Anyone successfully living off dividends & interest?

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StoopieHippo
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Re: Anyone successfully living off dividends & interest?

Post by StoopieHippo »

bampf wrote: Sun Sep 13, 2020 2:23 pm
StoopieHippo wrote: Sat Sep 12, 2020 2:59 pm https://www.mrtakoescapes.com/

~$3mil portfolio for him and his family of 4 live off of dividends entirely.
I read this and it sounds cool. Except, you know, I don't see how it works. Supposedly the car insurance was zero for the month of August. No mention of health insurance for a family of four. $400 for food. Internet at $45. No clothing budget. No school supplies. And you know, he makes an income off his website I think. I am always mystified when folks talk about making it on ~$40K a year with mortgage being $28K.

In fairness I didn't read through more than a few minutes of posts. I like the frugality and I like the practicality. I don't see how you can avoid paying anything to repair the house, save for children's education, repair the car, dentistry and so forth. But, they have a plan and I guess that matters.
I'm not 100% sure but I think his wife works and has insurance for the family. They don't actually live off her earnings though - they're entirely covered by the dividends his investments generate.

They spend about $400/mo on food since he cooks a lot. Not gifts given out, he makes. There's no car insurance or anything because they lump sum it annually, but it is calculated in their spending when it's spent. He adds in school supplies and stuff when they're purchased monthly and straight up says his income for the website is negligible at best. They're just a really REALLY frugal family in a suburb of a HCOL area (Seattle).

Meanwhile, I can't get my food budget under $600 for just myself! ...but I also don't want to cook every day, so there's that :)
rossington
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Re: Anyone successfully living off dividends & interest?

Post by rossington »

illumination wrote: Sun Sep 13, 2020 6:36 pm
Also, some of the comparisons to real estate rentals, to do an apples-to-apples comparison, you'd almost have to look at an index fund and compare what it is paying today in dividend dollars versus the original price. So say VFINX was $35 for a share purchased decades ago, today the dividend pay out is around $5.25 per year each share, so that would mean those original shares are now yielding close to 15% per year in dividends. That's getting closer to a better comparison to someone that bought a rental a long time ago and what's it's getting in rental income today. You just don't see it as cash flowing the same way because the index shares have appreciated along with it. You see a $300 share price and only $5.25 coming out in dividends.
Bingo!
That is what many here don't take into account. The dividends received over many years are part of one's total return whether reinvested or cashed out. The yield is a percentage of what one originally paid for the fund or stock and as/if the yield increases over time... what one is now earning today is a much greater yield than they started with as a percentage of the original price. One's total return is an aggregate of all earnings over time.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Scooter57
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Re: Anyone successfully living off dividends & interest?

Post by Scooter57 »

CyclingDuo wrote: Sun Sep 13, 2020 4:06 pm
Scooter57 wrote: Sun Sep 13, 2020 10:17 amQuality dividend paying stocks have been bid up to very high prices which make it more likely they will decline in the future and which lower the dividend yield to yields that poorly compensate for risk.
You have that backwards, Scooter57. If the share price declines, but the dividend payout stays intact, the yield increases - not decreases, making it an excellent compensation for consideration at the time of taking the risk with a purchase of shares. I like buying dividend stocks when they go on sale like that. 8-)

CyclingDuo
My sentence was clumsily phrased. I meant that the rise in price reduces the yield.

When the price goes down if the dividend declared stays the same, the yield goes up. But sometimes the price goes down because the company has cut the dividend or even, as happened with TJ Maxx (TJX) eliminated it and the dividend-oriented investors flee.

The other thing that happens is that if the price drops dramatically due to something like COVID-19 damaging the business, the yield may become so high that the company take the opportunity to trim it because it will still appeal to investors.

If you just buy funds the actual mechanisms are hidden from you but if you follow some of the stocks that make up the indexes you can see this in action. Right now some REITs look like they are paying very high yields, but that is because they aren't collecting rent and their prices have tanked. Whether they actually will pay those dividends the yield is based on remains to be seen.
aristotelian
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Re: Anyone successfully living off dividends & interest?

Post by aristotelian »

Why are you fixated on dividends? You still need to invest in profitable companies. If BRK.B or AMZN decided to start paying a dividend, it would not become any less risky. The fact that it doesn't pay a dividend now does not mean that the company is riskier. Whether you are spending dividend or capital gains, you are still relying upon the company to be profitable and spending a small percentage of the profits.
Freetime76
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Re: Anyone successfully living off dividends & interest?

Post by Freetime76 »

Anyone successfully living off dividends and interest?
Obviously yes, it’s possible if you have enough invested And/or in combo with your other income sources.

Another data point: My mom draws only dividends, never selling the shares to get money. She likes the simplicity of keeping the same # of shares. She has a lot more money than we do - lol - so I think she can do what she wants without my trying to tell her how to “optimize” it.

From watching her adjust her strategy over the last 13-14 years or so, a few notes:
1. Her total income is <40K, dividends are play money, plus SS and a pension. She has way more than she needs with a paid for house and no other debt.
2. It’s not a set it and forget it strategy. She watches what she’s invested in and makes changes periodically...nothing crazy, but she used to own GE. It’s long gone.
3. I suspect she might switch to a SPIA or more conservative plan once she decides she’s in the elderly category. (After much discussion over bourbon, we determined that she will transition from ‘senior’ to ‘elderly’ when no one is left who is older than her :wink: ).
4. She uses a trusted family advisor and accountant to help keep an eye on things.
5. Retirement spending has dropped over time, while investments have grown (even bleeding off the dividends for spending). Lots of trips and doing things on her bucket list. Now, not so much. We see the same thing with other family.
6. One-time expenses, like a car, house repair, gift to family always come from her saving her extra money. Actually, she doesn’t really save it per sae...it just accumulates because she doesn’t spend it all. And she does pay for LTC insurance. At least a few times during the year, she declares that she has over 12, 13, 23 K between her checking and the account her dividends go into. A good problem to have!
7. The turning point occurred when she sold an investment and paid off her mortgage. I swear money just pools in her accounts. She gives it away to charity, some to family, treats her friends to lunch or tickets to a show...I admire it as a simple way to enjoy her days.
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Abe
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Re: Anyone successfully living off dividends & interest?

Post by Abe »

unbiased wrote: Fri Sep 11, 2020 9:25 pm But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
I was brought up to believe that it is a cardinal sin to spend your principal; however, I am beginning to come around to the concept of total return withdrawals. To be honest, I have a hard time defining principal. Is it the amount of money you start out with or is it the amount of money you start out with plus all the gains that have accumulated over time? At what point is it principal? I've always thought in terms of creating income streams. I bought owner financed mortgages at a discount which did produce high yield income streams. I bought single family houses and rented them out which is another good source of income. I don't have many mortgages anymore, but I still have a few houses. I always thought that when I got older, I would sell my rentals and just live off interest and dividends. Well, I am in my late seventies, so I guess I am old now, but things changed. It's hard to live on interest and dividends anymore. I don't have a 8 figure portfolio, but it's getting close. Our income from Social security plus the income from rental houses produce enough income for my wife and I to pay all our state and federal income taxes (about $25k last year) plus producing enough for us to live on and we still have a little left over. I have never withdrawn a penny from all the other investments we hold (stocks, bonds, cash, etc). So, I guess you could say we are not "eating into principal," it just continues to grow. One way of looking at it is if your portfolio as a whole continues to grow then you are not spending principal no matter how much you withdraw or at least it's going in the right direction. :)
Slow and steady wins the race.
jebmke
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Re: Anyone successfully living off dividends & interest?

Post by jebmke »

If you reinvest a dividend, how long before it is no longer a dividend and becomes principal? :P
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sailaway
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Re: Anyone successfully living off dividends & interest?

Post by sailaway »

jebmke wrote: Mon Sep 14, 2020 5:33 pm If you reinvest a dividend, how long before it is no longer a dividend and becomes principal? :P
It all magically becomes principal on the day you retire!
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willthrill81
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Re: Anyone successfully living off dividends & interest?

