How to control spending if you only live off of dividends but dividends are uneven?

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Topic Author
vu8
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How to control spending if you only live off of dividends but dividends are uneven?

Hi there, from my observation, dividends from VT and many other Vanguard/Non-Vanguard index funds, are uneven throughout the year.

The March dividend is usually the smallest.

The September dividend is usually the 2nd smallest.

The June dividend is usually the 2nd largest.

The December dividend is usually the largest.

Give the uneven, unsmooth feature of the quarterly dividends, if you will NOT sell any securities, and only survive on dividends, how do you plan for this un-even ness? How do you calculate an estimated yearly dividend amount so you can divide by 12? Which month's dividend do you use to divide by 3 to get your estimated monthly allowance?

I know that dividends are just returns of capital, but I really like the idea of only spending dividends and hate selling anything.
shess
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Re: How to control spending if you only live off of dividends but dividends are uneven?

vu8 wrote: Fri Nov 20, 2020 4:21 pm Give the uneven, unsmooth feature of the quarterly dividends, if you will NOT sell any securities, and only survive on dividends, how do you plan for this un-even ness? How do you calculate an estimated yearly dividend amount so you can divide by 12? Which month's dividend do you use to divide by 3 to get your estimated monthly allowance?
Live this year using last year's dividends.

So, at the most basic, you CANNOT put yourself at the mercy of dividend payments, unless you have flexibility to go to starvation mode quickly. You need a buffer, perhaps you keep a couple years worth of expenses (or dividends, in this case) in CDs or munis or ibonds. When you find your buffer growing, spend more. When it's shrinking, spend less.
vineviz
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Re: How to control spending if you only live off of dividends but dividends are uneven?

vu8 wrote: Fri Nov 20, 2020 4:21 pm Hi there, from my observation, dividends from VT and many other Vanguard/Non-Vanguard index funds, are uneven throughout the year.

The March dividend is usually the smallest.

The September dividend is usually the 2nd smallest.

The June dividend is usually the 2nd largest.

The December dividend is usually the largest.

Give the uneven, unsmooth feature of the quarterly dividends, if you will NOT sell any securities, and only survive on dividends, how do you plan for this un-even ness? How do you calculate an estimated yearly dividend amount so you can divide by 12? Which month's dividend do you use to divide by 3 to get your estimated monthly allowance?

I know that dividends are just returns of capital, but I really like the idea of only spending dividends and hate selling anything.

Why try to push this square peg into a round hole?

Just sell some shares when you need to sell shares.

The only alternative is to keep more cash in the bank than you should in order even out the lumps.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Ping Pong
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Add international, where March is the largest.
sailaway
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Re: How to control spending if you only live off of dividends but dividends are uneven?

What are you going to do during market downturns when dividends are cut?
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Re: How to control spending if you only live off of dividends but dividends are uneven?

(The difficulty of living off of uneven dividends) is one of several reasons that many of us are not planning to do exactly that.
000
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Sell some shares.

Or buy stocks that pledge to maintain non-decreasing dividends, like O.

Guess which one has more risk?
Da5id
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Seems like if you insist on living on dividends, having a cash "emergency fund" that smooths things out would be essential. Unexpected expenses happen (car dies, roof fails, medical bills, whatever), and that taken together with your uneven income means there can be issues with cash flow.
MathIsMyWayr
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Re: How to control spending if you only live off of dividends but dividends are uneven?

The current dividend should about 40% higher than your expense to go through big market downturns. Otherwise, your portfolio is not large enough. Living off dividends is only for select few, not for everybody.
Broken Man 1999
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Re: How to control spending if you only live off of dividends but dividends are uneven?

If you use total return, this issue is eliminated, easily.

Or, if you must live on dividends, push the last quarter's dividend spend into the next year, then you will have the dividends available to use to "smooth" your spending, assuming they continue to be larger than the other period's dividends.

So, you might get get away with a one-time total return use, just covering the last quarter of the year.

I don't do that, but it might solve your problem.

My portion of our expenses is lumpy, so whatever I need to cover for the month I pull from what ever part of my portfolio is more than my desired AA at that moment in time.

Of course there might very well be a time when your dividends won't be enough no matter how you use them. At that time you will either have to cut your spending, or sell shares.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
luckyducky99
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Re: How to control spending if you only live off of dividends but dividends are uneven?

I agree with others that you should just get used to selling, rather than relying exclusively on stocks / funds to sell for you.

That said, start with one year's expenses in cash / equivalents and you can keep smooth withdrawals. Count this towards your fixed income / bond allocation. The replenishing may be lumpy, but it doesn't matter.
FelixTheCat
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Re: How to control spending if you only live off of dividends but dividends are uneven?

