Whether you’re just starting out your career or nearing retirement, the idea of stockpiling an investment portfolio to generate a passive income might be intriguing.

But how much money do you realistically need to be able to drop out of the workforce and get by on dividend payouts alone?

While you will have to start by honestly assessing what you can live with — and without. But there’s a simple formula and some less simple risks you’ll need to consider when making the big dividend-dependency decision.

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Dividends are great tools for investors

Dividends are payments made by publicly traded companies to their shareholders. They’re typically used to communicate strength about the company’s financial position. Steady dividends — even low ones – often signal a company’s positive projection of its long-term outlook.

Many dividends are paid in cash. For investors with 401(k)s or IRAs, dividends are often automatically reinvested and, through the power of compounding, offer a powerful tool to grow a nest egg.

For straight-up equity investors, those cash payouts fuel dividend income — where passively generated payouts cover your living expenses.

How much you’ll need

How much you’ll need exactly depends on your income, spending habits and living expenses. Which means the answer is highly personal.

But once you know how much you’ll need to live, here’s a simple formula to apply that to sort out how much you need in total.

Desired Dividend Income / Dividend Yield (%) = Estimated Portfolio $ needed

Let’s consider a desired dividend income of $37,522, which was the real median single-person income in the U.S. in 2021 according to data from the St. Louis Federal Reserve.