Do we have enough to retire early and live off dividends? 2026 analysis

In June 2023, I did a thorough case study and analyzed whether we had enough to live off dividends. That analysis was based on our 2022 dividend income of $42,305.81 and I converted USD to CAD at a 1.301 exchange rate, resulting in an annual dividend total of $43,844.72. While that amount was able to cover our core expenses, it wasn’t quite enough to cover all of our expenses.

I concluded that we could “retire” and live off dividends only if we were to generate income via self-employment or part-time work.

Many things have changed since 2023. For one, our dividend income has grown significantly, as you can see below. In 2022, we had an average monthly dividend income of 3,525.48 and that amount grew to $4,182.42 in 2023. Now in 2026, we collected $39,758.50 in dividends after six months, or a monthly average of $6,626.42. This was effectively an increase of around 88% in four years. 

While I very much enjoy my job and what I do at work, I’m always curious whether we have enough for me to walk away from it. Last year our dividend income covered 120.9% of our core expenses but not quite enough for our annual expenses (I’ll explain the differences later in this article). 

I know we are getting very close to the crossover point, but do we have enough to retire early and live off dividends? I figure it’s time for another analysis.   

For this analysis, I’m going to use our 1H 2026 dividend income and our actual spending numbers first. Next I’m going to project our numbers for the entire year going through a similar analysis and look at how taxes would affect our early retirement income. 

1H 2026 Dividend Income Breakdown

In the first half of 2026, we received $39,758.50 in dividend income. When we report our dividend income, we do not convert USD to CAD. This is to keep the math simple and avoid dividend income fluctuation due to the USD:CAD exchange rate. 

For the curious-minded readers, here’s the CAD and USD breakdown:

Dividends in CAD	$38,168.97
Dividends in USD	$1,589.53

As you can see, it’s not a significant amount of USD dividends. This is expected. Out of the nine US dividend stocks and one index ETFs that we hold, only four of them (BlackRock, Coca-Cola, McDonald’s, and AbbVie) have a dividend yield higher than 2%. Waste Management has a yield just around 1.5%, while the rest have a yield of lower than 1%. 

In other words, despite owning a decent number of US dividend stocks and index ETF in terms of dollar value, we don’t get nearly as much dividend from them compared to the Canadian dividend stocks we own. 

Below is the dividend breakdown across the different accounts between Mrs. T and I:

Accounts	Dividend Amount	%
Mrs. T TFSA	$3,678.52	9.3%
Tawcan TFSA	$4,847.43	12.2%
Tawcan RRSP	$7,293.66	18.3%
Mr. T RRSP	$4,796.17	12.1%
Mrs. T Taxable	$5,348.12	13.5%
Tawcan Taxable	$13,794.60	34.7%
Total	$39,758.50	100.0%

These numbers give us a baseline for our analysis. Next, we need to look at our expenses.

1H 2026 expenses breakdown 

Since late 2011 we have been tracking our expenses meticulously in a master spreadsheet. Every six months, Mrs. T and I would sit down and review our expenses. In the last few years these semi-annual reviews typically lasted about five minutes since both of us have been quite in tune with which expenses we are OK to splurge on and which expenses we want to cut as much as possible. 

We track our expenses under five different accounts and within each account there are different subcategories. The five accounts are:

• Necessities: covers core expenses like property taxes, insurance, utilities, groceries, household items, clothing, car repair, gas, health, etc. 
• Give: covers things like charitable donations and gifts
• Play: covers expenses like dining out, hobbies, massages, and other “nice-to-haves” 
• Long Term Savings for Spending (LTSS): big-ticket expenses like a new roof and vacation. Mrs. T and I also use LTSS to save for kids’ RESPs and any significant kids-related expenses (summer camps for example). 
• Financial Freedom Account (FFA): we set aside money each month and use that money to invest. 

In the first half of 2026, our expenses are:

Accounts	$ spent
Necessities	$27,869.83
Give	$1,042.33
Play	$5,781.99
LTSS	$5,951.52
Total	$40,645.67

In case you’re curious, below are our Necessities spending since 2012:

Year	Nececcities
2012	$26,210.52
2014	$26,343.00
2015	$29,058.96
2016	$31,256.88
2017	$29,831.40
2018	$31,840.75
2019	$33,199.90
2020	$35,511.60
2021	$38,950.66
2022	$40,563.19
2023	$50,093.91
2024	$44,902.42
2025	$53,720.00
2026 (1H only)	$27,869.83

I suspect that our Necessities spending will end up around $55k this year.However, it would be nice if it ends up at around $50k. But it might be a challenge considering that both growing kids are eating quite a bit more now and some fixed expenses like car insurance, property tax, house insurance, hydro, and natural gas are only going higher. 