My income is sporadic. I budget 3 months in advance using YNAB.
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livesoft
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Our expenses are uneven, too. So even if dividends were "even", there would be problems for us. For instance, property taxes are a significant expense that are payable in the 2 months from December to January and vacation expenses show up on the August/September credit card bills.

So we don't control spending. We simply sell shares if needed to pay expenses, then buy them back if we have excess dividends. In other words, your premise or assumption of "only live off of dividends" is simply a crock of .... Get over it. That is, free yourself of self-imposed handcuffs.
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Toons
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Re: How to control spending if you only live off of dividends but dividends are uneven?

48k in dividends per annum
Spend 4k or less per month

"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
AlohaJoe
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Ping Pong wrote: Fri Nov 20, 2020 4:32 pm Add international, where March is the largest.
March distributions aren't the largest for international, it is the smallest. It is easy to look up historical distributions for Vanguard's Total International and see this isn't the case.

Sep 18, 2020 0.18 Dividend
Jun 19, 2020 0.134 Dividend
Mar 20, 2020 0.055 Dividend
Dec 20, 2019 0.335 Dividend
Sep 23, 2019 0.159 Dividend
Jun 20, 2019 0.326 Dividend
Mar 22, 2019 0.088 Dividend
Dec 21, 2018 0.263 Dividend
Sep 25, 2018 0.144 Dividend
Jun 21, 2018 0.319 Dividend
Mar 23, 2018 0.077 Dividend
Dec 20, 2017 0.29 Dividend
Sep 19, 2017 0.16 Dividend
Jun 20, 2017 0.299 Dividend
Mar 23, 2017 0.086 Dividend
Dec 19, 2016 0.209 Dividend
Sep 12, 2016 0.148 Dividend
Jun 13, 2016 0.288 Dividend
Mar 14, 2016 0.077 Dividend
tibbitts
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Re: How to control spending if you only live off of dividends but dividends are uneven?

vu8 wrote: Fri Nov 20, 2020 4:21 pm ...I know that dividends are just returns of capital, but I really like the idea of only spending dividends and hate selling anything.
You may well be the only person who tries to do what you're describing.
MathIsMyWayr
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Re: How to control spending if you only live off of dividends but dividends are uneven?

tibbitts wrote: Fri Nov 20, 2020 8:40 pm
vu8 wrote: Fri Nov 20, 2020 4:21 pm ...I know that dividends are just returns of capital, but I really like the idea of only spending dividends and hate selling anything.
You may well be the only person who tries to do what you're describing.
Until you end up with savings way more than your plan.
ivgrivchuck
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Re: How to control spending if you only live off of dividends but dividends are uneven?

vu8 wrote: Fri Nov 20, 2020 4:21 pm I know that dividends are just returns of capital, but I really like the idea of only spending dividends and hate selling anything.
There is no rational reason to do what you're trying to doing. There are many ways to make one's life difficult and miserable.
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bluquark
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Re: How to control spending if you only live off of dividends but dividends are uneven?

OP seems like the kind of person the Vanguard Managed Payout Fund was designed for. Too bad the payout scheme was abolished. I think it was a good idea if they had only kept the payout rate at a sustainable SWR level.
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Seasonal
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Spend less than annual dividends, have a cash cushion (money market or short-term bonds), be prepared to sell something if needed.
JoMoney
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Re: How to control spending if you only live off of dividends but dividends are uneven?

I don't know of any good reason for demanding the amount you spend to be solely from dividends...
... but at any rate, lots of people (self employed types) deal with un-even income. You need to a big cash buffer, the more volatile the income, the bigger the buffer.
Dave Ramsey has frequently talked about how people with irregular income should have a prioritized budget and a "Hill and Valley fund"
https://www.everydollar.com/blog/how-to ... lar-income
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
checkyourmath
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Don't worry about it. 2021 is going to be a record year for dividends. A backup option can be increasing the amount of bonds in your portfolio. Bonds have been on a terror since JayPow decided to cut interest rates. I am regretting the fact that I sold them all off in 2017. I didn't know we were going to zero.
Ping Pong
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Re: How to control spending if you only live off of dividends but dividends are uneven?

