Do You Live Off Of Dividends?

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Do you live off of dividends without selling shares?

No, I also have to sell shares for cash.
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No, I also have to sell shares for cash.
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50%
 
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abuss368
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Do You Live Off Of Dividends?

Post by abuss368 » Tue Apr 05, 2011 6:37 am

How many Bogleheads use the dividends and interest their investments generate, combined with a pension or social security and are financially fine without having to sell any shares?

If so, what mutual funds are you presently using to live off the dividends and in which accounts? Any insight would be appreciated.
Last edited by abuss368 on Tue Apr 05, 2011 7:43 am, edited 1 time in total.

Sidney
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Post by Sidney » Tue Apr 05, 2011 6:49 am

By "dividends" do you also mean interest on bonds/funds or are you speaking strictly of equity dividends?
I always wanted to be a procrastinator.

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Taylor Larimore
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Order of withdrawals

Post by Taylor Larimore » Tue Apr 05, 2011 7:02 am

Hi Abuss:

We reduce our portfolio in this manner:

All taxable distributions go into our Money Market fund.

RMDs (Required Minimum Distributions) are taken in December. Vanguard withholds what is necessary for taxes; the rest goes into our Money Market fund.

If necessary, we sell high-basis shares from overweighted funds in our taxable account. Proceeds go into our Money Market fund.

For simplicity and record keeping we use our Money Market fund for all portfolio contributions and withdrawals.
"Simplicity is the master key to financial success." -- Jack Bogle

Grasshopper
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Post by Grasshopper » Tue Apr 05, 2011 8:00 am

Retired 5 years ago age 54, so no SS. I have a Vanguard Advantage account. All proceeds go to MM to pay bills/living expenses.

Taxable account Percentage Yield % Bonds/cash

STAR 48% 2.13 37%
Hi Divid Yield 32% 3.11 0%
Short Term Inv Grade 14% 1.89 100%
MM 6% .05

MM has always had enough to finance expenses. I will take some tax advantaged gain/loss at times.

I pay 0 to very low taxes, so this has worked for me.

2006-2010 my portfolio was 30/70 today 65/35.

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Post by RadAudit » Tue Apr 05, 2011 8:01 am

Abuss - The answer is yes, so far.

Since the withdrawals from the tax advantaged accounts are very small, they go in to the checking account. When they get a little larger, I'll adopt Mr. Larimore's approach.

The bond funds are long, intermediate and short term funds (VBLTX, VBILX, VBIRX) I know I could do the same thing with a total bond fund; but, there is some inertia in my investment selection.

The stock funds are VG total and international stock index funds.

Pretty predestrian stuff. There is no special insight beyond what is readily available from the good folks on this forum.
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Re: Order of withdrawals

Post by staythecourse » Tue Apr 05, 2011 8:13 am

Taylor Larimore wrote:Hi Abuss:

We reduce our portfolio in this manner:

All taxable distributions go into our Money Market fund.

RMDs (Required Minimum Distributions) are taken in December. Vanguard withholds what is necessary for taxes; the rest goes into our Money Market fund.

If necessary, we sell high-basis shares from overweighted funds in our taxable account. Proceeds go into our Money Market fund.

For simplicity and record keeping we use our Money Market fund for all portfolio contributions and withdrawals.
Simple, logical, and efficient. Thanks for the insight.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

ResNullius
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Post by ResNullius » Tue Apr 05, 2011 8:13 am

I only just retired due to health issues at 60, so I'm new to the withdrawal game. For 11 years prior, I had worked part-time from home, earning more than enough to cover our lifestyle and to make significant further contributions to our portfolio. Bottom line: I'm new to the withdrawal game. What I've been doing up to now is to live off SSD and wife's part-time income, supplemented by withdrawals from our taxable MM account. The MM account hold about 6.5% of our overall portfolio, and it shouldn't need to be fed for at least 4 years (and even then it should have at least $100K left in it). In the meantime, I'm just reinvesting dividends, interests, and cap gains in our taxable and tax-deferred portfolio. Does anyone see any real problem with doing this?

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Re: Order of withdrawals

Post by dbr » Tue Apr 05, 2011 8:43 am

Taylor Larimore wrote:Hi Abuss:

We reduce our portfolio in this manner:

All taxable distributions go into our Money Market fund.