Post by willthrill81 »

How did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
000
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Re: Anyone successfully living off dividends & interest?

Post by 000 »

willthrill81 wrote: Mon Sep 14, 2020 6:46 pm How did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?
Eastman Chemical is carrying the portfolio :twisted:
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CyclingDuo
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Re: Anyone successfully living off dividends & interest?

Post by CyclingDuo »

willthrill81 wrote: Mon Sep 14, 2020 6:46 pmHow did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?


I still remember one of the most famous value investors - Bill Nygren of Oakmark Funds - pounding the table on Washington Mutual over and over again on CNBC every time he was on from 1998 until it went bust. :shock:

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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willthrill81
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Re: Anyone successfully living off dividends & interest?

Post by willthrill81 »

CyclingDuo wrote: Mon Sep 14, 2020 8:13 pm
willthrill81 wrote: Mon Sep 14, 2020 6:46 pmHow did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?


I still remember one of the most famous value investors - Bill Nygren of Oakmark Funds - pounding the table on Washington Mutual over and over again on CNBC every time he was on from 1998 until it went bust. :shock:

CyclingDuo
Living on dividends works until it doesn't, like a great many other approaches.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Robert20
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Re: Anyone successfully living off dividends & interest?

Post by Robert20 »

Even if I buy APPLE stock today and keep accumulating till next 30 years (my retirement age), whats the guarantee it will still pay 2-3% dividend and/or company exists at that time?. What if AAPLE becomes like GE in next 10-15 years?.
flaccidsteele
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Re: Anyone successfully living off dividends & interest?

Post by flaccidsteele »

Normchad wrote: Sun Sep 13, 2020 2:37 pm
willthrill81 wrote: Sun Sep 13, 2020 2:17 pm
MathIsMyWayr wrote: Sun Sep 13, 2020 2:13 pm
TheNightsToCome wrote: Sun Sep 13, 2020 11:15 am
MathIsMyWayr wrote: Sat Sep 12, 2020 2:39 pm
I usually associate HNW with successful high earners such as medical doctors. HNW means from around $10MM.
Very few doctors meet this criterion. (I'm a doctor.)
Engineers' (stretch) goal is $5MM and $10MM for doctors. There are two things in favor of medical doctors, higher earnings and (far) more secure employment prospect. Another factor: experience, aka age, also counts favorably for doctors.
The two big hurdles for physicians are huge student loans and the potentially strong motivation to live the very expensive 'doctor's lifestyle'. Many won't reach a zero net worth until they're in their mid 30s, some even later.
They also start earning good money around 30-32. So have fewer years for compounding....

I’d be interested to know what proportion of engineers get to $5M. I won’t, and I make very good money. I just won’t bother working long enough to get there. I seriously doubt that many can get to $5M.
I graduated with an engineering degree

I hit $5m a few years ago

I’m in my 40s and retired

I agree that it wasn’t because of the degree

Many people have $5m. Rare but not crazy rare

Top 1% NW in the 45-49 age category have $10m. 1 person for every 100 I walk past has achieved it. In high population HCOL cities it might be even more

There are a LOT of people with money

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

Post by Tommy »

Problem what I see living from dividends is inflation. Out of 2 - 2.5M portfolio you can safely allocate 5-8% (~100K -200K) invested in high-dividend funds/CEF (JNK, HYDB, etc.) - they paid 5-10%. Spread them equally between 10-20 positions and you can have 10-15 K dividends. From other 95% invested in 60/40 using 3.5% withdrawal (instead of 4%) you can get 70K. 70 + 10 = 87 K. + 2 SS - let say 35-40 K - total around 120K.
High Yield too risky? Yes, but lost everything very unlikely. Even if - it is only 5% from your portfolio. But inflation will decrease your dividends yearly since they are not reinvested. And I anticipate high inflation going forward.
usagi
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Re: Anyone successfully living off dividends & interest?

Post by usagi »

willthrill81 wrote: Mon Sep 14, 2020 6:46 pm How did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?
Cute. One can safely pursue a dividend strategy by selecting a low-cost etf that employs a dividend strategy.

This gets around the issue of one or more once dividend paying stocks ceasing their dividend or going to zero and tanking your portfolio and makes life easy for those who are constitutionally suited to a dividend strategy, I listed three below to illustrate the point.

Schwab U.S. Dividend Equity ETF (SCHD) with a .06% ER 3.22 yield
iShares Core Dividend Growth ETF (DGRO) with a .08% ER 3.40 yield
Vanguard Dividend Appreciation ETF VIG with a .06% ER and 1.72% yield

Each one has a slightly different way of going about stock selection.

For example Vanguard Dividend Appreciation ETF selects companies of any size that has a 10 year plus history of growing their dividends annually. It excludes REITs and LPs).

Schwab;s SCHD has more of a fundamental analysis approach and seeks companies with long histories of paying and raising their dividends that maintain a strong and healthy balance sheet while having an above average dividend yield.

Ishare's DGRO on the other hand uses a series of filters by selecting companies with a record of 5-years of annual dividend growth and then refines it by selecting payout ratios of less than 75% and further refines the selection by eliminating the top 10% of dividend yields in an attempt to avoid companies that may be at risk of cutting their dividend.

Of course there are many other dividend etfs out there, with their own criteria. I highlighted these three not as recommendations as much as they offer 3 different dividend yields and employ very different approaches in their selection.

Many people gravitate to a dividend strategy because it innately appeals to them. The single stock issues can be successfully navigated by selecting a low cost etf, thus avoiding the capital gains issue, allowing the investor to generate cashflow from their portfolio in manner that is easy for them to understand and suits their individual disposition.
Enzo IX
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Re: Anyone successfully living off dividends & interest?

Post by Enzo IX »

flaccidsteele wrote: Mon Sep 14, 2020 11:21 pm
Normchad wrote: Sun Sep 13, 2020 2:37 pm
willthrill81 wrote: Sun Sep 13, 2020 2:17 pm
MathIsMyWayr wrote: Sun Sep 13, 2020 2:13 pm
TheNightsToCome wrote: Sun Sep 13, 2020 11:15 am

Very few doctors meet this criterion. (I'm a doctor.)
Engineers' (stretch) goal is $5MM and $10MM for doctors. There are two things in favor of medical doctors, higher earnings and (far) more secure employment prospect. Another factor: experience, aka age, also counts favorably for doctors.
The two big hurdles for physicians are huge student loans and the potentially strong motivation to live the very expensive 'doctor's lifestyle'. Many won't reach a zero net worth until they're in their mid 30s, some even later.
They also start earning good money around 30-32. So have fewer years for compounding....

I’d be interested to know what proportion of engineers get to $5M. I won’t, and I make very good money. I just won’t bother working long enough to get there. I seriously doubt that many can get to $5M.
I graduated with an engineering degree

I hit $5m a few years ago

I’m in my 40s and retired

I agree that it wasn’t because of the degree

Many people have $5m. Rare but not crazy rare

Top 1% NW in the 45-49 age category have $10m. 1 person for every 100 I walk past has achieved it. In high population HCOL cities it might be even more

There are a LOT of people with money

Image
I'm curious, is that 1% percent chart you posted; the average, median, or entry point to get into the 1% club?

I live in what I consider MCOL area, as I walk around the local Safeway I'm having a hard time imagining that 1 out of 100 in the store is worth that much.
flaccidsteele
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Re: Anyone successfully living off dividends & interest?

