Anyone successfully living off dividends & interest?

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Sandtrap
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Re: Anyone successfully living off dividends & interest?

Post by Sandtrap »

unbiased wrote: Fri Sep 11, 2020 9:25 pm I'm a few years out from retirement and am exploring a bunch of different portfolio strategies. I won't have enough money to just dump it in a bond fund (unless it's some volatile CEF) and "live off the interest" like our grandparents did. I've run the numbers every which way and in this low-interest rate environment it just won't work. I mean, it could work for maybe a few years or even a decade, but after 20 years inflation will likely require me a regular diet of cat food.

But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
retired
DW and I are frugal with no debt and normal (non spendy) expenses.
We live off of portfolio dividends and interest at well below a 4% annual withdrawal rate
We do not have pensions or other tax advantaged accounts, etc.
Additional safety nets are SS and rental income.

OP: actionably per your concerns and situation, work longer, save more, spend less, invest prudently.

j :D
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flaccidsteele
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Re: Anyone successfully living off dividends & interest?

Post by flaccidsteele »

TN_Boy wrote: Sat Sep 12, 2020 11:08 am
flaccidsteele wrote: Sat Sep 12, 2020 10:09 am
TN_Boy wrote: Sat Sep 12, 2020 8:31 am Not really; the OP asked
anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation
But you have not stated how to get a big stream of income from a stock and bond portfolio.
FYI The quote you provided from the OP doesn’t contain the criteria “income from a stock and bond portfolio”
Okay, I'll quote more:
anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy?
I draw your attention to this part of the quote: "all without eating into principal or using capital gains for your withdrawal strategy?"

Doesn't that sound to you like the OP is asking for advice on how to get a stock/bond portfolio to create more yield??
I agree that is how you’re interpreting it

My response didn’t involve “eating into principal” nor did it involve “using capital gains”

Relax
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
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CyclingDuo
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Re: Anyone successfully living off dividends & interest?

Post by CyclingDuo »

LittleMaggieMae wrote: Sat Sep 12, 2020 10:09 amHow does one get 30K per year in SS? How high of a income does a single person need to get to that? Is it assumed they are working until their Full Retirement Age at the highest level of income until they are FRA (which might be 66 or 67?)

I an single and always have been. I would like to step away from my high paying job at 57. (my lowest income year will be 14K - 35 years ago as of today) My "SS estimate" at full retirement age 67 is 2863.00 per month. but doesn't that assume I keep my current pay of over 100K per year job until I'm 67??
Why not delay until 70?

CyclingDuo
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petulant
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Re: Anyone successfully living off dividends & interest?

Post by petulant »

unbiased wrote: Fri Sep 11, 2020 9:25 pm I'm a few years out from retirement and am exploring a bunch of different portfolio strategies. I won't have enough money to just dump it in a bond fund (unless it's some volatile CEF) and "live off the interest" like our grandparents did. I've run the numbers every which way and in this low-interest rate environment it just won't work. I mean, it could work for maybe a few years or even a decade, but after 20 years inflation will likely require me a regular diet of cat food.

But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
Pretty much any efficient strategy requires being able to eat into principal/capital gains: annuities/SS delay, stocks. This is better for you because you can design an efficient tax strategy and control more aspects of your plan.
TN_Boy
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Re: Anyone successfully living off dividends & interest?

Post by TN_Boy »

flaccidsteele wrote: Sat Sep 12, 2020 1:06 pm
TN_Boy wrote: Sat Sep 12, 2020 11:08 am
flaccidsteele wrote: Sat Sep 12, 2020 10:09 am
TN_Boy wrote: Sat Sep 12, 2020 8:31 am Not really; the OP asked
anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation
But you have not stated how to get a big stream of income from a stock and bond portfolio.
FYI The quote you provided from the OP doesn’t contain the criteria “income from a stock and bond portfolio”
Okay, I'll quote more:
anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy?
I draw your attention to this part of the quote: "all without eating into principal or using capital gains for your withdrawal strategy?"

Doesn't that sound to you like the OP is asking for advice on how to get a stock/bond portfolio to create more yield??
I agree that is how you’re interpreting it

My response didn’t involve “eating into principal” nor did it involve “using capital gains”

Relax
We can differ whether that is part of what the OP is asking. It would be nice if the OP would come back and clarify.
softwaregeek
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Re: Anyone successfully living off dividends & interest?

Post by softwaregeek »

It also depends on your proposed standard of living.

If your idea of retirement living is in a LCOL area in a double wide, you can probably do pretty well on an average salary if you're frugal.

If your goal is to jet between your mansions in Palm Beach and the Hamptons, you better be a serious earner.

Personally, my retirement strategy involves a spousal pension and social security in addition to the savings and investments that I have made.

I expect I will be fine with all that. I expect to live on the nicer end of the spectrum, but not the mansions or private jets realm.
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unbiased
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Re: Anyone successfully living off dividends & interest?

Post by unbiased »

Wow I stepped away for a day and look at all the replies! Thank you all for the roads to go down!

Just to be clear, I'm debating how to structure my retirement allocation and that's why I asked. I'm not here to defend/promote an "income-only" approach, just to gather personal stories from anyone who has made it work and what they did. I can then do my own research to see if it's right for me and my family. So far, I'm hearing that real estate investment is one avenue. Decreasing expenses another. Relying on SS for your COLA to keep up with inflation another, etc. Some of you are making this work, and that's awesome.

Like I said, I think income-only in this environment has some serious long-term risks. But, I get the allure of a passive income portfolio heavy in bonds, etc. It's lower maintenance and my spouse can easily assume it in my (permanent) absence. Preserving capital by taking less equity risk is also appealing. Sure, "stocks always go up" but how many equity-heavy retirees lost sleep in March? Would I have been one of them? Who the heck knows. So before I fully close the door on this line of thinking, I'm excited to see if there is anything I hadn't considered.
JBTX
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Re: Anyone successfully living off dividends & interest?

