What if you only live off dividends?

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dknightd
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Re: What if you only live off dividends?

Post by dknightd »

getrichslowly wrote: Tue Feb 13, 2018 9:12 am Many people worry whether a 4% SWR will work in the future. Complicated attempts have been made to calculate a new SWR.

Mainstream strategies use a total return approach and will liquidate a share of principal each year to meet the SWR payment. The assumption is that the assets will grow back. What if you drop this assumption altogether and just withdraw the dividends and bond interest payments? Is the actual reported "income" not a truer estimate of the sustainable income stream? Why not just forego fancy mathematical analysis and just trust what the market chooses to provide?
I admit, I did not read all the pages of this thread. And I'm a newbie. Go ahead and shoot me, then I will not have to plan for retirement.
On the surface living on just dividends and interest seems like a reasonable (and desirable) strategy. If they provide what you need, then you can pass on the basis to your heirs, and live a happy life.
When dividends and interests are high you live high. When they are low you just scale back. As long as a scale back is enough to provide roof/food/water you should be good to go.
The problem with this, as I see it, is it may not keep up with inflation of costs. If costs go up faster than the money you bring in, then you have to touch principle. Then your dividends and interest go down.
But touching principle should be allowed. Unless you feel the need to provide for future generations to never have to work.

In the old days most people never "retired" as we know it. They kept working till they could no longer work. Their retirement was provided by the human resources of their children, and perhaps grandchildren. If they had 1-2 years of assets (aka food/shelter/water) they were happy.

Your idea of living off dividends and interest, really only works if you have lots and lots of money. IMO YMMV I could be wrong.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
Leesbro63
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Re: What if you only live off dividends?

Post by Leesbro63 »

This all boils down to: do you want to limit withdrawals to about 2% (roughly dividends and interest on a balanced portfolio) or are you comfortable taking as much as 4% (the often touted “safe” withdrawal rate) by taking some principal in addition to divs and interest?

Bulletproof or safe enough?
Last edited by Leesbro63 on Sat Mar 17, 2018 3:31 am, edited 1 time in total.
dknightd
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Re: What if you only live off dividends?

Post by dknightd »

Leesbro63 wrote: Fri Mar 16, 2018 6:13 pm This all boils down to: do you want to limit withdrawals to about 2% (roughly dividends and interest on a balanced portfolio) or are you comfortable taking as much as 4% (the often touted “safe” withdrawal rate) by taking some principal in addition to divs and interest?
My plan is to have enough for 2% to satisfy what I absolutely need. 4% should make me comfortable. 3% would be fine. 5% would be great. I'm shooting for 4% knowing that I may have to adapt if things change
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
Leesbro63
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Re: What if you only live off dividends?

Post by Leesbro63 »

Oops. Was a duplicate post :oops:
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willthrill81
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Re: What if you only live off dividends?

Post by willthrill81 »

I just read this and thought it was perfect for this thread.
The total return of an equity security depends on two factors: (1) the change in price from purchase to sale, and (2) the dividends paid in the interim. Dividends matter, but price is king. It drives total return.

Many investors don’t like the fact that price drives total return. If price drives total return, it follows that total return is a function of the shifting sentiment, preferences and expectations of other people–those who make up the market and “vote” on what the price will be. Investors don’t want their returns to be subject to the arbitrary “vote” of other people, and so they pretend that as stock market speculators they are actually genuine businessmen who “buy” and “own” companies to hold forever. They tell themselves that their returns will somehow emerge directly from the cash flows of the underlying businesses, regardless of what the market decides to do with price.

This point of view ignores the fact that it takes decades to recoup an equity investment via dividends, the only cash flows that are ever are actually paid out to buy-and-hold investors. To claim a return on a stock in any other context, an investor needs someone to sell it to. The price that other people are wiling to pay is therefore important–supremely important. Rather than resist this fact puristically, our responsibility as investors is to accept it and work within it, by understanding the behavioral propensities of our fellow market participants, and getting in front of emerging trends in how they choose to allocate their wealth.
http://www.philosophicaleconomics.com/2 ... t-returns/
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fortyofforty
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Re: What if you only live off dividends?

Post by fortyofforty »

From Investopedia, "The Importance of Dividends in Your Portfolio":
Over the last 50 years, dividends have provided nearly half of the stock market's returns on investment (ROI).
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willthrill81
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Re: What if you only live off dividends?