Post by flaccidsteele »

Enzo IX wrote: Tue Sep 15, 2020 12:12 am
flaccidsteele wrote: Mon Sep 14, 2020 11:21 pm
Normchad wrote: Sun Sep 13, 2020 2:37 pm
willthrill81 wrote: Sun Sep 13, 2020 2:17 pm
MathIsMyWayr wrote: Sun Sep 13, 2020 2:13 pm
Engineers' (stretch) goal is $5MM and $10MM for doctors. There are two things in favor of medical doctors, higher earnings and (far) more secure employment prospect. Another factor: experience, aka age, also counts favorably for doctors.
The two big hurdles for physicians are huge student loans and the potentially strong motivation to live the very expensive 'doctor's lifestyle'. Many won't reach a zero net worth until they're in their mid 30s, some even later.
They also start earning good money around 30-32. So have fewer years for compounding....

I’d be interested to know what proportion of engineers get to $5M. I won’t, and I make very good money. I just won’t bother working long enough to get there. I seriously doubt that many can get to $5M.
I graduated with an engineering degree

I hit $5m a few years ago

I’m in my 40s and retired

I agree that it wasn’t because of the degree

Many people have $5m. Rare but not crazy rare

Top 1% NW in the 45-49 age category have $10m. 1 person for every 100 I walk past has achieved it. In high population HCOL cities it might be even more

There are a LOT of people with money

Image
I'm curious, is that 1% percent chart you posted; the average, median, or entry point to get into the 1% club?

I live in what I consider MCOL area, as I walk around the local Safeway I'm having a hard time imagining that 1 out of 100 in the store is worth that much.
Entry point into the 1%

You shouldn’t be surprised. There are a lot of people with money. 1% is rare but not ultra rare

Data from 2016 Fed Survey of Consumer Finances (SCF). Current numbers likely skew higher. Data from 2019 SCF hopefully available soon.

https://dqydj.com/net-worth-by-age-calc ... ed-states/
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
anonsdca
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Re: Anyone successfully living off dividends & interest?

Post by anonsdca »

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

But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
A lot of people responding have ignored some key elements of your post. Particularly being "a few years out from retirement" and "you wont have enough money" and "anyone with NOT an 8-figure" portfolio.

These are all very important comments and all fit to my own situation. Several comments have referenced a $2M dollar portfolio which is just not meaningful to your post because I think you know you will never get there in thee allotted time you have, and you are looking at an income based approach rather than a withdrawal approach. This is precisely what I had to grapple with 9 years ago.

I started investing late (2012--with zero/nothing), at 46. I have tried to shove all I could to my investing pursuits and create a decent EF. I am 75% equity, 25% cash (CD) and the income is currently $25,000, or about $2,100 per month. My SS will be approx.$21,000, or $1,750 per month, but I am 55 so still 6 years away from SS.

The reason I chose this strategy is not because I think dividends and interest are magical, or they are free money, it was very simply that I knew I would run out of money. I didn't have 20-30 years to accumulate $2Mm AND further, any selling of assets to live, simply reduces my current/future income. No thanks. Yes, I have been hit with some dividend cuts/suspensions during COVID but I could live with them. Most will be restored and I have continued buying other dividend paying equities all thru COVID.

I am not using it for income now, I just reinvest. All along my plan was to retire abroad (family from another country) so I knew I didn't need much to live well. I could do it now really, but COVID has messed that up currently also.

You need to search other sites. Do some homework. You are not going to get your answers here. This is a great place, but it is not a place that tolerates other investment strategies such as you have asked about. Good luck.
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LilyFleur
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Re: Anyone successfully living off dividends & interest?

Post by LilyFleur »

Normchad wrote: Sun Sep 13, 2020 2:37 pm
willthrill81 wrote: Sun Sep 13, 2020 2:17 pm
MathIsMyWayr wrote: Sun Sep 13, 2020 2:13 pm
TheNightsToCome wrote: Sun Sep 13, 2020 11:15 am
MathIsMyWayr wrote: Sat Sep 12, 2020 2:39 pm
I usually associate HNW with successful high earners such as medical doctors. HNW means from around $10MM.
Very few doctors meet this criterion. (I'm a doctor.)
Engineers' (stretch) goal is $5MM and $10MM for doctors. There are two things in favor of medical doctors, higher earnings and (far) more secure employment prospect. Another factor: experience, aka age, also counts favorably for doctors.
The two big hurdles for physicians are huge student loans and the potentially strong motivation to live the very expensive 'doctor's lifestyle'. Many won't reach a zero net worth until they're in their mid 30s, some even later.
They also start earning good money around 30-32. So have fewer years for compounding....

I’d be interested to know what proportion of engineers get to $5M. I won’t, and I make very good money. I just won’t bother working long enough to get there. I seriously doubt that many can get to $5M.
I have two friends who are retired engineers. They both got laid off before they were ready to retire.
usagi
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Re: Anyone successfully living off dividends & interest?

Post by usagi »

In retrospect, when you consider the title of the OP's thread:
Anyone successfully living off dividends & interest
, it begs consideration of what the word successfully means innately.

To me, in context, successfully, means I can live the life I desire from interest and dividends only, without sacrificing my lifestyle. Given that, my answer is in the affirmative, and with some to spare. While not retired yet, we are in preretirement where we trail out our lifestyle and match it cash flows that already exist in our portfolio. We find we can do so easily, part of the reason is we have a very, very low cost lifestyle that we thoroughly enjoy and happily discovered our expenses would radically plummet in retirement.

In the time we have been trialing retirement, we discovered our actual retirement expense would be roughly 1/2 of what we had previously anticipated. In large part this year has been a game changer, as activities we once enjoyed were sidelined by COVID-19 and we now realize we are unlikely to ever participate in them again; so sort of a case of a permanent substitution effect.

So yes, it can be done, and for some very easily. The issue really comes down to lifestyle. We are fortunate in the fact the things we value most require time and not money. Our finances were further buttressed by the COVID-19 hysteria which ended up have an outsized positive impact by creating permanent reductions to our expenses, while increasing the quality of our life by engaging in cost efficient activities that we never would have considered otherwise.
Last edited by usagi on Tue Sep 15, 2020 3:44 am, edited 1 time in total.
rossington
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Re: Anyone successfully living off dividends & interest?

Post by rossington »

willthrill81 wrote: Mon Sep 14, 2020 6:46 pm How did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?
What is your implication?

How many serious investors who focused on dividend paying stocks at that time do you think held all of the least successful ones and none of the more successful? That's ludicrous.

You have never had a subpar investment??

What about the investor(s) that put 1 million, 2 million or more into JNJ over the last few decades? ....You did not mention them.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
mrekvy491
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Re: Anyone successfully living off dividends & interest?

Post by mrekvy491 »

Possible, but I prefer having few residential RE properties. If the low interest environment persists, people may start thinking that RE is much better than bonds.

All depends on the bank interest and whether Japanization will be the new norm.
TN_Boy
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Re: Anyone successfully living off dividends & interest?

Post by TN_Boy »

anonsdca wrote: Tue Sep 15, 2020 12:27 am
unbiased wrote: Fri Sep 11, 2020 9:25 pm I'm a few years out from retirement and am exploring a bunch of different portfolio strategies. I won't have enough money to just dump it in a bond fund (unless it's some volatile CEF) and "live off the interest" like our grandparents did. I've run the numbers every which way and in this low-interest rate environment it just won't work. I mean, it could work for maybe a few years or even a decade, but after 20 years inflation will likely require me a regular diet of cat food.

But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
A lot of people responding have ignored some key elements of your post. Particularly being "a few years out from retirement" and "you wont have enough money" and "anyone with NOT an 8-figure" portfolio.

These are all very important comments and all fit to my own situation. Several comments have referenced a $2M dollar portfolio which is just not meaningful to your post because I think you know you will never get there in thee allotted time you have, and you are looking at an income based approach rather than a withdrawal approach. This is precisely what I had to grapple with 9 years ago.

I started investing late (2012--with zero/nothing), at 46. I have tried to shove all I could to my investing pursuits and create a decent EF. I am 75% equity, 25% cash (CD) and the income is currently $25,000, or about $2,100 per month. My SS will be approx.$21,000, or $1,750 per month, but I am 55 so still 6 years away from SS.