Post by JBTX »

Makaveli wrote: Sat Sep 12, 2020 7:51 am Although the majority of Bogleheads do not support tangible real estate it is one of the most talked about ways of generating passive income and nearly every high net worth person I personally know owns some properties.
I don't think it is that most don't "support", it is that many here do not think the cost (including time invested)/ benefit is worth it in their particular cases. There are quite a few here that actually do real estate.

I recently looked at some lower priced homes and ongoing rental rates. The numbers just didn't make sense to me. The rent received was basically equal to the mortgage payment+taxes+insurance. Any additional expenses you eat. What I found was a modest cash drain from year to year, until decades down the road by when you are either paid off or sell it. Ultimately it was a positive ROI over the long run, but that assigned zero value to time and effort invested into it. It just didn't approach the "worth it" criteria for me.

I acknowledge that each situation is different and if you look hard enough and know what you u are doing the returns are likely better.
rgs92
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Re: Anyone successfully living off dividends & interest?

Post by rgs92 »

I suppose if one wanted to purely live off dividends, one could purchase some ETFs or other funds that are composed of REITS, Preferred Stocks, and High Yield Bonds. To be clear, I'm not recommending this, but it does technically qualify as a way of having a portfolio generate a high level of income generation without capital gains and without selling principal (the shares of the ETFs you purchase).

Of course, there is some risk involved to both the share value and the absolute sustainability of the dividends, but again, it does qualify for an portfolio that generates substantial income in the manner that is under consideration.

Example:
RNP: yield 7.5% [Cohen & Steers REIT and Preferred Income ETF]

HYG: yield 5.3% [iShares iBoxx $ High Yield Corporate Bond ETF]

PFFD: yield 5.83% [Global X U.S. Preferred ETF] or PFF: yield 5.72% [iShares Preferred and Income Securities ETF]

One interesting factoid about these is that I believe in a taxable account the dividends qualify for favorable tax treatment (currently 15%).

Full disclosure, although the vast majority of my portfolio is a Boglehead-approved 3 funder, I have been sort of fascinated with this idea and have kept about $30,000 in these for quite a few years and just let the interest flow out and ignore the share price. It has worked more or less as a fun experiment, but I wouldn't bet the farm on it.

I'm not sure how to assess the risk in this sort of portfolio if the shares were never sold. I am thinking it is kind of like an SPIA where, essentially, the principal is forfeited. I guess in an economic collapse, the underlying bonds or real estate securities could become worthless and the yield-paying capability would disappear.

But FWIW, they have seemed relatively stable over the long term.
Last edited by rgs92 on Sat Sep 12, 2020 2:56 pm, edited 7 times in total.
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unbiased
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Re: Anyone successfully living off dividends & interest?

Post by unbiased »

TN_Boy wrote: Sat Sep 12, 2020 2:03 pm
We can differ whether that is part of what the OP is asking. It would be nice if the OP would come back and clarify.
I think you want me to clarify what I mean by "income only?" Basically, a portfolio that puts capital preservation first and foremost -- and throws off enough income/dividends/interest to fund retirement expenditures and keep up with inflation. This would be different from a "total return" approach that relies on capital appreciation, rebalancing, and/or selling of shares to fund expenses. I really don't think this can be achieved with a bond-only approach, unless in volatile CEFs. But I'm open to any approach and that's why I'm asking the experience of those who seem to be making it work.
MathIsMyWayr
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Re: Anyone successfully living off dividends & interest?

Post by MathIsMyWayr »

Riprap wrote: Sat Sep 12, 2020 8:09 am
TomatoTomahto wrote: Sat Sep 12, 2020 8:02 amI am HNW.
What is the threshold for crossing into the HNW category these days?
I usually associate HNW with successful high earners such as medical doctors. HNW means from around $10MM.
bhsince87
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Re: Anyone successfully living off dividends & interest?

Post by bhsince87 »

My wife and I are doing it, for the most part. Nothing exotic. Current portfolio yield is about 2.2%, not including capital gains.
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Re: Anyone successfully living off dividends & interest?

Post by StoopieHippo »

https://www.mrtakoescapes.com/

~$3mil portfolio for him and his family of 4 live off of dividends entirely.
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Re: Anyone successfully living off dividends & interest?

Post by dbr »

unbiased wrote: Sat Sep 12, 2020 2:30 pm
TN_Boy wrote: Sat Sep 12, 2020 2:03 pm
We can differ whether that is part of what the OP is asking. It would be nice if the OP would come back and clarify.
I think you want me to clarify what I mean by "income only?" Basically, a portfolio that puts capital preservation first and foremost -- and throws off enough income/dividends/interest to fund retirement expenditures and keep up with inflation. This would be different from a "total return" approach that relies on capital appreciation, rebalancing, and/or selling of shares to fund expenses. I really don't think this can be achieved with a bond-only approach, unless in volatile CEFs. But I'm open to any approach and that's why I'm asking the experience of those who seem to be making it work.
What is your definition of capital preservation? I imagine you have in mind that the number of shares of whatever you are invested in is not reduced, presumably by selling. But the question is, what do you consider your situation to be if the number of shares is constant but the value of a share falls and the value of your portfolio drops to less than it started out, or less than it started out after inflation.*

A suggestion is that attending to total return is not about what kind of investments you have; it is not about what mechanics you use to withdraw money. Rather it is an accounting method that tracks all the things that are important to tell you whether or not the value of your holdings has been preserved up to the present or promises to be preserved within some uncertainty into the future.

I don't know if you are one for whom algebraic formulas are helpful, but if you are then the key statement of the process is this:

newportfoliovalue = oldportfoliovalue + (return / 100) * oldportfoliovalue +contributions - withdrawals (these numbers are all in dollars except return which is a ratio expressed in percent.