Post by willthrill81 »

fortyofforty wrote: Sat Mar 17, 2018 5:34 pm From Investopedia, "The Importance of Dividends in Your Portfolio":
Over the last 50 years, dividends have provided nearly half of the stock market's returns on investment (ROI).
The dividend yield is far lower now than it was 50 years ago.
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hoops777
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Re: What if you only live off dividends?

Post by hoops777 »

Depending upon the individual circumstances,a person can easily live the life they want off of dividends,CDs or bond interest in addition to their SS.
If a couple has 500,000 in savings and 2500 per month in SS,not a great outcome.If they have 1.5 million in savings and 5000 per month in SS,a very different story which should be obvious.These threads always go on and on when all that matters is the individual circumstance.
K.I.S.S........so easy to say so difficult to do.
fortyofforty
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Re: What if you only live off dividends?

Post by fortyofforty »

willthrill81 wrote: Sat Mar 17, 2018 5:54 pm
fortyofforty wrote: Sat Mar 17, 2018 5:34 pm From Investopedia, "The Importance of Dividends in Your Portfolio":
Over the last 50 years, dividends have provided nearly half of the stock market's returns on investment (ROI).
The dividend yield is far lower now than it was 50 years ago.
Maybe, but that is the historical return, over five decades. Who knows what the future holds?
MathIsMyWayr
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Re: What if you only live off dividends?

Post by MathIsMyWayr »

The S&P dividend yield has been close to 2% for the past 10+ years. The absolute dividend amount follows the S&P index closely - sorry, I do not know how to paste a figure. If we can rely on these numbers, spending dividend only amounts to about 2% withdrawal rate. Since it appears that S&P index appreciates faster than the inflation rate, your spending can grow faster than inflation rate in most years. Dividend dropped by about 22% in 2008-9, still much more stable than the S&P 500 index. If you have 50X and your need can be somewhat flexible, then spending close to dividend is expected to be very safe and your NW will likely to increase substantially - nothing wrong with it. 50X is a noble goal if it may be achieved without undue sacrifice.
hoops777
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Re: What if you only live off dividends?

Post by hoops777 »

MathIsMyWayr wrote: Sat Mar 17, 2018 8:14 pm The S&P dividend yield has been close to 2% for the past 10+ years. The absolute dividend amount follows the S&P index closely - sorry, I do not know how to paste a figure. If we can rely on these numbers, spending dividend only amounts to about 2% withdrawal rate. Since it appears that S&P index appreciates faster than the inflation rate, your spending can grow faster than inflation rate in most years. Dividend dropped by about 22% in 2008-9, still much more stable than the S&P 500 index. If you have 50X and your need can be somewhat flexible, then spending close to dividend is expected to be very safe and your NW will likely to increase substantially - nothing wrong with it. 50X is a noble goal if it may be achieved without undue sacrifice.
People who are really serious about dividends and living off of them do not use the SP500.They usually create portfolios of stocks that pay higher dividends and that grow their dividends.They are not living off 2 pct yields.
K.I.S.S........so easy to say so difficult to do.
gd
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Re: What if you only live off dividends?

Post by gd »

hoops777 wrote: Sat Mar 17, 2018 9:30 pm People who are really serious about dividends and living off of them do not use the SP500.They usually create portfolios of stocks that pay higher dividends and that grow their dividends.They are not living off 2 pct yields.
Yes. I've recently been pulled into involvement with some pots of investments designed for income, both with a full service broker who has been steering them to income for decades. The one I've been looking at most closely got 4.8% income last year, with 8.8% capital appreciation. Lots of higher-yield common stocks, lots of high-income funds with curious and obscure characteristics. I have not yet looked back very far, but it does not seem to have fallen apart in bad patches. It is not as easy as I thought to lay out a clear argument for how this can and why it should be replaced by index funds. Yelling "Commissions! Low costs!" only works on bogleheads-like forums, and is not enough when something appears to have been successful for 30 years. It would be interesting to have a tool that would let me back test specific retirement-oriented funds for various dividend and withdrawal scenarios and compare results; I'm going to but have not yet tried the various Monte Carlo tools for this.
Da5id
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Re: What if you only live off dividends?