The reason I chose this strategy is not because I think dividends and interest are magical, or they are free money, it was very simply that I knew I would run out of money. I didn't have 20-30 years to accumulate $2Mm AND further, any selling of assets to live, simply reduces my current/future income. No thanks. Yes, I have been hit with some dividend cuts/suspensions during COVID but I could live with them. Most will be restored and I have continued buying other dividend paying equities all thru COVID.

I am not using it for income now, I just reinvest. All along my plan was to retire abroad (family from another country) so I knew I didn't need much to live well. I could do it now really, but COVID has messed that up currently also.

You need to search other sites. Do some homework. You are not going to get your answers here. This is a great place, but it is not a place that tolerates other investment strategies such as you have asked about. Good luck.
Could you point us to other sites that offer better analysis of retirement planning than this one? Bogleheads is a very informative site with advice ranging from very basic to extremely sophisticated.

I'm not following your comment about posters not reading the post. The OP stated they wanted a portfolio to fund retirement AND retain value throughout retirement years. We understand the OP is not retired yet; hence the suggestions on ways to make the portfolio bigger or reduce expenses.

First, whether your portfolio is 100k or 10M, there are guidelines/strategies, etc on how much money you can pull from that portfolio without running out of money during retirement. Note that most/all of the safe withdrawal strategy rate (SWR) studies I've seen use a total return strategy when investigating how much can be withdrawn. It would probably be a good idea for the OP to search out some of those studies. All these studies use as a baseline the idea of how much can you withdraw AND adjust for inflation (inflation adjustment being a key part of the OPs request).

Second, adding a requirement that a portfolio retain its value throughout retirement places an additional burden upon the investments, reducing what you can safely pull.

Third, obviously the requirement "meet all expenses" depends upon what $$ you need to draw from the portfolio. If you need 50k a year in retirement, and your SS and maybe a pension provides 40k, then your investments need only supply 10k per year. You don't need a huge portfolio to support 10k a year (though again, the OP wants that portfolio to retain its value).

Unless the OP (or any other person worried about portfolio sustainability) knows what how much they need from that portfolio in retirement, its pointless worrying about withdrawal strategies.

Fourth, most of the posters here argue that total return thinking, versus an interest/dividends focus, is better than an income focused strategy. And it doesn't matter what withdrawal rate you want, thinking total return is a better strategy. I gather that is your main difference with the suggestions in this thread.

The OP can wade into the many many threads we've had on dividend investing on this board. Those threads include pointers to sites which espouse the joys of dividend focused investing. And pointers to SWR studies.

A dividend focused strategy is not going to allow you to pull more money from a portfolio than a total return strategy (nor will it allow you to accumulate money faster). Dividend strategies may force you into a variable amount, low withdrawal rate strategy that is not always adjusted for inflation. Which, you know, can preserve the portfolio, but may or may not be really what you want.
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Re: Anyone successfully living off dividends & interest?

Post by TN_Boy »

usagi wrote: Tue Sep 15, 2020 1:02 am In retrospect, when you consider the title of the OP's thread:
Anyone successfully living off dividends & interest
, it begs consideration of what the word successfully means innately.

To me, in context, successfully, means I can live the life I desire from interest and dividends only, without sacrificing my lifestyle. Given that, my answer is in the affirmative, and with some to spare. While not retired yet, we are in preretirement where we trail out our lifestyle and match it cash flows that already exist in our portfolio. We find we can do so easily, part of the reason is we have a very, very low cost lifestyle that we thoroughly enjoy and happily discovered our expenses would radically plummet in retirement.

In the time we have been trialing retirement, we discovered our actual retirement expense would be roughly 1/2 of what we had previously anticipated. In large part this year has been a game changer, as activities we once enjoyed were sidelined by COVID-19 and we now realize we are unlikely to ever participate in them again; so sort of a case of a permanent substitution effect.

So yes, it can be done, and for some very easily. The issue really comes down to lifestyle. We are fortunate in the fact the things we value most require time and not money. Our finances were further buttressed by the COVID-19 hysteria which ended up have an outsized positive impact by creating permanent reductions to our expenses, while increasing the quality of our life by engaging in cost efficient activities that we never would have considered otherwise.
It just depends upon what % you need from that portfolio. Unless the OP has a handle on that number, no way to tell what shape they are in.

So rather than saying "I can cut back expenses until I feel safe" I prefer to say "I'd like $X yearly from my investments to live my desired lifestyle." Then see if $X is realistic.

(Somewhat of a tangent ....) like most folks, covid has heavily affected our lives. But we assume that this is not a permanent change; in a year or two, life will be more like 2019 than 2020.

Thus we expect our expenses to return to 2019 levels and our planning reflects that.
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Re: Anyone successfully living off dividends & interest?

Post by dbr »

TN_Boy wrote: Tue Sep 15, 2020 8:28 am

First, whether your portfolio is 100k or 10M, there are guidelines/strategies, etc on how much money you can pull from that portfolio without running out of money during retirement. Note that most/all of the safe withdrawal strategy rate (SWR) studies I've seen use a total return strategy when investigating how much can be withdrawn. It would probably be a good idea for the OP to search out some of those studies. All these studies use as a baseline the idea of how much can you withdraw AND adjust for inflation (inflation adjustment being a key part of the OPs request).

I would probably suggest that SWR studies don't use a total return strategy. They do total return accounting. That is because you can't answer the SWR question without starting with a concept of return. A person can use a dividend strategy for investing and then do total return accounting to see if it will work. The answer is that dividend investing strategy does work if the resulting rate of withdrawal is low enough and risk is not too high from being concentrated in a few investments, some of which end up failing spectactularly (or don't fail and then it works). A dividend strategy that picks the wrong assets based on high payouts probably will fail, but you only know that by doing total return accounting.

The main reason to not follow a dividend investing strategy is that it is illogical and requires more engineering to create payouts that work and meet a person's needs effectively. Simply investing in a diversified portfolio of stocks and bonds and taking withdrawals that one can calculate to be sustainable and then being flexible is simpler, logical, and effective.
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Re: Anyone successfully living off dividends & interest?

Post by willthrill81 »

rossington wrote: Tue Sep 15, 2020 3:10 am
willthrill81 wrote: Mon Sep 14, 2020 6:46 pm How did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?
What is your implication?
The implication is that dividends alone are not necessarily enough. Presumably, investors like this strategy because they (erroneously) believe their capital to be only their number of shares (rather than the market value of all their shares), causing them to believe that selling shares means that they are setting themselves up to potentially go broke, whereas they believe that to be impossible by only spending dividends.

I offered admittedly extreme examples to demonstrate one of the flaws of that strategy (i.e. the company paying the dividends can go bankrupt). But it's far more likely, even for those who own diversified funds paying high dividends, that those dividends will be reduced significantly at some point along the way, which we saw happen a decade ago.

Karsten from Early Retirement Now has a great post on the 'spend dividends' approach. He showed one instance where it actually would have increased sequence of returns risk. But at a core level, the graphics below he created demonstrate the flaw that's present in much of the thinking regarding dividends being innately superior to capital appreciation.

Image

Image
https://earlyretirementnow.com/2019/02/ ... s-part-29/
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Re: Anyone successfully living off dividends & interest?

Post by CyclingDuo »

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

But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
OP, you never really came back to answer some basic questions that many have raised here.

How large is your portfolio?
How much SS or other streams of income will you receive?
How much income does your portfolio need to produce to cover your annual expenses beyond any other streams of income you will have?
Would you prefer this income paid out weekly, monthly, quarterly, annually?

Without an idea of some figures, it is hard for anyone to provide an answer that addresses your particular needs.