This step is repeated for increments of time from the beginning to as far in the future as you care to estimate.

The return can be further stated to be

return = dividendinterestyield + 100 * capitalgain/oldportfoliovalue (yield is a ratio expressed in percent but gain and value are in dollars)

*An example of how this can work would be an investment in the Vanguard high yield bond fund starting in 1980. A share sold at $9.28 and the fund paid a monthly dividend of $0.09 for a yield of 11.6%. Today that same share sells at $5.83 and the dividend is $.023/month for a yield 4.7%. If you apply a factor of about 3 for inflation the portfolio has lost 80% of its real value and the income has fallen to 9% of the income provided in 1980. Would you consider this to be a preservation of principal?
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Re: Anyone successfully living off dividends & interest?

Post by AlphaLess »

flaccidsteele wrote: Fri Sep 11, 2020 10:28 pm
unbiased wrote: Fri Sep 11, 2020 9:25 pm But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
Yes. I have

I purchased US rental real estate during the Great Recession. Once I replaced my household income I became financially free. Started investing in the 1990s when I graduated, and retired in my 40s

Over the last decade cashflow from rent has grown faster than inflation actually

Equity has also grown at better-than-inflation (4-fold) but that’s beside the point

Rental cashflow ensures that I never need to spend down my investments in the US index and Berkshire Hathaway class B (first started buying in the mid-1990s @$1800/sh before 30-1 reverse split, and last shares purchased in March 2020 @$170)

Only way for those late in the game to do the same is to 1) have another market collapse and 2) have a strategy and resources to “be greedy when others are fearful”, otherwise the only option is to cut expenses to the bone and live like a student (eating cat food)

A normal market can only provide so much
Do you mind sharing some details, such as:
- how many properties,
- over how many states,
- what is the total dollar value of the properties,
- and how many net dollars of take-home pay does it generate per-month or per-year.

TY
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.
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willthrill81
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Re: Anyone successfully living off dividends & interest?

Post by willthrill81 »

LittleMaggieMae wrote: Sat Sep 12, 2020 10:09 am I an single and always have been. I would like to step away from my high paying job at 57. (my lowest income year will be 14K - 35 years ago as of today) My "SS estimate" at full retirement age 67 is 2863.00 per month. but doesn't that assume I keep my current pay of over 100K per year job until I'm 67??
Due to the way that SS benefits are calculated, the relationship between your earnings and your benefit is not at all linear, as the chart below visually demonstrates. You get the greatest marginal benefit from averaged indexed monthly earnings of $885, 90 cents on the dollar. After that 'bend point', you only get 32 cents on the dollar until you reach $5,336 of AIME, and beyond that, you only get 15 cents on the dollar until benefits are maxed out at AIME of $8,444 for 35 years.

Image
https://en.wikipedia.org/wiki/Primary_Insurance_Amount

In my own situation, if I retire at age 52, I'll only have about 26 years of 'good' earnings. Even though SS benefits are based on your top 35 years of earnings, working an additional nine years would only increase my benefit by maybe 10%.
Last edited by willthrill81 on Sat Sep 12, 2020 3:33 pm, edited 1 time in total.
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Wrench
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Re: Anyone successfully living off dividends & interest?

Post by Wrench »

unbiased wrote: Fri Sep 11, 2020 9:25 pm I'm a few years out from retirement and am exploring a bunch of different portfolio strategies. I won't have enough money to just dump it in a bond fund (unless it's some volatile CEF) and "live off the interest" like our grandparents did. I've run the numbers every which way and in this low-interest rate environment it just won't work. I mean, it could work for maybe a few years or even a decade, but after 20 years inflation will likely require me a regular diet of cat food.

But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
I understand your question and it is a reasonable one. Of course it is possible to live off dividends and income, but as many other posters have suggested your would either have to have a very large portfolio, or live a very modest lifestyle on a smaller portfolio. Again, as others have suggested, in the current environment it is also a very inefficient way to produce the income you will want/need in retirement. Perhaps the better question you may wish to consider is: how can I produce a stream of income in retirement that will allow me to live the way I want to live for the rest of my life? Planning to answer that question gives you many more options beyond dividends and interest, including social security, iBonds, TIPS, stocks, bonds, annuities, cash, etc. Of course some of these may require spending down a portion of your principal, but as long as you do so in a way that lasts your lifetime that's an acceptable trade-off for many of us. As they say, you can't take it with you! :happy
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Re: Anyone successfully living off dividends & interest?

Post by FoolMeOnce »

Makaveli wrote: Sat Sep 12, 2020 7:51 am This has concerned me as well. As does the lack of replies. As AlohaJoe pointed out, $2MM portfolio sheds $30k per year. How many folks have $2MM in retirement and unfortunately, $30k isn't that big of a number these days.

I continue to search for other avenues of passive income but have yet to find one that fits. Inevitably, I go round-and-round on real estate but have yet to pull the trigger. Although the majority of Bogleheads do not support tangible real estate it is one of the most talked about ways of generating passive income and nearly every high net worth person I personally know owns some properties.
That $2 million might grow to $6+ million over a 30 year retirement if you only withdraw interest and dividends. What do you plan to do with all that money and why would you be concerned to spend it?
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willthrill81
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Re: Anyone successfully living off dividends & interest?