Post by Da5id »

gd wrote: Sun Mar 18, 2018 7:31 am Yes. I've recently been pulled into involvement with some pots of investments designed for income, both with a full service broker who has been steering them to income for decades. The one I've been looking at most closely got 4.8% income last year, with 8.8% capital appreciation. Lots of higher-yield common stocks, lots of high-income funds with curious and obscure characteristics. I have not yet looked back very far, but it does not seem to have fallen apart in bad patches. It is not as easy as I thought to lay out a clear argument for how this can and why it should be replaced by index funds. Yelling "Commissions! Low costs!" only works on bogleheads-like forums, and is not enough when something appears to have been successful for 30 years. It would be interesting to have a tool that would let me back test specific retirement-oriented funds for various dividend and withdrawal scenarios and compare results; I'm going to but have not yet tried the various Monte Carlo tools for this.
If I understand your thrust, it boils down to "you can beat the market by chasing dividends". Hmm. Good luck with that.

Not to overly disparage the "full service broker" without knowing him, but I'm skeptical that such a great talent would be wasting his time messing with clients. With his market beating knowledge he could do well investing for himself from his private island without the hassle of dealing with servicing peoples accounts.

I'm still confused as to why people who want to "live off dividends" focus on dividend yield rather than buyback + dividend yield. Are people who advocate that indicating that buybacks are a completely unrelated way to return capital to investors? Or that if a company switches to more buybacks/less dividends the nature of your investment has fundamentally changed? Why not "what if you live off of distributed earnings?". Note that current dividend+buyback yield is 4.31% (https://www.yardeni.com/pub/buybackdiv.pdf). The 4% rule, rediscovered :)
gd
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Re: What if you only live off dividends?

Post by gd »

Da5id wrote: Sun Mar 18, 2018 8:38 am
If I understand your thrust, it boils down to "you can beat the market by chasing dividends". Hmm. Good luck with that.

Not to overly disparage the "full service broker" without knowing him, but I'm skeptical that such a great talent would be wasting his time messing with clients. With his market beating knowledge he could do well investing for himself from his private island without the hassle of dealing with servicing peoples accounts.
No, I hate those guys. The happiest day in my investment life was 10 years ago when I closed my last account with, ironically, the same company. My thrust was that I thought I could discredit them with minimal effort, and I can't. I haven't yet figured out whether it's because we're all groupthink, or this guy/company is good at obfuscation/lucky. I think I've got an interestingly clear case study spanning 35 years, just need a few spare weeks to sort it out.
Da5id
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Re: What if you only live off dividends?

Post by Da5id »

gd wrote: Sun Mar 18, 2018 6:49 pm
Da5id wrote: Sun Mar 18, 2018 8:38 am
If I understand your thrust, it boils down to "you can beat the market by chasing dividends". Hmm. Good luck with that.

Not to overly disparage the "full service broker" without knowing him, but I'm skeptical that such a great talent would be wasting his time messing with clients. With his market beating knowledge he could do well investing for himself from his private island without the hassle of dealing with servicing peoples accounts.
No, I hate those guys. The happiest day in my investment life was 10 years ago when I closed my last account with, ironically, the same company. My thrust was that I thought I could discredit them with minimal effort, and I can't. I haven't yet figured out whether it's because we're all groupthink, or this guy/company is good at obfuscation/lucky. I think I've got an interestingly clear case study spanning 35 years, just need a few spare weeks to sort it out.
It is not impossible that he beat the market for 35 years. Unlikely, sure. Perhaps fuzzy accounting? Maybe. But even if he did (after accounting for fees), I'd not personally have faith it would continue into the future. But who knows, maybe this guy is Peter Lynch and Warren Buffett all rolled into one.
Chip
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Re: What if you only live off dividends?

Post by Chip »

gd wrote:The one I've been looking at most closely got 4.8% income last year, with 8.8% capital appreciation.
So that's 13.6% total return. The S&P 500 returned 21.8% last year. A 60/40 portfolio with Vanguard Admiral Total Bond would have returned 14.5%.

He's claiming he "beat the market"?
Da5id
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Re: What if you only live off dividends?

Post by Da5id »

Chip wrote: Mon Mar 19, 2018 4:42 am
gd wrote:The one I've been looking at most closely got 4.8% income last year, with 8.8% capital appreciation.
So that's 13.6% total return. The S&P 500 returned 21.8% last year. A 60/40 portfolio with Vanguard Admiral Total Bond would have returned 14.5%.

He's claiming he "beat the market"?
Critical steps:

1) define the market (to be something you beat)
2) claim proudly that you beat it (and hence your high costs are justified)

Hmm.
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