In terms of some resources regarding dividends...

https://www.dripinvesting.org/tools/tools.asp
https://dividendstocks.cash/dividend-calendar

Boglehead forum member, Bruce Miller is also a good resource to tap into both through his book and here is an interview with him about his book:

https://www.youtube.com/watch?v=kwSaolUkXQQ

Regarding your mention of grandparents...

grandparents

It is important to remember when speaking of those that came before us. Be it parents, grandparents, great grandparents, etc... . In the US, life expectancy was 29 in 1800, 68 in 1950, and our current 78-79 in today's world. It's very important to include health, diet, and exercise into one's planning for retirement - starting way back in decades if one is planning for it all correctly. Those that came before us didn't have quite as much planning to concern themselves with regarding longevity and building up retirement accounts to cover annual expenses. :shock:

Image

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Re: Anyone successfully living off dividends & interest?

Post by TN_Boy »

dbr wrote: Tue Sep 15, 2020 9:23 am
TN_Boy wrote: Tue Sep 15, 2020 8:28 am

First, whether your portfolio is 100k or 10M, there are guidelines/strategies, etc on how much money you can pull from that portfolio without running out of money during retirement. Note that most/all of the safe withdrawal strategy rate (SWR) studies I've seen use a total return strategy when investigating how much can be withdrawn. It would probably be a good idea for the OP to search out some of those studies. All these studies use as a baseline the idea of how much can you withdraw AND adjust for inflation (inflation adjustment being a key part of the OPs request).

I would probably suggest that SWR studies don't use a total return strategy. They do total return accounting. That is because you can't answer the SWR question without starting with a concept of return. A person can use a dividend strategy for investing and then do total return accounting to see if it will work. The answer is that dividend investing strategy does work if the resulting rate of withdrawal is low enough and risk is not too high from being concentrated in a few investments, some of which end up failing spectactularly (or don't fail and then it works). A dividend strategy that picks the wrong assets based on high payouts probably will fail, but you only know that by doing total return accounting.

The main reason to not follow a dividend investing strategy is that it is illogical and requires more engineering to create payouts that work and meet a person's needs effectively. Simply investing in a diversified portfolio of stocks and bonds and taking withdrawals that one can calculate to be sustainable and then being flexible is simpler, logical, and effective.
I think I am missing the point of your post here.

As I understood it, the studies say well, let us assume the portfolio had 1M at the start of the year. We withdraw (for example) 4% from the portfolio balance. We rebalance. Then every year, we adjust for inflation, then withdraw the appropriate amount - 4% of the original portfolio value plus correct inflation adjustments.

So, the assumed withdrawal doesn't break out capital gains, interest, dividends .... it just reduces the portfolio value by a certain amount, the "strategy" being that withdrawals are taken from the portfolio balance without targeting particular components of that balance (that said, I suppose it is true that some more detailed strategies do try and take withdrawals from just bonds, etc). But the classic "what % can you take and adjust for inflation" just pull from the portfolio and rebalance.

Thus I said it uses "total return" and you are saying it's "total return accounting" and I confess to not understanding the subtle point you are making into how the studies should be considered :-). What the studies generally do not do is try and figure out what happened if you just withdrew dividends and interest, etc.

And of course I agree with the reasoning on why a dividend investing strategy is probably not a great idea. Though I also think for people with large portfolios and small withdrawal rates, it can work just fine. You can do better, but maybe you don't need to. I'm not hostile to "dividend investing" I just think it is not optimal. And it's really not optimal if you start contorting the portfolio reaching for yield.
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Re: Anyone successfully living off dividends & interest?

Post by willthrill81 »

CyclingDuo wrote: Tue Sep 15, 2020 9:42 am It is important to remember when speaking of those that came before us. Be it parents, grandparents, great grandparents, etc... . In the US, life expectancy was 29 in 1800, 68 in 1950, and our current 78-79 in today's world.
That's true but not particularly relevant for retirement planning. Most of the big improvements in life expectancy have come from greatly reducing the incidence of childhood deaths. Those who are elderly have not gained nearly as much life expectancy over the last 160+ years. As the graph below indicates, the life expectancy of a 70 year old in England and Wales in 1850 was 79. In 2013, that same life expectancy was 86, and virtually all of that additional life expectancy has come since 1950 (i.e. it was almost unchanged frrom 1850 to 1950). So even if life expectancy continues to increase at the same rate as it has since 1950, in another 50 years the life expectancy of those who are 70 will increase from 86 to 91.

Image
https://ourworldindata.org/life-expectancy
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Re: Anyone successfully living off dividends & interest?

Post by dbr »

TN_Boy wrote: Tue Sep 15, 2020 10:01 am

Thus I said it uses "total return" and you are saying it's "total return accounting" and I confess to not understanding the subtle point you are making into how the studies should be considered :-). What the studies generally do not do is try and figure out what happened if you just withdrew dividends and interest, etc.

Yes and no. Most SWR studies don't include a database of historical dividends and interest and use that as the withdrawal. An SWR study could do that, though, if a person wanted to do the work to find the data. As to modeling the future, a user of an SWR based model can certainly decide to spend only dividends and interest, figure out what that amount is, and enter it as the spending in the model. If I were 100% invested in VTI and wanted to know how well I would do in retirement and I am using FireCalc to do it and I had $1M invested, I would note that the current dividend is about 2% or $20,000/year and I would enter that as planned spending. It is reasonable to assume stock dividends would increase with inflation. I would get the result that a 2% withdrawal rate on a 100% stock allocation can't fail. That would answer the question whether not one can retire on dividends only using dividend investing to set withdrawals and total return to do the accounting to find out what is going to happen. The problem is more subtle if I want to worry about what dividends would be in the future. In the past stocks have returned as much as 4%, and if you put that in the answer would be closed to getting some chance of failure. A person could use a Monte Carlo simulation for the dividends if one has a guess of some range within which they might vary. That would probably do a better job of keeping track of the actual withdrawal in dollars. But the method of accounting in the MC is total return while the investing plan is invest in 100% stocks and spend the dividends.

I had another example of seeing what would happen to a retirement using dividend investing in junk bonds VWEHX over the last forty years and you find using total return accounting that the withdrawals in the form of dividends exceeded the return of the fund most of the time resulting in both the portfolio and the income plummeting to near zero, a failed retirement. The investing method setting the withdrawal rate was dividend investing but total return accounting was used to see what happened.

Setting up a portfolio and determining a withdrawal rate from an SWR study uses total return accounting to establish that the plan will or won't work, but an SWR study does not say anything about what investments are selected. It is not an investment strategy at all. For example, I could use a small cap value tilt, or I could invest in a permanent portfolio of gold, long treasuries, etc. and then I would use total return accounting to see what the prospects might be for different withdrawal rates. I could even select funds of high dividend stocks, which would be dividend investing strategy and the use total return accounting to show that for the same withdrawal rate high dividend stocks and the total stock market produce about the same result.

A different alternative would be to set up a ladder of TIPS. The investment strategy would be the liability matching portfolio with the withdrawal rate set at what is recovered as each rung on the ladder matures. The account for that is based on the return of the face value of each bond plus the return set by the coupon on the bond and the premium or discount at purchase, a total return model. From the total return accounting one can show that the withdrawal rate you will get ranges from 3.1% when the bonds are bought at a real yield of -0.5% to 4.1% at a real yield of 1.5%. So again there is an investment strategy and an accounting method that shows what is going to (or did) happen. The accounting method has to include the return on the investment.
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Re: Anyone successfully living off dividends & interest?

Post by ChinchillaWhiplash »

Simple formula. 25x living expenses portfolio and around 4% in dividend/interest yields gives you enough to retire. Might be hard to get this in the future but Vanguard high yield index funds VYM and VYMI both currently pay over 3% in dividends. Combine that with EM bond fund or some other volatile asset class that throws off higher yields and you can have what you want. Might not be the best way to get there, but it will definitely work. There also a lot of crazy CEF Income funds that throw off huge dividends (a lot use leverage and ROC) :moneybag
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Re: Anyone successfully living off dividends & interest?

Post by sperry8 »

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

But just out of curiosity, anyone with a NON 8-figure portfolio actually create a stream of income that allows them to (1) meet all expenses and (2) keep up with inflation -- all without eating into principal or using capital gains for your withdrawal strategy? If so, how the heck did you do it?
I'm not sure why you are not desiring to use capital gains for withdrawal strategy. Including them allows for a non-8 figure portfolio to achieve your goals.