Post by willthrill81 »

dbr wrote: Sat Sep 12, 2020 3:09 pm
unbiased wrote: Sat Sep 12, 2020 2:30 pm
TN_Boy wrote: Sat Sep 12, 2020 2:03 pm
We can differ whether that is part of what the OP is asking. It would be nice if the OP would come back and clarify.
I think you want me to clarify what I mean by "income only?" Basically, a portfolio that puts capital preservation first and foremost -- and throws off enough income/dividends/interest to fund retirement expenditures and keep up with inflation. This would be different from a "total return" approach that relies on capital appreciation, rebalancing, and/or selling of shares to fund expenses. I really don't think this can be achieved with a bond-only approach, unless in volatile CEFs. But I'm open to any approach and that's why I'm asking the experience of those who seem to be making it work.
What is your definition of capital preservation? I imagine you have in mind that the number of shares of whatever you are invested in is not reduced, presumably by selling. But the question is, what do you consider your situation to be if the number of shares is constant but the value of a share falls and the value of your portfolio drops to less than it started out, or less than it started out after inflation.*
If people view their capital as the number of shares they own, they are setting themselves up to make all kinds of erroneous conclusions in other areas as well. In this context, it often makes them fearful of ever selling any shares.

In reality, the number of shares you own, in and of itself, is irrelevant. What is relevant is the market value of those shares, which is the number of shares you own multiplied by the market price (i.e. the dollar value of all your shares).

There's a good reason why people asking for portfolio advice list the market value of their portfolios and not the number of shares they own.

If I own 1,000 shares at $1,000 each on day 1 of retirement, my portfolio is worth $1 million. If those shares appreciate in value to $1,050/share and I sell 40 of them ($42,000 worth), my remaining 960 shares are worth $1,008,000, more than I started with. Those who view their starting capital as their number of shares believe that they have 'eaten into their starting capital' by doing this, but it should be obvious that that's false.
Last edited by willthrill81 on Sat Sep 12, 2020 3:29 pm, edited 1 time in total.
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Re: Anyone successfully living off dividends & interest?

Post by ruralavalon »

unbiased wrote: Sat Sep 12, 2020 2:20 pm Wow I stepped away for a day and look at all the replies! Thank you all for the roads to go down!

Just to be clear, I'm debating how to structure my retirement allocation and that's why I asked. I'm not here to defend/promote an "income-only" approach, just to gather personal stories from anyone who has made it work and what they did. I can then do my own research to see if it's right for me and my family. So far, I'm hearing that real estate investment is one avenue. Decreasing expenses another. Relying on SS for your COLA to keep up with inflation another, etc. Some of you are making this work, and that's awesome.

Like I said, I think income-only in this environment has some serious long-term risks. But, I get the allure of a passive income portfolio heavy in bonds, etc. It's lower maintenance and my spouse can easily assume it in my (permanent) absence. Preserving capital by taking less equity risk is also appealing. Sure, "stocks always go up" but how many equity-heavy retirees lost sleep in March? Would I have been one of them? Who the heck knows. So before I fully close the door on this line of thinking, I'm excited to see if there is anything I hadn't considered.
Age 75, retired almost 10 years, asset allocation is 50/50 and has been since 2008, no pension or annuity. We live on Social Security and Required Minimum Distributions (RMDs), the RMDs are automatically drawn proportionally from all funds in my rollover IRA and paid automatically to our joint checking account.

The Social Security and RMDs cover our living expenses and a little more. Since starting RMDs we have not had to touch our joint taxable account or our Roth IRAs.

This is very low maintenance and uses just 4 finds, all Vanguard index funds. I plan to make it even simpler by switching to a one fund portfolio using a balanced fund in all accounts.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
AlphaLess
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Re: Anyone successfully living off dividends & interest?

Post by AlphaLess »

willthrill81 wrote: Sat Sep 12, 2020 3:18 pm
LittleMaggieMae wrote: Sat Sep 12, 2020 10:09 am I an single and always have been. I would like to step away from my high paying job at 57. (my lowest income year will be 14K - 35 years ago as of today) My "SS estimate" at full retirement age 67 is 2863.00 per month. but doesn't that assume I keep my current pay of over 100K per year job until I'm 67??
Due to the way that SS benefits are calculated, the relationship between your earnings and your benefit is not at all linear, as the chart below visually demonstrates. You get the greatest marginal benefit from averaged indexed monthly earnings of $885, 90 cents on the dollar. After that 'bend point', you only get 32 cents on the dollar until you reach $5,336 of AIME, and beyond that, you only get 15 cents on the dollar until benefits are maxed out at AIME of $8,444 for 35 years.

Image
https://en.wikipedia.org/wiki/Primary_Insurance_Amount

In my own situation, if I retire at age 52, I'll only have about 26 years of 'good' earnings. Even though SS benefits are based on your top 35 years of earnings, working an additional ten years would only increase my benefit by maybe 10%.
On a pound-for-pound basis, it is best to be under the first bend-point.

That could be achieved in just 10 years, with like 37K a year pay. That gives you both eligibility, as well as a small PIA amount.
If you delay it to 70, that is a fantastic deal.

Once I did the math and it is akin to buying an immediate annuity with a 40% pay-off.

Another good deal is to make just over the max social security income ($138K this year) for about 16.25 years:
- 5336 * 12 * 35 = $2.241M
- $2.241M / $138K = 16.24 yers.

And what is a particularly bad deal is to work for more than 35 years, as additional years don't count.

Of course, most people don't work for social security. It is just a bi-product.

But an interesting arbitrage is to have two careers:
- work in one where you contribute enough to SS to get a decent payout (like 20/25 years),
- then work in a job which has an inflation-adjusted pension that is a: (1) not subject to SS tax payment, and (2) is not subject to wealth elimination provisions.

This way, you can collect a decent SS and a decent public pension.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.
Wrench
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Re: Anyone successfully living off dividends & interest?