RMDs (Required Minimum Distributions) are taken in December. Vanguard withholds what is necessary for taxes; the rest goes into our Money Market fund.
I don't understand. Don't you have to sell shares in your tax deferred accounts in order to fund the RMD, or are you saying enough money has accumulated from dividends and interest to fund the RMD? I would think some investors would have high enough RMD's that much of the distribution would have to be reinvested in assets in the taxable account.

Also isn't the money market fund part of the portfolio, allocated to cash?

Of course, from the point of view of a portfolio, accumulating cash from dividends and interest is nothing other than balancing assets out of equities or bonds into the cash asset class. For those who do not broadly distinguish cash from actual bonds, only the dividends paid by equities enter the calculation.

I suppose the actual question the OP is asking is "Is your withdrawal rate greater or less than the yield on your portfolio?" That question is somewhat meaningless as portfolios can be designed to have quite a range of yield.

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Post by scrabbler1 » Tue Apr 05, 2011 9:00 am

I am 47 and have been ERed for 2 years. I live off dividends from my bond funds, mainly one which invests in corporate bonds at or slightly below investment grade. I have some muni bond funds and a stock mutual fund which generates some dividends as well as a bond fund and a stock in my IRA which reinvest dividends. My dividends exceed my expenses so any excess is reinvested.

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Taylor Larimore
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Answer to questions

Post by Taylor Larimore » Tue Apr 05, 2011 9:55 am

Hi dbr:
I don't understand. Don't you have to sell shares in your tax deferred accounts in order to fund the RMD

Yes. Distributions in tax-advantaged accounts are reinvested (unlike in taxable accounts). For RMDs we sell shares of tax-advantaged funds that have become overweighted.
Also isn't the money market fund part of the portfolio, allocated to cash?
Yes, but we keep our money market fund small in relation to the portfolio. We are purposely downsizing our portfolio by giving to heirs and charity while we are still alive.
"Simplicity is the master key to financial success." -- Jack Bogle

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FabLab
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Re: Do You Live Off Of Dividends?

Post by FabLab » Tue Apr 05, 2011 10:32 am

abuss368 wrote:How many Bogleheads use the dividends and interest their investments generate, combined with a pension or social security and are financially fine without having to sell any shares?

If so, what mutual funds are you presently using to live off the dividends and in which accounts? Any insight would be appreciated.
Hi Abuss,

I know for me the idea of simply living off portfolio yield (dividends & interest) has always held a certain allure. But is its simplicity a bit too deceptive and, therefore, dangerous. I'm sure you have read this piece from Vanguard on the Total Return approach to drawing down one's assets, but for those that haven't .....

https://institutional.vanguard.com/iip/ ... talRet.pdf

Just like you, I am considering best practices to help ensure that our couple of spare dimes last as long as we do. No method has yet been put into practice, however, as my better half remains in the workforce for about another year or so.

I would say that Taylor's elegantly clear and simple process has a certain age context to it, which, of course, applies to some here and not to others in retirement. :D

(Thought I'd edit to make clearer: some retire in their 40s, 50s, 60s, and beyond or, in Mr. Buffett's case, perhaps not until this mortal coil gets shrugged off. So, RMDs may be in order or not. It would be interesting to hear if Taylor's process had gone through modifications as the years passed.)

Cheers & best wishes,
Ron
Last edited by FabLab on Tue Apr 05, 2011 5:51 pm, edited 1 time in total.
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xerty24
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Post by xerty24 » Tue Apr 05, 2011 10:45 am

Perhaps a better question is what it would cost you to sell shares instead of just dividends. Being able to "live off dividends" is certainly nice in that it typically means your expenses are low compared to your retirement portfolio, but many people might want to (or have to) retire with less. Given all the free trades floating around these days, really all you're saving by not selling stock is the spread on the amount you'd sell (~0.1% on a small fraction of your holding), and of course you'll pay the spread on whatever you're left holding eventually when you (or your heirs) eventually decide to sell.

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Post by flowerbuyer » Tue Apr 05, 2011 10:53 am

DH sells overweighted in IRA to meet RMD; used for living expenses.
Income from non-compete agreement supplements our SS income and my small pension.
Interest from tax-exempt bonds and bond funds accumulate in money market and then are mostly reinvested, for now.
Dividends from stock funds accumulate in money market and are reinvested.

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Post by linenfort » Tue Apr 05, 2011 11:13 am

I'm getting there.