For example, I began my retirement in 2007 with a portfolio of ~$5mm. I invested 80% into stocks and the remaining 20% into cash/CDs/money markets/tiny portion of bonds. I did not reinvest dividends, interest income, or capital gains. I "lived" off of them. Inclusive of all of my earned dividends, interest income, or capital gains I earned a 3.32% yield on my total portfolio since 2007. That gave me ~$175,000 per year to live off of (not including SS as I am not yet eligible for SS). Including taxes, I spent just shy of the yield earned, 3.28%. As long as one spends shy of the yield earned and as long as global stocks don't enter a Japanese crash and subsequent L... one will have a growing portfolio over time, even though they are not reinvesting capital gains (or dividends). I have never sold one stock to spend (only sales for tax loss harvesting and subsequent rebalancing).

I have been doing this for just ~13 years. 13 years later my total portfolio is up ~40%, and this includes living/spending the $175,000 per year. Due to unrealized capital gains (i.e., the NAV of my portfolio went up). Notice my total portfolio went up even though my stock net worth dropped ~50% in the first few years (i.e., even with a poor sequence of returns event happening immediately after retirement). So you can see, if I didn't desire the chance at a growing portfolio I could've even spent more. Depending on your spend requirements, one can live off a mid-seven figure portfolio "grandparents" style.
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Re: Anyone successfully living off dividends & interest?

Post by TN_Boy »

dbr wrote: Tue Sep 15, 2020 10:24 am
TN_Boy wrote: Tue Sep 15, 2020 10:01 am

Thus I said it uses "total return" and you are saying it's "total return accounting" and I confess to not understanding the subtle point you are making into how the studies should be considered :-). What the studies generally do not do is try and figure out what happened if you just withdrew dividends and interest, etc.

Yes and no. Most SWR studies don't include a database of historical dividends and interest and use that as the withdrawal. An SWR study could do that, though, if a person wanted to do the work to find the data. As to modeling the future, a user of an SWR based model can certainly decide to spend only dividends and interest, figure out what that amount is, and enter it as the spending in the model. If I were 100% invested in VTI and wanted to know how well I would do in retirement and I am using FireCalc to do it and I had $1M invested, I would note that the current dividend is about 2% or $20,000/year and I would enter that as planned spending. It is reasonable to assume stock dividends would increase with inflation. I would get the result that a 2% withdrawal rate on a 100% stock allocation can't fail. That would answer the question whether not one can retire on dividends only using dividend investing to set withdrawals and total return to do the accounting to find out what is going to happen. The problem is more subtle if I want to worry about what dividends would be in the future. In the past stocks have returned as much as 4%, and if you put that in the answer would be closed to getting some chance of failure. A person could use a Monte Carlo simulation for the dividends if one has a guess of some range within which they might vary. That would probably do a better job of keeping track of the actual withdrawal in dollars. But the method of accounting in the MC is total return while the investing plan is invest in 100% stocks and spend the dividends.

I had another example of seeing what would happen to a retirement using dividend investing in junk bonds VWEHX over the last forty years and you find using total return accounting that the withdrawals in the form of dividends exceeded the return of the fund most of the time resulting in both the portfolio and the income plummeting to near zero, a failed retirement. The investing method setting the withdrawal rate was dividend investing but total return accounting was used to see what happened.

Setting up a portfolio and determining a withdrawal rate from an SWR study uses total return accounting to establish that the plan will or won't work, but an SWR study does not say anything about what investments are selected. It is not an investment strategy at all. For example, I could use a small cap value tilt, or I could invest in a permanent portfolio of gold, long treasuries, etc. and then I would use total return accounting to see what the prospects might be for different withdrawal rates. I could even select funds of high dividend stocks, which would be dividend investing strategy and the use total return accounting to show that for the same withdrawal rate high dividend stocks and the total stock market produce about the same result.

A different alternative would be to set up a ladder of TIPS. The investment strategy would be the liability matching portfolio with the withdrawal rate set at what is recovered as each rung on the ladder matures. The account for that is based on the return of the face value of each bond plus the return set by the coupon on the bond and the premium or discount at purchase, a total return model. From the total return accounting one can show that the withdrawal rate you will get ranges from 3.1% when the bonds are bought at a real yield of -0.5% to 4.1% at a real yield of 1.5%. So again there is an investment strategy and an accounting method that shows what is going to (or did) happen. The accounting method has to include the return on the investment.
Umm, probably still missing part of your point. For example, the SWR studies most certainly do say something about the investments selected (mostly S&P 500, with different bond portfolios tried in different studies). Among other things, we have the best data with the broad market index es (whether to use historical info, or to feed a monte carlo simulation).

Also, we are all aware of this, but sometimes new comers are not, the classic studies do something like pick a percent (3%, 4%, whatever) and see the survival rate for 30 year retirement, adjusting for inflation each year. Thus you have a constant (in real dollars) withdrawal. Yes, there are variable withdrawal strategies out there.

But a strategy based on dividends can't assume constant withdrawals. Dividends can vary. It's not a constant withdrawal. Nor can you assume that dividends will keep with inflation. Structurally, companies pay lower dividends than they used to. So my point is that I believe there is much less data available on how a dividend/interest only withdrawal method compares to those using total returns. You could concoct one -- and maybe somebody can refer me to some good ones -- but I think there is less data there on such an approach.
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Re: Anyone successfully living off dividends & interest?

Post by usagi »

willthrill81 wrote: Tue Sep 15, 2020 10:12 am
CyclingDuo wrote: Tue Sep 15, 2020 9:42 am It is important to remember when speaking of those that came before us. Be it parents, grandparents, great grandparents, etc... . In the US, life expectancy was 29 in 1800, 68 in 1950, and our current 78-79 in today's world.
That's true but not particularly relevant for retirement planning. Most of the big improvements in life expectancy have come from greatly reducing the incidence of childhood deaths. Those who are elderly have not gained nearly as much life expectancy over the last 160+ years. As the graph below indicates, the life expectancy of a 70 year old in England and Wales in 1850 was 79. In 2013, that same life expectancy was 86, and virtually all of that additional life expectancy has come since 1950 (i.e. it was almost unchanged frrom 1850 to 1950). So even if life expectancy continues to increase at the same rate as it has since 1950, in another 50 years the life expectancy of those who are 70 will increase from 86 to 91.

Image
https://ourworldindata.org/life-expectancy
I was going to make the same point. Another factor is (depending on your age) that your grandparents were very unlikely to have access to the markets like we do today. Commissions on stocks and bonds, round lot rules, loads, etc, made it very difficult for the "common man" to build a portfolio for retirement. Most people's retirement plan were their children. If you go back further in time you will see wills were often written with a condition that the inheriting child provide for the surviving parent or parents as land was the most common asset (talking state side).

Our recent access to the securities markets had been quite the revolution enabling not only more accessible forms of retirement security but the easy passage of wealth between generations. Moreover it has enabled the adept a very transparent and easy journey to planned early retirement.

Steering this back to the OP's post, the commission factor is one reason that people think in terms of living off of dividends and interest from securities. In the past it was very cost ineffective to sell securities to meet living expenses given the price of a transaction and the impetus to sell round lots. So people had a vision implanted in their head of living off the cashflow produced by assets verses liquidating a portion of the assets.
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Re: Anyone successfully living off dividends & interest?

Post by dbr »

TN_Boy wrote: Tue Sep 15, 2020 11:49 am
Umm, probably still missing part of your point. For example, the SWR studies most certainly do say something about the investments selected (mostly S&P 500, with different bond portfolios tried in different studies). Among other things, we have the best data with the broad market index es (whether to use historical info, or to feed a monte carlo simulation).