Post by Wrench »

willthrill81 wrote: Sat Sep 12, 2020 3:18 pm
LittleMaggieMae wrote: Sat Sep 12, 2020 10:09 am I an single and always have been. I would like to step away from my high paying job at 57. (my lowest income year will be 14K - 35 years ago as of today) My "SS estimate" at full retirement age 67 is 2863.00 per month. but doesn't that assume I keep my current pay of over 100K per year job until I'm 67??
Due to the way that SS benefits are calculated, the relationship between your earnings and your benefit is not at all linear, as the chart below visually demonstrates. You get the greatest marginal benefit from averaged indexed monthly earnings of $885, 90 cents on the dollar. After that 'bend point', you only get 32 cents on the dollar until you reach $5,336 of AIME, and beyond that, you only get 15 cents on the dollar until benefits are maxed out at AIME of $8,444 for 35 years.

Image
https://en.wikipedia.org/wiki/Primary_Insurance_Amount

In my own situation, if I retire at age 52, I'll only have about 26 years of 'good' earnings. Even though SS benefits are based on your top 35 years of earnings, working an additional ten years would only increase my benefit by maybe 10%.
For those who may want more details, may I suggest
viewtopic.php?t=262772
Neurosphere's spreadsheet quite accurately projects your social security benefits based on past and expected future income. It is FAR easier to use than AnyPIA available from social security administration. (I've used both, and they give aprox. same result). In my case, after the next two years at my present salary, my benefit would only go up about $3-$5 per month for working after that. That realization has been a major factor in deciding exactly when I will retire.

Wrench
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patrick013
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Re: Anyone successfully living off dividends & interest?

Post by patrick013 »

Most people over a million or two have a set AA for income
for expenses and the rest for equity investment. They
still want stock indexes and can afford the risk. Perhaps
a 50-50 stock/bond AA.

At the current bond yields dividend funds look very appealing.
Once again, at today's prices and future optimism after COVID
taking dividends when needed from tickers PEY, SPHD, and SPYD
as well as a few shares of SO, T, and IP looks like a move not
to be regretted. Volatility expected but they look better than
BBB- preferreds or high yield bonds or sitting on bonds with
LTCG's and very low yield.

To buy-and-hold for yield you'd need some of these in the AA.
age in bonds, buy-and-hold, 10 year business cycle
raiderjkwong
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Re: Anyone successfully living off dividends & interest?

Post by raiderjkwong »

My wife and I have been planning our retirement the past 20 years and will have several income sources:

Pension: 13,000 a month, 156,000 annually
Retirement account: 2M invested in short term US Treasuries and US total bond fund, 48,000 to 72,000 annually depending on 2-3% yield return
Stock accounts: 32,400 annually. Primarily invested in oil/gas pipelines and reits
Social security: Collect at 70, amount unknown.

Total: 236,000 to 260,000 annually + SS
Topic Author
unbiased
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Re: Anyone successfully living off dividends & interest?

Post by unbiased »

dbr wrote: Sat Sep 12, 2020 3:09 pm
What is your definition of capital preservation? I imagine you have in mind that the number of shares of whatever you are invested in is not reduced, presumably by selling. But the question is, what do you consider your situation to be if the number of shares is constant but the value of a share falls and the value of your portfolio drops to less than it started out, or less than it started out after inflation.*

A suggestion is that attending to total return is not about what kind of investments you have; it is not about what mechanics you use to withdraw money. Rather it is an accounting method that tracks all the things that are important to tell you whether or not the value of your holdings has been preserved up to the present or promises to be preserved within some uncertainty into the future.
I mistakenly deleted your quote on Vanguard High Yield -- exactly the situation I'm concerned about. If limited to just "income" so many funds have declining NAVs and income. I see this with most CEFs when looking at their 20+ year history. If you look at how many had a permanent loss in both market price and NAV from the 2008 crash--many never recovered--it makes it impossible for me to want to invest in most of them.

So on your "capital preservation" question--I'll answer it like this -- if some folks have constructed their retirement portfolio "like a bond" where their goal is: "I give you $2 million, you give me 3%/year + inflation. After 40 years, you give me my $2 million back"--then I would like to know how. This is different from an explicit goal of spending/reducing your principal over time so your last dollar is spent on your funeral. I realize no such AAA-rated bond exists with a nice inflation-protected higher yield. But maybe a multi-asset retirement income portfolio gets close that some people have been using.
Robert20
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Re: Anyone successfully living off dividends & interest?

Post by Robert20 »

whoever is living off dividends and interests: Where is the money parked?..

If you are getting $30k per year with 2M portfolio, I am assuming its all tax free?.
scrabbler1
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Re: Anyone successfully living off dividends & interest?

Post by scrabbler1 »

unbiased wrote: Fri Sep 11, 2020 9:25 pm I'm a few years out from retirement and am exploring a bunch of different portfolio strategies. I won't have enough money to just dump it in a bond fund (unless it's some volatile CEF) and "live off the interest" like our grandparents did. I've run the numbers every which way and in this low-interest rate environment it just won't work. I mean, it could work for maybe a few years or even a decade, but after 20 years inflation will likely require me a regular diet of cat food.

But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
I have been living off mostly bond fund dividends since I retired at 45, 12 years ago. My portfolio was under $1M back then (late 2008) but has risen to around $1.6M today. About 2/3 of it is in a non-retirement account, the portion which generates all the dividend income used to cover my bills. I have some money in a stock fund which generates some dividends (less today because I recently switched it to an index fund so I can resume getting the ACA premium subsidy).

My own inflation rate is very low. Only the volatile health insurance costs have been worrisome at times.

In a few years, I will be able to tap into my IRA. A few years after that, my frozen company pension and Social Security. Medicare will eventually replace the ACA. So, my overall financial picture will only improve.
raiderjkwong
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Re: Anyone successfully living off dividends & interest?

Post by raiderjkwong »

To answer Robert20's question, none of my portfolio returns are tax-free. I must pay Uncle Sam.
raiderjkwong
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Re: Anyone successfully living off dividends & interest?

