Skip the 25-Times Rule: How Dividends Change Your Retirement Math in 2026

2026-01-04 15:43:46

Everyone’s talking about the “rule of 25”—save 25 times your annual spending, then retire. Sounds simple. Sounds safe. But here’s the truth: it’s outdated, and it could be costing you years of your life.

The math goes like this: earn $100K, save 20% annually, count on 8.5% stock returns. Under the 25-times rule? You’re looking at 29 years before you can hang it up. That’s nearly three decades of grinding.

But wait—even the rule’s creator, William Bengen, admitted he was wrong. Back in 1994, he locked in the “4% safe-withdrawal rate.” Then in 2022, he revised it to 4.7%, which actually means you only need about 21.27 times your spending saved. Better, but still not great.

The real game-changer? Stop thinking about rules. Start thinking about cash flow.

The 10.6% Dividend That Flips the Script

Closed-end funds (CEFs) do something traditional stocks don’t: they convert market gains into regular paychecks. Take the Liberty All-Star Equity Fund (USA), which holds blue-chip names like Microsoft, Visa, Amazon, and Wells Fargo.

Right now, USA’s dividend yield sits at 10.6%. That number matters because it shrinks your retirement target dramatically.

Instead of needing $2.5 million to retire on $100K spending (the 25-times math), you’d need roughly $943K. Same income. Same security. But now you hit that goal in just 17.5 years—not 29.

That’s not a marginal improvement. That’s over a decade of your life back.

The Skeptics’ Argument Falls Apart

“CEF dividends aren’t sustainable,” critics say. “They’re cutting into principal.”

Fair point to examine. USA has been around for 39 years. In that time, it’s paid out an average of 82.4 cents per share annually—roughly 11.6% of its 1987 trading price. It paid investors through the Cold War’s end, the dot-com crash, the 2008 housing collapse, and the pandemic.

Not a quick flash. A four-decade track record.

But here’s where dividend in math really matters: if you’d reinvested those dividends back into USA instead of spending them, you’d have seen a 1,840% return over those decades. Same fund. Same volatility. But compounding + dividend reinvestment = wealth building on top of income generation.

That’s the difference between a rule and a strategy.

The 2026 Play: 9%+ Yields That Actually Work

The market just flipped the calendar. For anyone serious about retiring faster, CEFs yielding 9%+ are worth hunting down right now. The top 4 picks for 2026 average a 9.2% yield and hold a mix of blue-chip stocks, bonds, and REITs.

The math is simple:

High dividend in math = shorter path to retirement
Consistent payouts = bills covered regardless of market mood
No forced selling = no crystallized losses during downturns

This is how you move from “maybe someday” to “next year.”

The rule of 25 was a useful rule of thumb once. But we’re in 2026 now. The tools are better. The data is clearer. And dividend-focused CEFs prove that with the right income stream, you don’t need 25 times your spending—you need strategy.

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