AlohaJoe wrote: Fri Nov 20, 2020 8:25 pm March distributions aren't the largest for international, it is the smallest. It is easy to look up historical distributions for Vanguard's Total International and see this isn't the case.
Thanks for the correction. I was just looking at it in the last week and remembered being surprised March was larger than December. I must have been looking at another security inadvertently, or my memory is playing tricks on me.
Enzo IX
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Seasonal wrote: Fri Nov 20, 2020 9:13 pm Spend less than annual dividends, have a cash cushion (money market or short-term bonds), be prepared to sell something if needed.
I have a set fixed amount I draw out every month. If you look at last years distributions you will get a good handle on what each quarters payout will be for this year. Then as described above keep a little float in the mm sweep account if need be for the lean quarters.

I have been doing this for the last 17 years and haven't sold a share yet because of need. All unused distributions get reinvested for future cashflow and capital appreciation. Dividends each year usually goes up faster than the increase in next years draw.
bberris
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Re: How to control spending if you only live off of dividends but dividends are uneven?

To see the absurdity of this proposition, imagine your portfolio is composed of CEFs that distribute over 15 %. There are at least a dozen of them. Your return might be 6 % if you are lucky, and you would need to very lucky or die soon not to run out of funds.
MathIsMyWayr
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Re: How to control spending if you only live off of dividends but dividends are uneven?

If you have \$10 MM in VTSAX and your expense is less than \$150k, you can spend like a drunken sailor on dividends only and are still safe. If you sell shares and spend like a drunken sailor, then you may not be safe. It is like a built-in safety value. What's wrong with that? I would rather be naive and wealthy than being busy talking about savvy investment, dividends vs total return, all day and being poor.
Da5id
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Re: How to control spending if you only live off of dividends but dividends are uneven?

MathIsMyWayr wrote: Fri Nov 20, 2020 10:46 pm If you have \$10 MM in VTSAX and your expense is less than \$150k, you can spend like a drunken sailor on dividends only and are still safe. If you sell shares and spend like a drunken sailor, then you may not be safe. It is like a built-in safety value. What's wrong with that? I would rather be naive and wealthy than being busy talking about savvy investment, dividends vs total return, all day and being poor.
OP is concerned about cash flow. Probably not in the situation you describe. Regardless if your SWR is 1.5% doesn't matter what you do. This seems like a bad strategy and way to think about ones money, but each to their own.
Topic Author
vu8
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Broken Man 1999 wrote: Fri Nov 20, 2020 5:04 pm Or, if you must live on dividends, push the last quarter's dividend spend into the next year, then you will have the dividends available to use to "smooth"
I think this is a great idea.

For example,
Plan to spend December's dividend in January, February, March and April.
Plan to spend March's dividend in May, June
Plan to spend June's dividend in July, August, September, October
Plan to spend September's dividend in November, December

So the two large dividends in June and December will be used across 4 months after the issuance month.
And the two small dividends in March and September to be used across 2 months for the month after the month after the month of issuance.

Or just not spend any dividends, leave the money the checking account for 1 year, then divide by 12, and spend each month's allowance in the year after.
Topic Author
vu8
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Re: How to control spending if you only live off of dividends but dividends are uneven?

bluquark wrote: Fri Nov 20, 2020 9:13 pm OP seems like the kind of person the Vanguard Managed Payout Fund was designed for. Too bad the payout scheme was abolished. I think it was a good idea if they had only kept the payout rate at a sustainable SWR level.
Yeah. I have about 61 years of life expectancy left. I have to ensure that the money does not deplete before I die. I know that even if I take dividends only there's still a chance that I will end up with no money in my 70s, but I don't think the chance is as big as if I sell shares each year knowing I'll be screwed. I also really hate doing these trades and messing with 1099B each year, with dividends, you get a clean, beautiful 1099 DIV and you're done.
Topic Author
vu8
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Re: How to control spending if you only live off of dividends but dividends are uneven?

MathIsMyWayr wrote: Fri Nov 20, 2020 10:46 pm If you have \$10 MM in VTSAX and your expense is less than \$150k, you can spend like a drunken sailor on dividends only and are still safe. If you sell shares and spend like a drunken sailor, then you may not be safe. It is like a built-in safety value. What's wrong with that? I would rather be naive and wealthy than being busy talking about savvy investment, dividends vs total return, all day and being poor.
That's exactly my intention. I am single, no kids, and have about 61 years left until I die. So there's no way I'd be doing those 4% things and selling shares every year and expect that I would not deplete the portfolio. The 2% div yield in my opinion is just right and I don't expect I will outspend my capital for the next 61 years if I only take dividends no matter how terrible things go. I don't want to leave a penny when I die because I will have no dependents. So even though there is a possibility of capital going down to 0 if I only take dividends, I think that chance is much much much slimmer if you sell capital.
Da5id
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Re: How to control spending if you only live off of dividends but dividends are uneven?