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Post by Sidney » Tue Apr 05, 2011 11:18 am

xerty24 wrote: Being able to "live off dividends" is certainly nice in that it typically means your expenses are low compared to your retirement portfolio, but many people might want to (or have to) retire with less.
In very rough terms, living off dividends means a 2% withdrawal rate. It seems many people target a higher withdrawal rate than 2%.
I always wanted to be a procrastinator.

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Post by DriftingDudeSC » Tue Apr 05, 2011 11:29 am

Dividends are a part of my retirement living plan; I also collect my interest, pension and social security.

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Post by cjking » Tue Apr 05, 2011 2:47 pm

xerty24 wrote:Perhaps a better question is what it would cost you to sell shares instead of just dividends. Being able to "live off dividends" is certainly nice in that it typically means your expenses are low compared to your retirement portfolio, but many people might want to (or have to) retire with less. Given all the free trades floating around these days, really all you're saving by not selling stock is the spread on the amount you'd sell (~0.1% on a small fraction of your holding), and of course you'll pay the spread on whatever you're left holding eventually when you (or your heirs) eventually decide to sell.
When you are accumulating, dollar-cost-averaging lowers the average cost of shares you buy. When you are a regular seller you are on the opposite side of this process, the average price you get is lowered because you have to sell more shares when the price is relatively low.

Share price volatility doesn't affect the dividend investor, but it takes real dollars out of the pocket of the regular share seller.

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Post by AzRunner » Tue Apr 05, 2011 3:10 pm

61 year old retiree. I use the total return approach to our portfolio, so I sell shares throughout the year to cover expenses. Like others, I have dividends in our taxable account transferred to our Money Market account. Our taxable account is virtually all equity except the Money Market account. All bonds are in the tax deferred accounts. I recently linked an Ing Orange account to our Vanguard Advantage Checking, so I have a place that earns some interest in the taxable account if the equity market continues to climb.

If we were to get in a situation where I was selling equity to cover expenses during a severe bear market, I would buy similar equity in my tax deferred account.

If we were to enter a significant bull market where I was selling equity to rebalance, then I would need to decide whether to sell non-tax efficient equity in our tax deferred vs. holding short-term bonds in our taxable. I haven't had that issue yet.

Norm

dbr
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Post by dbr » Tue Apr 05, 2011 3:21 pm

In my view there is a portfolio that may earn dividends and interest that become part of the portfolio according to wherever they end up, accumulated in cash or reinvested automatically or manually.

One may take withdrawals from a portfolio by any variety of transactions. One typical transaction would be to transfer money from a money market fund to a checking account, or even by writing a check on the MM fund to pay a bill, such as to pay off a credit card. Another possible transaction sequence would be to sell shares of a stock or bond fund, where the proceeds go into a sweep account, perhaps so or perhaps not the same money market fund previously mentioned. Possibly one could sell shares in a fund by writing a check directly on the fund to pay a bill. Assets in an IRA or 410K might be sold to support an RMD, which would be deposited somewhere, probably in a checking account, but most of that would be redirected back into the money market account and eventually reinvested in assets, if the deposit were not directly to the portfolio money fund in the first place. Within and among all of this the concept that one is "living off the dividends" does not even make sense. There is no accounting that corresponds to such a concept.

It might be that the amount of money withdrawn and spent would be very close in magnitude to dividends and interest paid, but that would be a coincidence rather than a mechanism. For a person spending at a rate less than the yield on the portfolio, expenses would not be equal to dividends. To have what one spends equal to yield paid out would be a contortion act of financial planning I cannot conceive being able to execute. Does one plan spending to be less than yield and then invent ways to blow money at the end to have it come out equal or something?

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Post by CABob » Tue Apr 05, 2011 3:22 pm

Do you live off of dividends without selling shares?
I don't know! Over 80% of my portfolio is in tax deferred accounts and I know that everything coming out of them will be taxed as ordinary income. Therefore, I don't compare my withdrawals to the dividends and interest earned. Obviously, I could easily check it, but, it just doesn't seem significant to me. I also periodically check to verify allocations and in the process see whether to total balance is getting larger or smaller, but, I look at it as a total return situation and the growth vs. dividends are not significant to me.
Bob

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Post by Easy Rhino » Tue Apr 05, 2011 4:38 pm

I'm still very much in the accumulation stage, but last december, annual dividends have come close to covering my basic expenses (rent, bills) for the month.