Do we have enough to retire early and live off dividends?  

If we just do a simple comparison between our first half dividend income and our expenses, $39,758.50 vs. $40,645.67, it’s easy to conclude that we don’t quite have enough to retire early and live off dividends just yet.

If we convert USD to CAD using the average exchange rate of 1.385 in 2026, that’d put us at $40,370.47. It’s still a few hundred dollars short to cover our expenses.

So no, we don’t have quite enough to retire early and live off purely from dividends just yet, but we’re getting REALLY close! 

Living off dividends is a nice concept because that means in theory we won’t have to touch our capital. This strategy should have a higher margin of safety than selling shares and withdrawing from our investment portfolio, especially if there’s a bear market in the first few years of retirement (note, this assumes a few different things, like no dividend cuts). 

If we were in a rush to retire early, one thing we can consider is making small withdrawals from our portfolio. In our 1H analysis, we would need to withdraw less than $1,000 from our portfolio to cover the shortfall. All things considered, this really isn’t a deal breaker.

Another method would be to have a large cash reserve so we can tap into the cash if we encounter any shortfalls. Building up a large cash reserve is something we are working on as we prepare for early retirement in the near future.

For example, if we spend about $80k each year, we would aim to have about $100k in cash reserves. This would give us about a 25% buffer if our expenses were to go over $80k. Dividend income would then flow into this cash reserve so we would always have some cash available. 

In other words, if we really want to retire early now, we probably could do it (although our cash reserve isn’t anywhere close to our desired amount to make us sleep well at night). Since we are not in a rush to cross this major life milestone, we are working on creating levers and building up buffers so we have fewer worries when I decide to step away from full-time employment. 

Some expenses to consider

We spent just over $3,000 on vacations in the first half of the year. Most of that was from our 19-day Japan trip (i.e. tickets for Disneyland and teamLab, car rental, public transportation, souvenirs) and Airbnb for our Whistler trip. Vacations are “nice to have,” so if we take out $3,000 from our 1H expenses, we’d have sufficient dividend income to cover our expenses.

In addition, our Play spending was higher than usual. This was because we categorized dining out expenses for our Japan trip in March and Whistler trip in May under this account. These expenses totalled $3,815.35. If we took out these expenses, our Play spending for 1H of the year would have been $1,966.64.

With me back in the office three or four days a week, we drove more in 2026 compared to the previous years. Gas costs were also higher due to the Iran-US war (gas was over $2 for many months in Metro Vancouver. Even at the time of writing, we are close to $2 per litre). As a result, we spent $1,308.06 on gas or $218.01 per month as a one-car household. 

There were areas that we could have optimized to reduce our first half expenses. At times part of our financial independence journey, we aren’t totally hooked on optimizing everything though. Mostly because some optimizations require too much time and effort and the overall saving is not worth it for us.   

Most financial guidelines state that you will spend roughly 70% to 80% of your pre-retirement income once you stop working and that a typical retired household experiences a 20% drop in overall spending compared to their peak-earning years. I feel most of these studies or guidelines only look at traditional retirement age (i.e. 65), so it’s probably different for early retirees with growing kids (I’m almost certain the expenses would be higher for them)

If we consider retirement in the form of me stepping away from full-time employment, some of our expenses will definitely go down. However, perhaps other discretionary expenses may go up, like vacations, dining out, and sports. For estimation purposes, it’s probably safe to assume our expenses will stay roughly the same.  

What about taxes? 

We can’t analyze without considering taxes. In my previous retirement analysis, I have always included taxes as part of the calculation.

• Our financial independence assumptions
• Our financial independence assumptions – what about taxes?
• Revisit our Financial Independence Assumptions
• Do we have enough to retire in 2023?
• Do we have enough to live off dividends? A case study

A quick reminder of our first half dividend income breakdown: 

Accounts	Dividend Amount	%
Mrs. T TFSA	$3,678.52	9.3%
Tawcan TFSA	$4,847.43	12.2%
Tawcan RRSP	$7,293.66	18.3%
Mr. T RRSP	$4,796.17	12.1%
Mrs. T Taxable	$5,348.12	13.5%
Tawcan Taxable	$13,794.60	34.7%
Total	$39,758.50	100.0%

In terms of taxes, TFSA income is completely free, eligible dividend income from taxable accounts are very tax efficient, and RRSP withdrawals are taxed as regular income at our marginal tax rate.