vu8 wrote: Fri Nov 20, 2020 11:31 pm That's exactly my intention. I am single, no kids, and have about 61 years left until I die. So there's no way I'd be doing those 4% things and selling shares every year and expect that I would not deplete the portfolio. The 2% div yield in my opinion is just right and I don't expect I will outspend my capital for the next 61 years if I only take dividends no matter how terrible things go. I don't want to leave a penny when I die because I will have no dependents. So even though there is a possibility of capital going down to 0 if I only take dividends, I think that chance is much much much slimmer if you sell capital.
If your expenses are covered by 2% of assets there are plenty of ways to do it. And if dividends make you happy you do you. But your belief that exactly where the 2% comes from impacting your chance of running out of money is mighty sketchy, and also can result large fluctuations needlessly. And if buybacks come more into vogue your strategy may fall.
kramer
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Make sure to take full advantage of the 0% tax bracket for qualified dividends and capital gains each year. That means if you are single, you want your income to be at least around \$50,000 each year. So if your income is less than that, you would want to do some tax gain harvesting and raise the basis on your holdings, as their is no tax cost to doing so up to around the top of the 12% bracket plus standard deduction. If you want to retain those shares, you can just immediately buy them back (as long as you sold them for a gain and not a loss).
sperry8
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Re: How to control spending if you only live off of dividends but dividends are uneven?

tibbitts wrote: Fri Nov 20, 2020 8:40 pm
vu8 wrote: Fri Nov 20, 2020 4:21 pm ...I know that dividends are just returns of capital, but I really like the idea of only spending dividends and hate selling anything.
You may well be the only person who tries to do what you're describing.
I do it as well. But OP should also be getting cap gains distributions. Divs + cap gains = my spending levels. I used last years payouts to live off this year... so far, divs + cap gains pays out generally similar amounts (and I don't live to the exact penny so it's all good).
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MathIsMyWayr
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Re: How to control spending if you only live off of dividends but dividends are uneven?

kramer wrote: Fri Nov 20, 2020 11:51 pm Make sure to take full advantage of the 0% tax bracket for qualified dividends and capital gains each year. That means if you are single, you want your income to be at least around \$50,000 each year. So if your income is less than that, you would want to do some tax gain harvesting and raise the basis on your holdings, as their is no tax cost to doing so up to around the top of the 12% bracket plus standard deduction. If you want to retain those shares, you can just immediately buy them back (as long as you sold them for a gain and not a loss).
Many states have income taxes, too.
Scooter57
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Re: How to control spending if you only live off of dividends but dividends are uneven?

I get why you want to avoid taking capital gains, though you will NEVER get any support for that attitude from most people posting here.

There are ETFs that pay monthly dividends. I would stay away from any that have "high dividend" in their title, because the stocks currently paying high dividends are companies with stagnant or failing businesses or which institutions are drawing back from investing in (like tobacco companies and oil companies.)

But there are some ETF out there that pay monthly dividends that invests in companies paying dividends in the 2-4% range that includes quite a few solid companies that are not sporting as inflated valuations as the stocks that dominate the S&P 500 right now. Wisdom Tree has several. Though on looking through some of their listings, they look to have low AUM. Their performance over the past 2 years has lagged the S&P 500 dramatically but that is because just about everything except mega-cap-heavy indexes have lagged it. Many of the stocks in these dividend indexes are from companies that are suffering from the pandemic and associated recession, especially oil and banks. Do some hunting around and you might find some better ETFs with monthly dividends.

Your annual dividends will fluctuate to some extent, though over the last 20 years they have mostly gone up. The decreases come in times like this when companies are facing unexpected pressures and prudent companies may save their money instead of distributing it to shareholders in a crunch. But it is also worth remembering when people go on about cut dividends as if they were the end of the world that the dividends of high quality companies under unexpected pressure don't go away forever. TJX, for example, suspended its dividend this spring, but it is paying it again. I would expect Disney to resume paying a dividend once we finally have a coherent national policy for dealing with the pandemic and distributing the vaccines that are shown to prevent the havoc we are experiencing now.
Last edited by Scooter57 on Sat Nov 21, 2020 11:52 am, edited 1 time in total.
02nz
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Re: How to control spending if you only live off of dividends but dividends are uneven?