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Post by dbr » Tue Apr 05, 2011 6:07 pm

Easy Rhino wrote:I'm still very much in the accumulation stage, but last december, annual dividends have come close to covering my basic expenses (rent, bills) for the month.
If you spent your dividends you eviscerated your return and are endangering the growth of your portfolio.

I assume when you say your dividends covered those expenses that means your income was inadequate to cover your expenses and you had to spend dividends to do so. Otherwise, what you are saying makes no sense.

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Leif
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Re: Order of withdrawals

Post by Leif » Tue Apr 05, 2011 7:13 pm

Taylor Larimore wrote:Hi Abuss:

We reduce our portfolio in this manner:

All taxable distributions go into our Money Market fund.

RMDs (Required Minimum Distributions) are taken in December. Vanguard withholds what is necessary for taxes; the rest goes into our Money Market fund.

If necessary, we sell high-basis shares from overweighted funds in our taxable account. Proceeds go into our Money Market fund.

For simplicity and record keeping we use our Money Market fund for all portfolio contributions and withdrawals.
Taylor,

Do you find since retirement that you handle rebalancing differently? I've given this some thought and I not sure I would feel comfortable about rebalancing from cash to equity in a big down market, such as 2008-2009. Without income coming in you would be depleting your spending cash.

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Post by leonard » Tue Apr 05, 2011 7:21 pm

I think we want to spend the incremental dollar that we can access at the lowest marginal tax rate. If that happens to be a dividend, great. But, it might not be. If we focus on getting our return from dividends, that may end up costing more in taxes.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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Post by Sidney » Tue Apr 05, 2011 8:08 pm

dbr wrote:
Easy Rhino wrote:I'm still very much in the accumulation stage, but last december, annual dividends have come close to covering my basic expenses (rent, bills) for the month.
If you spent your dividends you eviscerated your return and are endangering the growth of your portfolio.

I assume when you say your dividends covered those expenses that means your income was inadequate to cover your expenses and you had to spend dividends to do so. Otherwise, what you are saying makes no sense.
I took him to mean that he has reached a point where his assets generate dividends equal (mathematically) to his current outlays -- not that he was consuming them for current spending. Just a mental milestone.
I always wanted to be a procrastinator.

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Taylor Larimore
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Post by Taylor Larimore » Tue Apr 05, 2011 8:20 pm

Hi Leif:
Do you find since retirement that you handle rebalancing differently? I've given this some thought and I not sure I would feel comfortable about rebalancing from cash to equity in a big down market, such as 2008-2009. Without income coming in you would be depleting your spending cash.
Our cash (money market fund) is small and we don't consider it part of our investment portfolio. It's primarily for convenience and in-and-out record keeping on one fund statement. So our rebalancing is primarily between bonds and stocks (not cash).

I have been through more than a dozen bear markets of 20% or more, and have learned the benefit of buying stocks in a bear market. Our asset allocation is 65% bonds/35% stocks. We feel this should be enough bonds to let us sleep well no matter what happens to our stocks.

So, to answer your question, although we have a more conservative stock/bond allocation than when we were younger, we have a plan and we rebalance the same as before.
"Simplicity is the master key to financial success." -- Jack Bogle

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Post by MrMiyagi » Tue Apr 05, 2011 10:37 pm

:shock: @ responses

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Leif
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Post by Leif » Tue Apr 05, 2011 11:03 pm

Thanks Taylor.

I know Jim Otar recommends 2 years in cash. Is there a certain period of time you aim for in your allocation for cash? What if stocks and bonds are down in the same year, do you draw from the least down asset class?

The issue I see with a small cash level is that if you need to draw from a down asset you are essential doing a reverse dollar cost average. You are drawing more shares when asset is down.
Last edited by Leif on Tue Apr 05, 2011 11:13 pm, edited 1 time in total.

dbr
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Post by dbr » Tue Apr 05, 2011 11:03 pm

Sidney wrote:
I took him to mean that he has reached a point where his assets generate dividends equal (mathematically) to his current outlays -- not that he was consuming them for current spending. Just a mental milestone.
Yes, I take it to mean that as well and my point is that as a mental milestone that means absolutely nothing whatsoever.