Post by raiderjkwong »

Great job Scrabbler1 on your income portfolio.
MathIsMyWayr
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Location: CA

Re: Anyone successfully living off dividends & interest?

Post by MathIsMyWayr »

raiderjkwong wrote: Sat Sep 12, 2020 3:45 pm My wife and I have been planning our retirement the past 20 years and will have several income sources:

Pension: 13,000 a month, 156,000 annually
Retirement account: 2M invested in short term US Treasuries and US total bond fund, 48,000 to 72,000 annually depending on 2-3% yield return
Stock accounts: 32,400 annually. Primarily invested in oil/gas pipelines and reits
Social security: Collect at 70, amount unknown.

Total: 236,000 to 260,000 annually + SS
When you deal with RMD and Medicare, you will face stiff taxes and IRMAA. A good problem to have, but some planning may be helpful.
MathIsMyWayr
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Re: Anyone successfully living off dividends & interest?

Post by MathIsMyWayr »

raiderjkwong wrote: Sat Sep 12, 2020 3:45 pm My wife and I have been planning our retirement the past 20 years and will have several income sources:

Pension: 13,000 a month, 156,000 annually
Retirement account: 2M invested in short term US Treasuries and US total bond fund, 48,000 to 72,000 annually depending on 2-3% yield return
Stock accounts: 32,400 annually. Primarily invested in oil/gas pipelines and reits
Social security: Collect at 70, amount unknown.

Total: 236,000 to 260,000 annually + SS
When you deal with RMD and Medicare, you will face stiff taxes and IRMAA. A good problem to have, but some planning may be helpful.
jebmke
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Re: Anyone successfully living off dividends & interest?

Post by jebmke »

raiderjkwong wrote: Sat Sep 12, 2020 3:45 pm short term US Treasuries and US total bond fund, 48,000 to 72,000 annually depending on 2-3% yield return
Short term treasuries are negative yield and Total Bond is hovering around 1%
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Makaveli
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Re: Anyone successfully living off dividends & interest?

Post by Makaveli »

JBTX wrote: Sat Sep 12, 2020 2:25 pm
Makaveli wrote: Sat Sep 12, 2020 7:51 am Although the majority of Bogleheads do not support tangible real estate it is one of the most talked about ways of generating passive income and nearly every high net worth person I personally know owns some properties.
I don't think it is that most don't "support", it is that many here do not think the cost (including time invested)/ benefit is worth it in their particular cases. There are quite a few here that actually do real estate.

I recently looked at some lower priced homes and ongoing rental rates. The numbers just didn't make sense to me. The rent received was basically equal to the mortgage payment+taxes+insurance. Any additional expenses you eat. What I found was a modest cash drain from year to year, until decades down the road by when you are either paid off or sell it. Ultimately it was a positive ROI over the long run, but that assigned zero value to time and effort invested into it. It just didn't approach the "worth it" criteria for me.

I acknowledge that each situation is different and if you look hard enough and know what you u are doing the returns are likely better.
Good summary, I agree.
raiderjkwong
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Re: Anyone successfully living off dividends & interest?

Post by raiderjkwong »

In response to jebmke.

Per AGG Total Bond Fund website. Vanguard Total Bond (BND) has similar returns but may be slightly higher.

Returns
As of 9-11-2020, 6.95%
3 years, 5.25%
5 years, 4.24%
10 years, 3.73

For my short term treasury returns, I am invested in the G Fund since I am a govt employee. Returns have been the following per TSP website:
2020, 0.70%
2019, 2.24%
2018, 2.91%
2017, 2.33%
2016, 1.82%
Last edited by raiderjkwong on Sat Sep 12, 2020 5:43 pm, edited 4 times in total.
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Makaveli
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Re: Anyone successfully living off dividends & interest?

Post by Makaveli »

FoolMeOnce wrote: Sat Sep 12, 2020 3:26 pm
Makaveli wrote: Sat Sep 12, 2020 7:51 am This has concerned me as well. As does the lack of replies. As AlohaJoe pointed out, $2MM portfolio sheds $30k per year. How many folks have $2MM in retirement and unfortunately, $30k isn't that big of a number these days.

I continue to search for other avenues of passive income but have yet to find one that fits. Inevitably, I go round-and-round on real estate but have yet to pull the trigger. Although the majority of Bogleheads do not support tangible real estate it is one of the most talked about ways of generating passive income and nearly every high net worth person I personally know owns some properties.
That $2 million might grow to $6+ million over a 30 year retirement if you only withdraw interest and dividends. What do you plan to do with all that money and why would you be concerned to spend it?
I wouldn't be concerned at that point. Broadly I agree with you but there's also a sliver of me that likes the thought of having another source of passive income that isn't tied to the stock market.
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Re: Anyone successfully living off dividends & interest?

Post by jebmke »

raiderjkwong wrote: Sat Sep 12, 2020 5:34 pm In response to jebmke.

Per AGG Total Bond Fund website. Vanguard Total Bond (BND) has similar returns but may be slightly higher.

Returns
As of 9-11-2020, 6.95%
3 years, 5.25%
5 years, 4.24%
10 years, 3.73

For my short term treasury returns, I am invested in the G Fund since I am a govt employee. Returns have been the following per TSP website:
2020, 0.70%
2019, 2.24%
2018, 2.91%
2017, 2.33%
2016, 1.82%
If Total Bond returns to those yields, your NAV will be a lot lower.
When you discover that you are riding a dead horse, the best strategy is to dismount.
raiderjkwong
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Re: Anyone successfully living off dividends & interest?

Post by raiderjkwong »

Jebmke, maybe slightly lower, but not the 1% you posted, still well over 6.5% for the year.
jebmke
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Re: Anyone successfully living off dividends & interest?

