Vanguard Three Fund Portfolio Question for Retired Bogleheads

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rossington
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Vanguard Three Fund Portfolio Question for Retired Bogleheads

Post by rossington » Mon Jun 10, 2019 2:49 pm

For retired Bogleheads that only have the standard Vanguard 3 Fund portfolio (VTSAX, VBTLX, VTIAX) and S.S. - (no pensions).

I am interested to know: are you living off of just the dividends and interest only, or just withdrawing from your portfolio or a combination of both?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

pkcrafter
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Re: Vanguard Three Fund Portfolio Question for Retired Bogleheads

Post by pkcrafter » Mon Jun 10, 2019 6:04 pm

rossington wrote:
Mon Jun 10, 2019 2:49 pm
For retired Bogleheads that only have the standard Vanguard 3 Fund portfolio (VTSAX, VBTLX, VTIAX) and S.S. - (no pensions).

I am interested to know: are you living off of just the dividends and interest only, or just withdrawing from your portfolio or a combination of both?
Dividends are just part of total return, so taking them is the same as a withdrawal, only you don't get to decide on when to make a withdrawal. Taking interest rather than reinvesting it is the same thing. Reinvesting dividends buys more shares, then you can take withdrawals for living expenses and rebalance on a schedule. The important thing is how much you need to withdraw annually from the total portfolio.

Paul
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celia
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Re: Vanguard Three Fund Portfolio Question for Retired Bogleheads

Post by celia » Mon Jun 10, 2019 6:24 pm

rossington wrote:
Mon Jun 10, 2019 2:49 pm
For retired Bogleheads that only have the standard Vanguard 3 Fund portfolio (VTSAX, VBTLX, VTIAX) and S.S. - (no pensions).

I am interested to know: are you living off of just the dividends and interest only, or just withdrawing from your portfolio or a combination of both?
What are you trying to determine with this question? One person could have a $1,000 portfolio with these holdings while another could have a $100M portfolio with the same holdings. You can guess what they use for living expenses, but how does that help you, OP?

Liam Friend
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Re: Vanguard Three Fund Portfolio Question for Retired Bogleheads

Post by Liam Friend » Mon Jun 10, 2019 7:52 pm

I think it depends on the amount available and the amount you need to live. If possible, I would prefer to just live on interest and dividends while leaving the core holdings in place (and hopefully growing). However, if I needed to tap into the core holdings that can also work. I would just be sure to at least be aware of the 4% withdrawal rule or something similar to protect against withdrawing too much.

dbr
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Re: Vanguard Three Fund Portfolio Question for Retired Bogleheads

Post by dbr » Mon Jun 10, 2019 7:59 pm

I don't distinguish in general the issuance of dividends and interest from any other process by which investment assets are converted to cash which is then withdrawn. In practice, in a taxable account, if you are going to withdraw money and dividends or interest have been paid, then you can just as well withdraw those amounts as such rather than reinvest them, as it may be more tax efficient to do that. Some people may also find it more convenient to just direct whatever dividends and interest are paid out into a bank account to be spent rather than bothering with additional steps. On the other hand it may be more convenient to have a broker pay out fixed payments every month no related to any particular dividends and interest.

You may be asking a question that involves some misunderstanding of the role of dividends and interest in investing.

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rossington
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Re: Vanguard Three Fund Portfolio Question for Retired Bogleheads

Post by rossington » Tue Jun 11, 2019 12:45 pm

Liam Friend wrote:
Mon Jun 10, 2019 7:52 pm
I think it depends on the amount available and the amount you need to live. If possible, I would prefer to just live on interest and dividends while leaving the core holdings in place (and hopefully growing). However, if I needed to tap into the core holdings that can also work. I would just be sure to at least be aware of the 4% withdrawal rule or something similar to protect against withdrawing too much.
This post was what I am curious about...whether a retiree's 3 fund portfolio preferred objective is to preserve the principal and live off of the int. and div. earnings from it only OR if they have decided to draw down the entire portfolio over their lifetime and not be concerned with having any significant amount left...(**And having no other source of income besides S.S. in either preference**). Just trying to get some samples of how those now retired have decided to take their income from the 3 fund portfolio in this situation.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

dbr
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Re: Vanguard Three Fund Portfolio Question for Retired Bogleheads

Post by dbr » Tue Jun 11, 2019 1:01 pm

rossington wrote:
Tue Jun 11, 2019 12:45 pm
Liam Friend wrote:
Mon Jun 10, 2019 7:52 pm
I think it depends on the amount available and the amount you need to live. If possible, I would prefer to just live on interest and dividends while leaving the core holdings in place (and hopefully growing). However, if I needed to tap into the core holdings that can also work. I would just be sure to at least be aware of the 4% withdrawal rule or something similar to protect against withdrawing too much.
This post was what I am curious about...whether a retiree's 3 fund portfolio preferred objective is to preserve the principal and live off of the int. and div. earnings from it only OR if they have decided to draw down the entire portfolio over their lifetime and not be concerned with having any significant amount left...(**And having no other source of income besides S.S. in either preference**). Just trying to get some samples of how those now retired have decided to take their income from the 3 fund portfolio in this situation.
I think you are engaging in a false dichotomy. The simplest and most adequate model to use for the evolution of a portfolio over time is that the growth of the portfolio in any period is the return less any withdrawal that is taken, and then you compound that result period after period. How much of the return is due to dividends vs capital gain and whether or not the withdrawal is equal to the dividends does not come into the calculation. All that has to be known is how much growth is there due to return and how much wealth is removed by withdrawals by whatever mechanism.

The confusing part is that a choice to spend only dividends does implicitly set the withdrawal, but that is a bad idea because it means the withdrawal is being set without regard to the consequences. The problem is that dividends are arbitrary. If you are invested in the total stock market in 2019, then dividends are about 2%, giving you a very low and very safe withdrawal, lower than necessary and punishing you with an indequate income. If you can find an investment that pays 6%, then your withdrawal rate would be 6%, which is likely to be too high and result in excessively depleting the portfolio with too much likelihood depending on luck. The only way you get away with this is by assuming that the higher the dividend the higher the return, which is a fallacy.

Jacklh
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Re: Vanguard Three Fund Portfolio Question for Retired Bogleheads

Post by Jacklh » Tue Jun 11, 2019 4:55 pm

Mine is simple. I have 55% of my assets in my Traditional IRA, 27% in my Roth IRA, and 17% in my taxable account. The RMD is more than I need for income so I spend what I need and reinvest the excess in Taxable Acct if I can't find something else to spend it on. The Roth IRA and Taxable accounts can then grow as a backup for any future needs or pass on to my heirs. My Traditional IRA is invested only in the Balanced Index Fund VBIAX at 60/40. All dividends are reinvested and RMD's come out of the fund. It always stays at 60/40. My Roth is also in VBIAX. My Taxable Acct is Total Stock VTSAX and Int Tax Exempt Bond VWIUX, also at 60/40. I'm thinking about adding some International Stock VTIAX to my Taxable Acct. Everything's simple and easy and my wife should be able to easily manage it if it comes to that.

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