I could invest in 70% TSM and 30% ST treasuries and have a payout of $12,840 on a million dollar portfolio and cover my rent for a year. I could invest 50% in the high dividend yield index and 50% in corporate high yield bonds and get $44,850 and cover my rent, my food, my health insurance, my utilities, and my whiskey and what would any of that prove except that in one case I am withdrawing about 1.3% and in the other about 4.5% and what are the implications of that?

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Post by Rod Flash » Tue Apr 05, 2011 11:04 pm

This is our plan, which is still in progress. Been retired 5 years, living off cash and dividends so far. Still 11 years away from full SS and 15 years away from any RMDs. So for now, the plan is that we will receive dividends and we will also sell shares to rebalance. Sometimes selling the overweighted asset brings the AA back into balance, so the cash will be used for income purposes. Since the dividends and interest will not quite cover our current withdrawals I guess we're in the no category. Eventually adding in SS and RMDs will push us into the yes category (not selling shares for income).

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Post by AzRunner » Wed Apr 06, 2011 12:18 am

Leif Eriksen asked
Do you find since retirement that you handle rebalancing differently? I've given this some thought and I not sure I would feel comfortable about rebalancing from cash to equity in a big down market, such as 2008-2009. Without income coming in you would be depleting your spending cash.
You explain exactly the situation that I felt back in 2008-09. At first I rebalanced, but then I got to the point where I did not want to sell any more bonds for equity, even given that equity prices were low.

My friend Speedbump 101 showed me information he has from a financial advisor who calls this your core or foundational holding. This is a level of bonds that you need to maintain a standard of living that you do not want to drop below.

Now, in retrospect, ideally I should have had more in bonds going into the severe bear market so that I would have had excess bond holdings that I could have used to buy more equity around March 2009, but that wasn't my situation at the time.

At no point did I feel any compulsion to sell equity back in 2008-9. It's just that I didn't feel it was prudent to invest more money in the market.

Hope this helps.

Norm

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Post by Jacobkg » Wed Apr 06, 2011 1:56 am

I would much rather have to live by selling shares of Berkshire Hathaway paying 0% dividend than live off the dividends from AT&T paying 6% (BRK is more diversified).

While it is nice to be able to live off only dividends, I would not make investment decisions based on trying to meet this goal. There is no inherent advantage to using dividends over selling shares.

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Post by lazyday » Wed Apr 06, 2011 7:21 am

In normal times, I think about returns and spending in the common "total return" way.

But I try to maintain a high enough yield so I could allow all spending to come from dividends, in the event of market panics or a depression. Not extremely high dividends which increase risk--few of my stocks have yield over 3.5%

At one point in the great depression, stocks were down over 80% from the peak, but dividends had only been cut about 40% from peak. (you might say stocks fell three times as far as dividends, to 20 cents on the dollar)
I would rather depend on dividends than selling stocks in extreme market events.

It made me feel a little better about the 2008 panic. Not sure if it helped preserve wealth for me, but I suspect it can reduce risk, vs a lower yield portfolio requiring selling shares in an extended bear.

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Post by magellan » Wed Apr 06, 2011 7:35 am

Leif Eriksen wrote:I know Jim Otar recommends 2 years in cash. Is there a certain period of time you aim for in your allocation for cash?
I sleep better knowing we have enough government guaranteed cash-flow to fund our expenses for 5 years. We do this with an FDIC insured CD ladder. With the ladder at-the-ready, we shouldn't have to sell anything to fund living expenses for several years, even during a worst-case market downturn.

Generally, a ladder of 5-yr CDs will have a yield similar to intermediate bonds, so the cost of this safety net is actually minimal. I do include the ladder in our AA as part of our bond holdings. We've been retired for over 5 years and so far haven't needed any of the CD cash flows. I just roll each rung of the ladder when it matures.

Jim

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Post by Sidney » Wed Apr 06, 2011 7:42 am

dbr wrote:
Sidney wrote:
I took him to mean that he has reached a point where his assets generate dividends equal (mathematically) to his current outlays -- not that he was consuming them for current spending. Just a mental milestone.
Yes, I take it to mean that as well and my point is that as a mental milestone that means absolutely nothing whatsoever.

I could invest in 70% TSM and 30% ST treasuries and have a payout of $12,840 on a million dollar portfolio and cover my rent for a year. I could invest 50% in the high dividend yield index and 50% in corporate high yield bonds and get $44,850 and cover my rent, my food, my health insurance, my utilities, and my whiskey and what would any of that prove except that in one case I am withdrawing about 1.3% and in the other about 4.5% and what are the implications of that?
You don't have to convince me. I dislike dividends.
I always wanted to be a procrastinator.