This is one of the problems with investing for dividends rather than total return. Dividends can go up or down. OP should give up on the comfort of "living off of" dividends, as it's 100% illusory.
Marseille07
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Da5id wrote: Fri Nov 20, 2020 4:49 pm Seems like if you insist on living on dividends, having a cash "emergency fund" that smooths things out would be essential. Unexpected expenses happen (car dies, roof fails, medical bills, whatever), and that taken together with your uneven income means there can be issues with cash flow.
Pretty much this. EF is necessary anyway, whether you try to live off of dividends or some kind of withdrawal method.
hoops777
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Re: How to control spending if you only live off of dividends but dividends are uneven?

02nz wrote: Sat Nov 21, 2020 11:42 am This is one of the problems with investing for dividends rather than total return. Dividends can go up or down. OP should give up on the comfort of "living off of" dividends, as it's 100% illusory.
I do have to point out that total return also goes up and down.
If a person likes dividends nothing wrong with that if used wisely.
I would use them as part of an overall plan, but not the whole plan.
If it makes you happy to see say 500 bucks a month on average coming in from a good etf like SCHD, go for it.
Not a big deal. Just have all your bases covered.
K.I.S.S........so easy to say so difficult to do.
Godot
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Re: How to control spending if you only live off of dividends but dividends are uneven?

checkyourmath wrote: Fri Nov 20, 2020 9:22 pm Don't worry about it. 2021 is going to be a record year for dividends. A backup option can be increasing the amount of bonds in your portfolio. Bonds have been on a terror since JayPow decided to cut interest rates. I am regretting the fact that I sold them all off in 2017. I didn't know we were going to zero.
Your irony (I'm assuming) would come through more clearly here if you proofread before posting.
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02nz
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Re: How to control spending if you only live off of dividends but dividends are uneven?

hoops777 wrote: Sat Nov 21, 2020 3:28 pm
02nz wrote: Sat Nov 21, 2020 11:42 am This is one of the problems with investing for dividends rather than total return. Dividends can go up or down. OP should give up on the comfort of "living off of" dividends, as it's 100% illusory.
I do have to point out that total return also goes up and down.
If a person likes dividends nothing wrong with that if used wisely.
I would use them as part of an overall plan, but not the whole plan.
If it makes you happy to see say 500 bucks a month on average coming in from a good etf like SCHD, go for it.
Not a big deal. Just have all your bases covered.
A withdrawal strategy that takes say 3-4% of the total portfolio every year (esp. a portfolio that has some bonds) will be far smoother over time than one that relies on "living off of" dividends.
Schlabba
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Re: How to control spending if you only live off of dividends but dividends are uneven?

02nz wrote: Sat Nov 21, 2020 3:52 pm
hoops777 wrote: Sat Nov 21, 2020 3:28 pm
02nz wrote: Sat Nov 21, 2020 11:42 am This is one of the problems with investing for dividends rather than total return. Dividends can go up or down. OP should give up on the comfort of "living off of" dividends, as it's 100% illusory.
I do have to point out that total return also goes up and down.
If a person likes dividends nothing wrong with that if used wisely.
I would use them as part of an overall plan, but not the whole plan.
If it makes you happy to see say 500 bucks a month on average coming in from a good etf like SCHD, go for it.
Not a big deal. Just have all your bases covered.
A withdrawal strategy that takes say 3-4% of the total portfolio every year (esp. a portfolio that has some bonds) will be far smoother over time than one that relies on "living off of" dividends.
Dividends are much more stable than share price: https://www.simplysafedividends.com/int ... ar-markets

To the OP: when I start living off dividends I’ll also have bonds and use the same withdrawal strategy as someone who is using a total return with a static allocation approach. If dividends are too little I would withdraw some bonds and if dividends are high I use them to get back to my desired allocation.
arcticpineapplecorp.
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Re: How to control spending if you only live off of dividends but dividends are uneven?

If the dividends weren't somehow enough and you needed more assuming worst case scenario over the next 100 years NO growth wouldn't you be able to take out 1% per year for the next 100 years?

If you need 61 years wouldn't 1% of principal withdrawn per year be safe?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
MathIsMyWayr
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Re: How to control spending if you only live off of dividends but dividends are uneven?

1. If you worry about the uneven dividends payout over a year, your portfolio is too small to live off dividends.
2. Living off dividends should not be a mathematical statement. It should be a general policy statement instead - to live off dividends as a goal, but sell occasionally if necessary. Dividends tend to grow faster than inflation and your financial situation will get better over time. If you have over 50x, you are there.

None of the withdrawal strategies floating around are not math and they should be considered half-cooked and taken with a grain of salt.
UpperNwGuy
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Re: How to control spending if you only live off of dividends but dividends are uneven?

Don't try to live off the dividends until your portfolio is large enough to generate more dividends than you need. It's really that simple.