For simple tax calculation purposes, let’s double the dividends for each account, resulting in the following:

Accounts	Dividend Amount
Mrs. T TFSA	$7,357.04
Tawcan TFSA	$9,694.86
Tawcan RRSP	$14,587.32
Mr. T RRSP	$9,592.34
Mrs. T Taxable	$10,696.24
Tawcan Taxable	$27,589.20
Total	$79,517.00

With these numbers in mind, I used Taxtips’ 2026 Income Tax Calculator to determine taxes for the different scenarios. Taxable dividend income is entered under the “Canadian dividends eligible for enhanced dividend tax credit” fields and RRSP withdrawals are entered under the “RRSP/RRIF withdrawals” fields in the calculator.

For scenario 1, we will assume that no other income and no tax deductions are available and Mrs. T’s and my adjusted taxable incomes are $42,176 and $20,288 respectively. 

The Taxtips calculator showed that we would not pay any taxes. 

Note, when you withdraw funds from an RRSP, your financial institution will withhold tax. For BC, the rates are:

• 10% on amounts up to $5,000
• 20% on amounts exceeding $5,000, up to and including $15,000
• 30% on amounts over $15,000

In our case, both of us would have to pay 20% withholding tax and we’d get that money back when we file our taxes. 

Since our dividend income didn’t quite cover our expenses in the first half of 2026, what if we were to fund the short-fall by either withdrawals from our portfolio or part time work?

To calculate our total expenses for the year, we can simply multiply $40,645.67 (our first half expenses) by two to give us $81,291.34. If we add a 10% buffer that results in $89,420.47. For simplicity’s sake, let’s assume our total expenses for 2026 is $90,000.

Since our extrapolated 2026 dividend income is $79,517.00, that leaves us short by $10,483.00. 

For the second tax calculation, let’s assume I work part-time to generate $10,483.00. 

As you can see, I’d have to pay $1,408 in taxes, CPP, and EI. This would put our net income at $88,592.

For the third tax calculation, let’s assume both Mrs. T and I work part-time and we generate $5,241.50 each.

This resulted in $378 in total CPP/EI premiums for the two of us. We’d end up with in net income of  $89,622

For the fourth tax calculation, let’s assume we both sell some stocks in our taxable accounts to make up the $10,483 needed. For simplicity’s sake, we’ll do a 50-50 split and with the amount as capital gains (i.e. $5,241.50 each then 50% capital gain so $2,620.75 in taxable income each).

Interestingly enough, in this scenario, we wouldn’t pay any taxes or CPP/EI premium at all.

What if we decide not to take out money from our TFSAs to allow money to compound and fund the money needed from taxable accounts and RRSPs? In other words, we’d need to generate $7,357.04 from Mrs. T’s accounts and $9,694.86 from my accounts. Let’s assume we fund 50% of that from taxable and 50% from RRSPs. 

For ease of following, this would mean:

Accounts	$ amount
Tawcan RRSP	$19,434.75
Mr. T RRSP	$13,270.86
Mrs. T Taxable	$10,696.24
Tawcan Taxable	$27,589.20
Withdrawals from Mrs. T taxable	$3,678.52
Withdrawals from Tawcan taxable	$4,847.43

Here are the results from Taxtips calculator: 

I found it very interesting that I’d only need to pay $460 in taxes. This would result in a net income of $89,540. 

A few additional things to consider:

• I didn’t include any deductions like health expenses, charitable donations, kids expenses, and other deductibles so the actual taxes payable may be lower.
• With two growing kids, it’s hard to accurately predict whether our retirement expenses will increase or decrease compared to our current expenses. To be on the safe side, we’ll assume an increase in expenses.
• If we generate more income via part-time work or self-employment, we may need to pay more taxes. Overall, I think we should be able to generate more income than our expenses. 
• I probably could run different scenarios but the general consensus I got from the different calculations above is that if we were to live off dividends in 2026 and supplement the shortfall via part-time income and/or withdrawals from our portfolio, we should be OK. 
• We’d like to fund both kids’ post-secondary education. In this analysis, I didn’t include these expenses at all. We will use RESPs to fund their education expenses but we may need more savings/income to cover all post-secondary expenses.

Summary – Do we have enough to retire early and live off dividends? 

Just as with my analysis in 2023, it’s comforting to know that we are very close to being able to live off dividends. The analysis showed that depending on our early retirement expenses, we may need to supplement the shortfall from dividend income via part-time income or small annual portfolio withdrawals. 

That is totally OK. Since we plan to continue injecting new capital and buy more dividend stocks and index ETFs, there’s a good chance we can achieve the dream of completely living off dividends before 2030.

I constantly remind myself that there’s no rush to step away from my full-time job – I still enjoy what I do at work and believe I’m a major contributor. It also helps that both my manager and my teammates are great people to work for/with. 

We plan to continue executing the same FI strategy that we have been following since 2011. What we are doing now is focusing on building up our cash reserve. The focus also has been shifting more and more on what we are retiring to.

Exciting times ahead!