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Re: Order of withdrawals

Post by ascenzm » Wed Apr 06, 2011 8:09 am

Taylor Larimore wrote:Hi Abuss:

We reduce our portfolio in this manner:

All taxable distributions go into our Money Market fund.

RMDs (Required Minimum Distributions) are taken in December. Vanguard withholds what is necessary for taxes; the rest goes into our Money Market fund.

If necessary, we sell high-basis shares from overweighted funds in our taxable account. Proceeds go into our Money Market fund.

For simplicity and record keeping we use our Money Market fund for all portfolio contributions and withdrawals.
I'm not retired yet, but am working towards FIRE (Financial Independence Retire Early) status. Taylor's recommendation to take all taxable account Vanguard mutual fund dividend/capital gain distributions and direct them into my taxable account Vanguard money market is one of the best pieces of financial advice I have gotten anywhere. I use my Prime MM fund as a conduit between my bank checking account and Vanguard.

Mike
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Post by ascenzm » Wed Apr 06, 2011 8:17 am

dbr wrote:
Easy Rhino wrote:I'm still very much in the accumulation stage, but last december, annual dividends have come close to covering my basic expenses (rent, bills) for the month.
If you spent your dividends you eviscerated your return and are endangering the growth of your portfolio.

I assume when you say your dividends covered those expenses that means your income was inadequate to cover your expenses and you had to spend dividends to do so. Otherwise, what you are saying makes no sense.
I can't speak for Easy Rhino. Could it be that his job income covers his expenses, but that his investments have grown to the level where their dividend income now can almost cover his expenses if he would cease paid employment? That's how I interpret his statement.

Mike
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Post by dbr » Wed Apr 06, 2011 8:43 am

ascenzm wrote:
dbr wrote:
Easy Rhino wrote:I'm still very much in the accumulation stage, but last december, annual dividends have come close to covering my basic expenses (rent, bills) for the month.
If you spent your dividends you eviscerated your return and are endangering the growth of your portfolio.

I assume when you say your dividends covered those expenses that means your income was inadequate to cover your expenses and you had to spend dividends to do so. Otherwise, what you are saying makes no sense.
I can't speak for Easy Rhino. Could it be that his job income covers his expenses, but that his investments have grown to the level where their dividend income now can almost cover his expenses if he would cease paid employment? That's how I interpret his statement.

Mike
Everybody missed the point that I was making a snarky reply to the effect that tabulating whether or not dividends are more, less, or the same in magnitude as one's expenses is an exercise in nonsense.

My apologies to Easy Rhino for hijacking his post to make that point. There is nothing negative about his particular position.

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Allocation and rebalancing.

Post by Taylor Larimore » Wed Apr 06, 2011 10:15 am

Leif Eriksen wrote:Thanks Taylor.

I know Jim Otar recommends 2 years in cash. Is there a certain period of time you aim for in your allocation for cash? What if stocks and bonds are down in the same year, do you draw from the least down asset class?

The issue I see with a small cash level is that if you need to draw from a down asset you are essential doing a reverse dollar cost average. You are drawing more shares when asset is down.
Hi Lief:

We do not really have an allocation to "cash." Our money market account is a "transaction" account" not intended for our permanent asset-allocation (35% stocks/65% bonds).

If stocks and bonds are both down (which is seldom), I accept it.
"Simplicity is the master key to financial success." -- Jack Bogle

Beagler
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Post by Beagler » Wed Apr 06, 2011 10:19 am

dbr wrote: It might be that the amount of money withdrawn and spent would be very close in magnitude to dividends and interest paid, but that would be a coincidence rather than a mechanism.
For some the approach is to reinvest some portion of the dividend stream so that a greater number of shares produces a greater future income stream.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

dbr
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Post by dbr » Wed Apr 06, 2011 10:23 am

Beagler wrote:
dbr wrote: It might be that the amount of money withdrawn and spent would be very close in magnitude to dividends and interest paid, but that would be a coincidence rather than a mechanism.
For some the approach is to reinvest some portion of the dividend stream so that a greater number of shares produces a greater future income stream.
Any failure to reinvest dividends constitutes liquidating principal.

norm
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Post by norm » Wed Apr 06, 2011 10:57 am

I don't live off of my dividends.