Post by jebmke »

raiderjkwong wrote: Sat Sep 12, 2020 5:47 pm Jebmke, maybe slightly lower, but not the 1% you posted, still well over 6.5% for the year.
I'm looking at yield. Yield is the best estimate of returns going forward. Past returns are irrelevant.
When you discover that you are riding a dead horse, the best strategy is to dismount.
raiderjkwong
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Re: Anyone successfully living off dividends & interest?

Post by raiderjkwong »

Good luck to you Jebmke. Not here to compete, argue or debate with anyone, just sharing with other Bogleheads.
Keenobserver
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Re: Anyone successfully living off dividends & interest?

Post by Keenobserver »

Not sure merely $ 1 million liquid would qualify for HNW. I am almost there and not for a second have I felt someone who is anywhere near HNW. I would say $ 3.5 to $ 4 Million I would consider myself member of HNW category.
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unbiased
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Re: Anyone successfully living off dividends & interest?

Post by unbiased »

scrabbler1 wrote: Sat Sep 12, 2020 4:54 pm
I have been living off mostly bond fund dividends since I retired at 45, 12 years ago. My portfolio was under $1M back then (late 2008) but has risen to around $1.6M today. About 2/3 of it is in a non-retirement account, the portion which generates all the dividend income used to cover my bills. I have some money in a stock fund which generates some dividends (less today because I recently switched it to an index fund so I can resume getting the ACA premium subsidy).

My own inflation rate is very low. Only the volatile health insurance costs have been worrisome at times.

In a few years, I will be able to tap into my IRA. A few years after that, my frozen company pension and Social Security. Medicare will eventually replace the ACA. So, my overall financial picture will only improve.
Hey that was a bold move to retire with under a $1 million at age 45! Great job! What's your total AA? Is it like a 30/70? What kind of bonds? Just a total bond index like Vanguard Total Bond Market, or do you buy individual bonds? What's your portfolio yield, and has it been drifting down over the years along with interest rates?

Sorry for all the questions, but appreciate your insight.
Robert20
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Re: Anyone successfully living off dividends & interest?

Post by Robert20 »

raiderjkwong wrote: Sat Sep 12, 2020 5:03 pm To answer Robert20's question, none of my portfolio returns are tax-free. I must pay Uncle Sam.
I meant to ask... LCG tax is free up 80K (for MFJ) or 40K (single)... If someone is living off with just 30K money/returns, its tax free. .right?..
TN_Boy
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Re: Anyone successfully living off dividends & interest?

Post by TN_Boy »

unbiased wrote: Sat Sep 12, 2020 4:17 pm
dbr wrote: Sat Sep 12, 2020 3:09 pm
What is your definition of capital preservation? I imagine you have in mind that the number of shares of whatever you are invested in is not reduced, presumably by selling. But the question is, what do you consider your situation to be if the number of shares is constant but the value of a share falls and the value of your portfolio drops to less than it started out, or less than it started out after inflation.*

A suggestion is that attending to total return is not about what kind of investments you have; it is not about what mechanics you use to withdraw money. Rather it is an accounting method that tracks all the things that are important to tell you whether or not the value of your holdings has been preserved up to the present or promises to be preserved within some uncertainty into the future.
I mistakenly deleted your quote on Vanguard High Yield -- exactly the situation I'm concerned about. If limited to just "income" so many funds have declining NAVs and income. I see this with most CEFs when looking at their 20+ year history. If you look at how many had a permanent loss in both market price and NAV from the 2008 crash--many never recovered--it makes it impossible for me to want to invest in most of them.

So on your "capital preservation" question--I'll answer it like this -- if some folks have constructed their retirement portfolio "like a bond" where their goal is: "I give you $2 million, you give me 3%/year + inflation. After 40 years, you give me my $2 million back"--then I would like to know how. This is different from an explicit goal of spending/reducing your principal over time so your last dollar is spent on your funeral. I realize no such AAA-rated bond exists with a nice inflation-protected higher yield. But maybe a multi-asset retirement income portfolio gets close that some people have been using.
The ideal scenario you describe:
some folks have constructed their retirement portfolio "like a bond" where their goal is: "I give you $2 million, you give me 3%/year + inflation. After 40 years, you give me my $2 million back"
is basically impossible. A portfolio with lots of stocks, and then 40 years of good market returns might do this*. But that only happens if the market is kind. There is no way to "guarantee" that, or construct a portfolio without knowledge of the future that is mostly likely to accomplish that goal.

*Do you want 2M back in today's dollars, or is 2M in 2060 dollars enough :-). Obviously 2M in 2060 dollars will be worth much less than 2M in 2020 dollars.
dbr
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Re: Anyone successfully living off dividends & interest?

Post by dbr »

unbiased wrote: Sat Sep 12, 2020 4:17 pm
So on your "capital preservation" question--I'll answer it like this -- if some folks have constructed their retirement portfolio "like a bond" where their goal is: "I give you $2 million, you give me 3%/year + inflation. After 40 years, you give me my $2 million back"--then I would like to know how. This is different from an explicit goal of spending/reducing your principal over time so your last dollar is spent on your funeral. I realize no such AAA-rated bond exists with a nice inflation-protected higher yield. But maybe a multi-asset retirement income portfolio gets close that some people have been using.
Strangely enough a 60/40 portfolio of stocks and bonds will almost certainly do exactly that at maybe 2.5% withdrawal rate. For 30 years there is a very good chance you can do that at 3%. But it is not a guarantee. When the withdrawal rate is 4% and for 30 years the worst estimated case is to just run out of money* but maybe 80% of the cases or more end up with more dollars at the end after inflation than you started with. The upper half of the outcomes have the investor ending up with fabulous wealth at death on a 4%/30 year plan or a 3%/40 year plan. The only thing that sabotages this is investing too much in bonds. Naturally attempts to estimate the future 30 and 40 years out are subject to uncertainty and risk. Finding schemes that are not subject to uncertainty and risk is a fool's errand.