Also, we are all aware of this, but sometimes new comers are not, the classic studies do something like pick a percent (3%, 4%, whatever) and see the survival rate for 30 year retirement, adjusting for inflation each year. Thus you have a constant (in real dollars) withdrawal. Yes, there are variable withdrawal strategies out there.

But a strategy based on dividends can't assume constant withdrawals. Dividends can vary. It's not a constant withdrawal. Nor can you assume that dividends will keep with inflation. Structurally, companies pay lower dividends than they used to. So my point is that I believe there is much less data available on how a dividend/interest only withdrawal method compares to those using total returns. You could concoct one -- and maybe somebody can refer me to some good ones -- but I think there is less data there on such an approach.
I don't think you are missing anything really. There is less here than meets the eye. I just don't like the language. Dividend investing is definitely an investment strategy. Total return might be thought by some to be a strategy, but I prefer for the lesson to be that total return is how you know what is going on with any strategy. It might be that the confusion is that once one thinks in terms of using the ideas of return to analyze the problem it becomes evident that dividend investing is an incomplete strategy that may or may not work out. The next step is to say that

not-dividend-investing = total-return-investing

and I don't agree with that. There are lots of investing strategies that are not dividend investing, such as total market investing with arbitrary withdrawals, such as tilted portfolios with arbitrary withdrawals, such as liability matching portfolios with withdrawals matched by assets, such as buying an annuity (which is a method that finesses return away), such as investing in real estate (which in the end uses in effect a return model but is more complicated due to the transactions involving mortgages, rents, and maintenance), to investing in a business partnership (which then uses the applications of return appropriate to business partnerships), to spending away or never accumulating any assets (which also finesses away return in favor of social entitlements), and so on.
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Re: Anyone successfully living off dividends & interest?

Post by willthrill81 »

usagi wrote: Tue Sep 15, 2020 11:59 am Our recent access to the securities markets had been quite the revolution enabling not only more accessible forms of retirement security but the easy passage of wealth between generations. Moreover it has enabled the adept a very transparent and easy journey to planned early retirement.

Steering this back to the OP's post, the commission factor is one reason that people think in terms of living off of dividends and interest from securities. In the past it was very cost ineffective to sell securities to meet living expenses given the price of a transaction and the impetus to sell round lots. So people had a vision implanted in their head of living off the cashflow produced by assets verses liquidating a portion of the assets.
That's a very good point.

Also, living off dividends was easier decades ago when dividend yields were much higher than they are now.
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Re: Anyone successfully living off dividends & interest?

Post by Wrench »

willthrill81 wrote: Tue Sep 15, 2020 9:38 am
rossington wrote: Tue Sep 15, 2020 3:10 am
willthrill81 wrote: Mon Sep 14, 2020 6:46 pm How did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?
What is your implication?
The implication is that dividends alone are not necessarily enough. Presumably, investors like this strategy because they (erroneously) believe their capital to be only their number of shares (rather than the market value of all their shares), causing them to believe that selling shares means that they are setting themselves up to potentially go broke, whereas they believe that to be impossible by only spending dividends.
<snip>
If you believe the many authors on seekingalpha.com promoting buying dividend paying stocks the reason to be a "dividend" investor is because those companies that have high dividends and have consistently grown them over a long period of time have had superior performance relative to the S&P 500. At least that's the way I understand their arguments. So the idea seems to be you can have your cake and eat it to. Live off the dividends and the underlying portfolio grows because the companies earnings grow too. I have not really looked into it to see if that's true because even it it were true, I have no interest in trying to build a portfolio of 25-50 stocks and then managing it to add/remove candidates over time. WAY too much work for me.

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Re: Anyone successfully living off dividends & interest?

Post by willthrill81 »

Wrench wrote: Tue Sep 15, 2020 1:08 pm
willthrill81 wrote: Tue Sep 15, 2020 9:38 am
rossington wrote: Tue Sep 15, 2020 3:10 am
willthrill81 wrote: Mon Sep 14, 2020 6:46 pm How did the people who lived off dividends from Kodak, Radio Shack, Enron, Washington Mutual, Pan Am, Polaroid, and Sears come out? As long as they still have their stock certificates, they're okay, right?
What is your implication?
The implication is that dividends alone are not necessarily enough. Presumably, investors like this strategy because they (erroneously) believe their capital to be only their number of shares (rather than the market value of all their shares), causing them to believe that selling shares means that they are setting themselves up to potentially go broke, whereas they believe that to be impossible by only spending dividends.
<snip>
If you believe the many authors on seekingalpha.com promoting buying dividend paying stocks the reason to be a "dividend" investor is because those companies that have high dividends and have consistently grown them over a long period of time have had superior performance relative to the S&P 500. At least that's the way I understand their arguments. So the idea seems to be you can have your cake and eat it to. Live off the dividends and the underlying portfolio grows because the companies earnings grow too. I have not really looked into it to see if that's true because even it it were true, I have no interest in trying to build a portfolio of 25-50 stocks and then managing it to add/remove candidates over time. WAY too much work for me.

Wrench
Except that the historic data show that there was no alpha for dividend stocks. They did outperform the broad market somewhat, but this was explained by their value tilt.
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Re: Anyone successfully living off dividends & interest?

Post by unbiased »

sperry8 wrote: Tue Sep 15, 2020 11:22 am
I'm not sure why you are not desiring to use capital gains for withdrawal strategy. Including them allows for a non-8 figure portfolio to achieve your goals.
Thanks for sharing your experience--I really appreciate hearing the personal stories from those succeeding in their retirement strategy. Like I mentioned, I'm exploring a bunch of options and I'm definitely not opposed to a "non-focused-on-dividends" (i.e. total return) strategy.

However, in exploring retirement strategies, I'm certainly attracted to the idea of creating a (relatively) lower maintenance passive income stream. Not only does this take some of the guesswork out of "should I sell now?" And coming up with withdrawal strategies to match market conditions, or making potentially costly rebalancing decisions to "fund" my expenses, I get the added bonus of a portfolio that my SO could ease into with the piece of mind that income will be coming in my absence. But since I can't make the math work in this low-yield environment, I was wondering if I had missed something or if others had been able to get this to work for them in a dividend/interest focused strategy.

At the end of all this research and discussion, I might go a different way. But hearing from the smart people here I consider part of my due diligence (among other steps) to solidify my plan.
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Re: Anyone successfully living off dividends & interest?

Post by sperry8 »

unbiased wrote: Tue Sep 15, 2020 2:56 pm
sperry8 wrote: Tue Sep 15, 2020 11:22 am
I'm not sure why you are not desiring to use capital gains for withdrawal strategy. Including them allows for a non-8 figure portfolio to achieve your goals.
Thanks for sharing your experience--I really appreciate hearing the personal stories from those succeeding in their retirement strategy. Like I mentioned, I'm exploring a bunch of options and I'm definitely not opposed to a "non-focused-on-dividends" (i.e. total return) strategy.

However, in exploring retirement strategies, I'm certainly attracted to the idea of creating a (relatively) lower maintenance passive income stream. Not only does this take some of the guesswork out of "should I sell now?" And coming up with withdrawal strategies to match market conditions, or making potentially costly rebalancing decisions to "fund" my expenses, I get the added bonus of a portfolio that my SO could ease into with the piece of mind that income will be coming in my absence. But since I can't make the math work in this low-yield environment, I was wondering if I had missed something or if others had been able to get this to work for them in a dividend/interest focused strategy.

At the end of all this research and discussion, I might go a different way. But hearing from the smart people here I consider part of my due diligence (among other steps) to solidify my plan.
* My income stream is low maintenance. I invested 13 years ago. I set it and forgot it.
* My income stream is passive. It generates dividends and capital gains (usually) without any direction from me. I simply set my preferences at VG to not automatically reinvest dividends and capital gains. And then I spend what it generates.
* No rebalancing decisions for me... since I am not rebalancing. I spend the money my portfolio generates. It is as simple as possible.