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Leif
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Post by Leif » Wed Apr 06, 2011 11:18 am

AzRunner wrote:Leif Eriksen asked
Do you find since retirement that you handle rebalancing differently? I've given this some thought and I not sure I would feel comfortable about rebalancing from cash to equity in a big down market, such as 2008-2009. Without income coming in you would be depleting your spending cash.
You explain exactly the situation that I felt back in 2008-09. At first I rebalanced, but then I got to the point where I did not want to sell any more bonds for equity, even given that equity prices were low.

My friend Speedbump 101 showed me information he has from a financial advisor who calls this your core or foundational holding. This is a level of bonds that you need to maintain a standard of living that you do not want to drop below.

Now, in retrospect, ideally I should have had more in bonds going into the severe bear market so that I would have had excess bond holdings that I could have used to buy more equity around March 2009, but that wasn't my situation at the time.

At no point did I feel any compulsion to sell equity back in 2008-9. It's just that I didn't feel it was prudent to invest more money in the market.

Hope this helps.

Norm
Thanks AZ. This is exactly what I did. I rebalanced on the way down. But, it reached a point where it just felt like continuously catching a falling knife. I was not, nor am I now, retired. I can imagine, however, in retirement, the concern would be multipled.

Yes, in retro, it would have been good to rebalance. But there is no risk in the past. We could have had a Japan scenario, were the market goes down and essentially stays down. For decades...

Bradley
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Post by Bradley » Wed Apr 06, 2011 12:45 pm

Any failure to reinvest dividends constitutes liquidating principal.[/quote]



Do you have a reference for your claim or is it just your opinion?

Bradley

MP173
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Post by MP173 » Wed Apr 06, 2011 2:26 pm

Not retired but am planning for it.

Currently I have about 20 equity stocks that have been purchased since 1995, primarily thru DRP programs. I used excess cash over the years to purchase these stocks, often in $100 - $1000 dribs and drabs, but also taking advantage of low prices to accumulate in larger blocks.

In addition I have tax free muni bond fund (vanguard) and in my tax sheltered qualified accounts I have bond and equity funds.

My plan is to use the dividends from the equities, tax free munis, and other income (farm and real estate) to provide income in addition to SS.

Been lucky, the majority of the holdings have experienced growth in both share price and dividend payouts.

Ed

Sidney
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Post by Sidney » Wed Apr 06, 2011 2:36 pm

Bradley wrote:Any failure to reinvest dividends constitutes liquidating principal.


Do you have a reference for your claim or is it just your opinion?

Bradley[/quote]

Reinvested dividends become principal. Therefore, failure to reinvest reduces the principal that would otherwise exist. The line between principal and income is imaginary.
I always wanted to be a procrastinator.

Beagler
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Post by Beagler » Wed Apr 06, 2011 2:43 pm

Sidney wrote: The line between principal and income is imaginary.
For bonds as well? :D
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

Beagler
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Post by Beagler » Wed Apr 06, 2011 3:13 pm

dbr wrote: To have what one spends equal to yield paid out would be a contortion act of financial planning I cannot conceive being able to execute.
Apparently, the Trinity Study authors believe such financial acrobatics are not only possible, but desirable under certain circumstances:

"In a sustained bear market such as 2008 to early 2009, clients preserve the opportunity for portfolio recovery by reducing withdrawal amounts to no more than the dividend and interest income from the portfolio, thus avoiding the liquidation of shares or bonds at low values."

http://tinyurl.com/3kmvblm
Last edited by Beagler on Wed Apr 06, 2011 3:25 pm, edited 1 time in total.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.

Sidney
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Post by Sidney » Wed Apr 06, 2011 3:19 pm

Beagler wrote:
Sidney wrote: The line between principal and income is imaginary.
For bonds as well? :D
It is for me. Some of my best return over the last couple years was from TIPS. Very little income, huge return.
I always wanted to be a procrastinator.

JDCPAEsq
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Post by JDCPAEsq » Wed Apr 06, 2011 4:14 pm

Sidney wrote:Reinvested dividends become principal. Therefore, failure to reinvest reduces the principal that would otherwise exist. The line between principal and income is imaginary.
This is certainly not true in a trust context. Reinvested income still remains income - it does not become principal.
John

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