*4% rules are not intended to explicitly run out of money. Almost all the outcomes do not run out of money and actually end up with a lot of money. What does run out of money would be something like a 30 year TIPS ladder, which at todays real yield only pays out 3.1%. The lesson here is that exactly predictable certainty is very, very expensive to buy.
Escapevelocity
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Re: Anyone successfully living off dividends & interest?

Post by Escapevelocity »

Mike Scott wrote: Sat Sep 12, 2020 8:42 am In my fantasy world, I would invest for total return but have enough invested so that the dividends provided for all my desires and the investment would continue to grow forever.
Not trying to be argumentative, but why? Why are you better off with a runaway pile of money that you will never live to enjoy?
TN_Boy
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Re: Anyone successfully living off dividends & interest?

Post by TN_Boy »

unbiased wrote: Sat Sep 12, 2020 2:30 pm
TN_Boy wrote: Sat Sep 12, 2020 2:03 pm
We can differ whether that is part of what the OP is asking. It would be nice if the OP would come back and clarify.
I think you want me to clarify what I mean by "income only?" Basically, a portfolio that puts capital preservation first and foremost -- and throws off enough income/dividends/interest to fund retirement expenditures and keep up with inflation. This would be different from a "total return" approach that relies on capital appreciation, rebalancing, and/or selling of shares to fund expenses. I really don't think this can be achieved with a bond-only approach, unless in volatile CEFs. But I'm open to any approach and that's why I'm asking the experience of those who seem to be making it work.
Yes, thanks for the clarification.

There is almost no chance that a fixed-income oriented portfolio could do what you want.

But let us go up a level. Step 1 is figuring out how much money you need to get from your portfolio (the closer to retirement, the easier it is to estimate this value).

Once you know expenses and your SS income, you can figure, hey, I need $X from the portfolio each year to supplement SS.

Before retirement, you can do things like save more. You can live more frugally both before and after retirement. You can delay taking SS, so it pays more each year. And so forth. These are all things that either make your portfolio bigger (more savings) or reduce the amount you need to withdraw from it.

Okay, however we get there, unbiased knows at retirement $X is needed per year from investments. However, you also want to ensure that the portfolio supports your retirement AND doesn't go down in value either!

So you've put two requirements on the portfolio, and it should not surprise you that this means you need a bigger retirement portfolio to achieve both goals. Probably, a lot bigger.

Why are you focused on keeping the portfolio value from decreasing? Sure, that would be great, but why is that a key goal? I don't want to run mine down anywhere near zero, but if it gets a lot smaller before the spouse and I kick the bucket, well, after we are gone that fact will not bother us. Are you concerned about leaving a legacy?

Putting aside the goal of complete portfolio preservation, several people are making the argument that a total return approach to withdrawals allows you to safely withdraw more than an income focused approach. A total return approach is better, by the way, even if you did want to preserve the portfolio.

Here's an important point. People have posted, sure, I live off income alone. Those people are not withdrawing much from the portfolio -- more like 2%.
dbr
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Re: Anyone successfully living off dividends & interest?

Post by dbr »

Escapevelocity wrote: Sat Sep 12, 2020 8:17 pm
Mike Scott wrote: Sat Sep 12, 2020 8:42 am In my fantasy world, I would invest for total return but have enough invested so that the dividends provided for all my desires and the investment would continue to grow forever.
Not trying to be argumentative, but why? Why are you better off with a runaway pile of money that you will never live to enjoy?
Yes, in reality living off dividends may either overshoot or undershoot what can be withdrawn. It does not aim at any goal in particular for how much one can spend from what one has saved or how wealthy one is when one dies. It is even entirely possible that way that one will end up with both no income and no money, depending on what it is in which one is invested. One would think that one would be more thoughtful about both, even though investing by nature is uncertain. Closing one's eyes and letting things be even more uncertain does not seem like a good idea.

It is not possible to not invest for total return because return is simply a mathematical term that always applies to investments whether one wants to actually use the idea to inform what one does or not. You weigh what you weigh even if you never step on a scale to find out what that is.
OnTrack2020
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Re: Anyone successfully living off dividends & interest?

Post by OnTrack2020 »

AlohaJoe wrote: Fri Sep 11, 2020 9:44 pm
unbiased wrote: Fri Sep 11, 2020 9:25 pm But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
I'm not sure what's the mystery. People do it by not having lifestyles that require $100,000+ a year to live. Your grandparents almost certainly didn't spend that extravagantly.

A $2,000,000 portfolio generates $30,000 a year in dividends. Add another $30,000 in Social Security and you're at $60,000 a year which is more than most families live on.

Even if you don't want to count Social Security for some nonsensical reason (your grandparents certainly used it!), $30,000 a year is very livable, especially if you have a paid off house. After all, 50% of retiree households are living off of $43,000 or less.

Anyway, most people on Bogleheads think not wanting to spend down principal is foolish and makes no sense.
Most grandparents weren't spending thousands of dollars on health insurance premiums and health care costs.
000
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Re: Anyone successfully living off dividends & interest?

Post by 000 »

Anyone successfully living off their salary without spending some of it?
Anyone successfully doing surgery without cutting out any tissue?
Anyone successfully prosecuting a war without losing any troops?

Does that help?
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AerialWombat
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Re: Anyone successfully living off dividends & interest?

Post by AerialWombat »

unbiased wrote: Fri Sep 11, 2020 9:25 pm But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
Rental properties.

It’s not the BH answer, but it’s the answer I have.

I’m also capable of living off the yield that my meager (by BH standards) securities portfolio would generate if I moved the rest of it into muni bonds and switched to living my MVL (Minimum Viable Lifestyle).
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