Your SO wouldn't have to worry... she just makes sure she spends less than it yields (assuming you want the initial capital to grow). If your SO wants to leave with $0, then they can even spend more. The dividend only strategy would likely return less than this one (assuming stocks continue to go up over time, as they have for the past hundred+ years).
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Re: Anyone successfully living off dividends & interest?

Post by CyclingDuo »

willthrill81 wrote: Tue Sep 15, 2020 10:12 amThat's true but not particularly relevant for retirement planning. Most of the big improvements in life expectancy have come from greatly reducing the incidence of childhood deaths. Those who are elderly have not gained nearly as much life expectancy over the last 160+ years. As the graph below indicates, the life expectancy of a 70 year old in England and Wales in 1850 was 79. In 2013, that same life expectancy was 86, and virtually all of that additional life expectancy has come since 1950 (i.e. it was almost unchanged frrom 1850 to 1950). So even if life expectancy continues to increase at the same rate as it has since 1950, in another 50 years the life expectancy of those who are 70 will increase from 86 to 91.
Yes, fewer childhood deaths were indeed responsible for the lion's share of the big jump in improvement from average life expectancy in the 1800 to 1950 time period.

I agree, that the more focused improvement since 1950 is what we should look at as it has involved advances in medicine, the pacemaker, open heart surgery, etc... which have all continued to bump longevity up. So for many of us, that pivotal year around 1950 would involve when our grandparents were alive as well as our parents. Example in my family is that my grandfather died at 72 in the 1960's (grandmother had already passed prior in her late 50's), yet my father made it almost to 89.

So I will rephrase it to say that financial planning since the 1950's has been pushing the envelope for preparing to be able to fund additional years than what was thought prior to 1950. My father had done such planning via having the traditional three legged stool of pension, SS, and his stocks/bonds portfolio which all together financed his retirement.

The main reason I even posted that was just to advocate for planning not only with the various streams of income in retirement, but also on the work we all should be doing along the way for having the best health we can along with a good diet and plenty of exercise to enjoy any additional years we are able to bank.

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Re: Anyone successfully living off dividends & interest?

Post by usagi »

willthrill81 wrote: Tue Sep 15, 2020 12:42 pm
That's a very good point.

Also, living off dividends was easier decades ago when dividend yields were much higher than they are now.
You are correct dividends were historically higher. And your point is well taken, in the past, it was to easier to live off of dividends and interest only, not only for the afore mentioned reasons but because societal expectations for well managed large companies were very different.

The odd flip side today is, if you can realistically live off the dividends produced by a broad market index, you essentially have a perpetuity that actually should increase in value each year. I suspect many 50 something Bogleheads end up that way for a variety of reasons.
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Re: Anyone successfully living off dividends & interest?

Post by advice789 »

Appreciate this chat. Stimulated me to a more disciplined portfolio approach to retirement income planning. Am also seeking such a portfolio of different financial assets, hard assets like real estate, and guaranteed sources( pension, soc etc.). Will likely add to div portion of the portfolio. Am also thinking to add more foreign assets as currency risk is not well hedged. Seems to be a correlation between countries with higher GDP growth rates, stable or relatively lower debt levels and currency appreciation. US is the opposite hence currency exposure is a longer-term risk
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Re: Anyone successfully living off dividends & interest?

Post by jebmke »

advice789 wrote: Tue Sep 15, 2020 5:00 pm Appreciate this chat. Stimulated me to a more disciplined portfolio approach to retirement income planning. Am also seeking such a portfolio of different financial assets, hard assets like real estate, and guaranteed sources( pension, soc etc.). Will likely add to div portion of the portfolio. Am also thinking to add more foreign assets as currency risk is not well hedged. Seems to be a correlation between countries with higher GDP growth rates, stable or relatively lower debt levels and currency appreciation. US is the opposite hence currency exposure is a longer-term risk
Just a related piece of advice. As you look at your asset construction (I hesitate to use "portfolio" because that often excludes hard assets in some people's minds), also weigh factors that are not simply risk-financial return. One obvious factor is taxes. One less obvious factor is administration burden. I offer the following anecdotal experience I have had helping the widows of two friends after their deaths.

One had a fairly complex asset holding and the widow had no desire to be involved. While I was not involved in the choices she made about where to put all the money (some of it generated from liquidating some assets), I did help her with some of the paperwork involved in re-configuring. It was extensive and confusing.

Another friend had virtually all his assets with Vanguard (it wasn't a "simple" portfolio per-se, but included individual securities, funds and an IRA). Re-titling all these assets was quite simple and Vanguard was very helpful (they even waived their normal requirement for a certified death certificate).

I learned a lot from these experiences and I vowed to streamline my (our) own portfolio as much as possible, given our personal goals with the consideration in mind that my spouse, while she is perfectly capable of managing financial matters, has little interest in doing so.
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Re: Anyone successfully living off dividends & interest?

Post by CyclingDuo »

advice789 wrote: Tue Sep 15, 2020 5:00 pm Appreciate this chat. Stimulated me to a more disciplined portfolio approach to retirement income planning. Am also seeking such a portfolio of different financial assets, hard assets like real estate, and guaranteed sources( pension, soc etc.). Will likely add to div portion of the portfolio. Am also thinking to add more foreign assets as currency risk is not well hedged. Seems to be a correlation between countries with higher GDP growth rates, stable or relatively lower debt levels and currency appreciation. US is the opposite hence currency exposure is a longer-term risk
Certainly that goes along with the subject of producing income streams. This article points out 7 additional income streams beyond stocks and bonds:

Image
https://www.marketwatch.com/story/stock ... yptr=yahoo

Surprised that income from work (outside of a small business) - be it full time, part-time, consulting, etc... was not included, but it certainly is key as well.

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Re: Anyone successfully living off dividends & interest?

Post by Wanderingwheelz »

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

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

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

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

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

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

A normal market can only provide so much
There’s no guarantee That the next market collapse (assuming there is one) will recover in the same fashion that it did for you. The amount of wealth disparity that has been created to get the sort of recovery we’ve seen since 2009 may well not be tolerated by the masses if more of the same is required to keep the rich, rich. And that’s just one possible issue. I’m sure you can think of others.

But you’re right. A normal market/economy can provide so much. What we’ve seen over the last 15 years or so is highly abnormal.
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Re: Anyone successfully living off dividends & interest?

Post by abuss368 »

Could a strategy include Vanguard High Dividend and Vanguard International High Dividend rather then individual dividend paying stocks?
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Re: Anyone successfully living off dividends & interest?

Post by sycamore »

abuss368 wrote: Wed Sep 16, 2020 6:37 am Could a strategy include Vanguard High Dividend and Vanguard International High Dividend rather then individual dividend paying stocks?
Yes. Those funds are "better" in that they have somewhat less idiosyncratic risk than using individual stocks. What would be your reasons for using those funds in place of, say, a total stock market fund?
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Re: Anyone successfully living off dividends & interest?

Post by 000 »

CyclingDuo wrote: Wed Sep 16, 2020 6:27 am
advice789 wrote: Tue Sep 15, 2020 5:00 pm Appreciate this chat. Stimulated me to a more disciplined portfolio approach to retirement income planning. Am also seeking such a portfolio of different financial assets, hard assets like real estate, and guaranteed sources( pension, soc etc.). Will likely add to div portion of the portfolio. Am also thinking to add more foreign assets as currency risk is not well hedged. Seems to be a correlation between countries with higher GDP growth rates, stable or relatively lower debt levels and currency appreciation. US is the opposite hence currency exposure is a longer-term risk
Certainly that goes along with the subject of producing income streams. This article points out 7 additional income streams beyond stocks and bonds:

Image
https://www.marketwatch.com/story/stock ... yptr=yahoo

Surprised that income from work (outside of a small business) - be it full time, part-time, consulting, etc... was not included, but it certainly is key as well.

CyclingDuo
Pretty much everything in that list other than bonds and maybe P2P lending is equity in a business of some kind, no?
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