividend ETFs and live off the dividends. Taking money out of superannuation, from what I hear, is tax free, so this should not be a problem. However, what you need to consider is whether you have enough money outside of super to be able to tide you over until you have access to super (read about the “two bucket” system).

In my opinion, debt and low-yielding investments like bitcoin or NDQ are similar. In my opinion, debt is just another type of low-yield investment. For example, suppose you have a margin loan and have $1 million in shares generating $40k in dividends per year. However, you have $500k in margin loan debt with interest repayments of $25k per year you need to make. This means that overall you are yielding $15k per year on $500k in equity, which overall is a yield of 3%. If you are negatively gearing, it simply means you hold an asset with a negative yield.

What about the dividend irrelevant theory?

As I mentioned in Returning to Living off Dividends and 4% Rule vs Living off Dividends, one of the issues I have with the 4% or 3% rule is how complicated it is to sell down assets. If I retire and were selling off 4% every year, I’d be very concerned about running out of money. This is why I prefer to live off dividends. When you live off dividends, I feel greater certainty that my retirement money will never run out. After all, I am only spending the dividends. The actual original capital is not touched. I am well aware of the dividend irrelevance theory, and I think there is a lot of legitimacy to it, but if I retire, I want to feel comfortable that I don’t run out of money.

Maintain debt and sell bit-by-bit to minimise CGT

When I retire with debt, I intend to keep the debt in my margin loan because it provides tax deductions (as you are able to deduct interest expenses). It is especially important to maintain the debt during the financial year in which you retire because your marginal tax rate will be high during this year (because of your job).

However, if you maintain debt, the problem is that the debt will accumulate and will one day reach the credit limit. To use an example, my CommSec margin loan has a credit limit of $200k. Once I get to approximately $190k and don’t have any income from a job to pay off the debt, I need to start selling off assets. My plan is to maintain my debt, but sell assets when the debt is near the credit limit.

For low- or negative-yielding investments outside of super, you need to sell these off during retirement so that you can put the money into high-dividend ETFs. However, when selling off these assets, I recommend being careful about capital gains tax. It is best to sell off assets bit-by-bit so that capital gains is spread across multiple years thereby allowing you to put as much capital gains as possible into the tax free threshold, which will minimise your taxes. For example, suppose for example you purchased $500k in an ETF and it goes up to $1 million. If you sell this all in one year, you have $500k in capital gains. In Australia, the first $18k in income is tax free, so $18k of this capital gains is tax free, but the remaining $482k is subject to tax (for simplicity, ignore the 50% CGT discount). However, if you sell off your $1 million over two years, you make only $250k per year, and the $18k tax free amount applies twice. This reduces your overall tax.


Overall, it is very easy to retire and live off dividends with debt and low-yielding assets. You simply sell off assets and low-yielding assets and put the proceeds into high-yielding ETFs.

When selling off assets, very mindful of capital gains tax. It is better to sell off assets bit-by-bit across multiple financial years thereby allowing you to spread capital gains. This is what I plan to do when I eventually retire early.

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