Anyone retired and living off SS and Dividends?

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dbr
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

TheTimeLord wrote: Mon May 23, 2022 10:22 am
SnowBog wrote: Mon May 23, 2022 10:14 am As a reminder, there is nothing special about dividends. https://www.pwlcapital.com/the-irreleva ... n-starter/
From my perspective it isn't about them be special, it is about them being unavoidable thus I feel the need to manage them.
The management is that if dividends are less than you decide to spend, then you spend the dividends and also some way or another withdraw additional money from your portfolio, and if the dividends are more than you decide to spend you reinvest the extra in whatever way makes sense, possibly in the direction of keeping your asset allocation on target. The possibility that the dividends are equal to what you want to spend is very unlikely unless you do something nutty like setting your spending arbitrarily equal to the dividends received.
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burritoLover
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Re: Anyone retired and living off SS and Dividends?

Post by burritoLover »

Spending only dividends during retirement from a portfolio is not a guaranteed perpetual withdrawal strategy that many think is. Spending only the dividends has EXACTLY the same consequences to a portfolio amount as selling the same amount as the dividend payout. There is no difference. Dividends are not magic money.
dbr
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

burritoLover wrote: Mon May 23, 2022 11:24 am Spending only dividends during retirement from a portfolio is not a guaranteed perpetual withdrawal strategy that many think is. Spending only the dividends has EXACTLY the same consequences to a portfolio amount as selling the same amount as the dividend payout. There is no difference. Dividends are not magic money.
That is why these conversations are so baffling. If a person wants to know what will happen to their portfolio then they have to specify a withdrawal rate. You don't get that by just saying it is the dividends. The dividends could be anything. Today if it is the US total stock and yielding 1.5%-2% then by accident the dividend spending is small enough that it is a perpetual withdrawal rate but that has nothing to do with it being dividends.

My 10% gas trust was sure not perpetual.
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CyclingDuo
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Re: Anyone retired and living off SS and Dividends?

Post by CyclingDuo »

TheTimeLord wrote: Mon May 23, 2022 9:15 am
CyclingDuo wrote: Mon May 23, 2022 9:02 am
TheTimeLord wrote: Mon May 23, 2022 7:41 am
JoMoney wrote: Sun May 22, 2022 10:36 pm It's reported that "One-third of retirees are dependent on Social Security for 90% or more of their income. And over 60% are depending on the program for more than half of their income."
From that, one could deduce that at least one-third of recipients are "living off SS and dividends", and their dividends amount to 0 (or at most 10% of the income for those where SS is making up 90% or more.)
I edited my originally post to clarify what I am asking.
A portion of your edit...

Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?

I believe that when one speaks about asset allocation regarding the equity/bond percentages, previous discussions here at BH have talked about AA perhaps having the latitude to be a bit higher on the equity side if one has something such as a pension. On the other hand, plenty of arguments have been made that one also has the latitude to have a lower equity AA if one's expenses are well covered in retirement. Could we extrapolate that to include a household that has a decent level of a dual income SS stream that perhaps is taken at FRA or not until age 70? I'm not opposed to that consideration, but would also include in my planning the potential reduction in SS come year 2034/35 or whenever the possibility of a reset takes place where income streams may be reduced barring any changes. i-ORP builds that into the planning by default which at least helps provide a look into the future for one's planning.

In addition to the SORR and SWR discussion, one does have to include the reality that the couple will not expire at the same time and plans must also include the household expenses with the level of income when a household becomes a single SS income stream to couple with the dividends you are speaking about utilizing for covering the household expenses.

Dividend cuts can happen during recession/bear markets. The Financial Crisis led to a larger than usual dividend cut due to the bank bailouts by the government requiring their dividends to be cut as part of the conditions.

Image
https://www.simplysafedividends.com/int ... ar-markets

Suffice it to say, there are ways to cover one's expenses in retirement beyond the SS stream that could work including if it were just the lower dividend withdrawal rate. It's too difficult to generalize and say that the AA has to be a specific 85/15, 80/20, 75/25, 70/30, 60/40, etc... to pull it off without knowing all of the particulars (amount needed, size of portfolio, dividend yield, etc...).

Regardless, the current dividend yield on the S&P 500 is not too much to write home about. Neither is the yield on the dividend Aristocrats ETF (NOBL). A SWR using just the dividend yield of either to meet all of your expenses beyond SS certainly would allow for continued portfolio growth and the ability to pass on to your heirs the remainder as inheritance.

CyclingDuo
You are correct that the current dividend yield is a long way from impressive. That said, forgetting about dividends cuts for the moment (I am not denying they happen just hear me out) if we do get a serious drop in the market while the dividend amount per share will remain constant the yield as measured by percentage should increase significantly. So I am what I am trying to understand is if that increased yield percentage might at that point make moving to a higher equity allocation feasible and provide me with a viable source of income while I wait for equities to recover. And going forward as equities recover the amount of the dividend per share will hopefully remain constant or even rise at a rate commensurate with inflation.
Whether the yield is sub 2% or higher than 3-4% due to a contraction in share price point of purchase, it doesn’t really matter. You would still be drawing down the portfolio no matter what the yield - or rather “yield on cost” - would be. Don’t let the mental tease of a lower share price, higher dividend yield sway you.

CyclingDuo
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TheTimeLord
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

CyclingDuo wrote: Mon May 23, 2022 12:39 pm
TheTimeLord wrote: Mon May 23, 2022 9:15 am
CyclingDuo wrote: Mon May 23, 2022 9:02 am
TheTimeLord wrote: Mon May 23, 2022 7:41 am
JoMoney wrote: Sun May 22, 2022 10:36 pm It's reported that "One-third of retirees are dependent on Social Security for 90% or more of their income. And over 60% are depending on the program for more than half of their income."
From that, one could deduce that at least one-third of recipients are "living off SS and dividends", and their dividends amount to 0 (or at most 10% of the income for those where SS is making up 90% or more.)
I edited my originally post to clarify what I am asking.
A portion of your edit...

Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?

I believe that when one speaks about asset allocation regarding the equity/bond percentages, previous discussions here at BH have talked about AA perhaps having the latitude to be a bit higher on the equity side if one has something such as a pension. On the other hand, plenty of arguments have been made that one also has the latitude to have a lower equity AA if one's expenses are well covered in retirement. Could we extrapolate that to include a household that has a decent level of a dual income SS stream that perhaps is taken at FRA or not until age 70? I'm not opposed to that consideration, but would also include in my planning the potential reduction in SS come year 2034/35 or whenever the possibility of a reset takes place where income streams may be reduced barring any changes. i-ORP builds that into the planning by default which at least helps provide a look into the future for one's planning.

In addition to the SORR and SWR discussion, one does have to include the reality that the couple will not expire at the same time and plans must also include the household expenses with the level of income when a household becomes a single SS income stream to couple with the dividends you are speaking about utilizing for covering the household expenses.

Dividend cuts can happen during recession/bear markets. The Financial Crisis led to a larger than usual dividend cut due to the bank bailouts by the government requiring their dividends to be cut as part of the conditions.

Image
https://www.simplysafedividends.com/int ... ar-markets

Suffice it to say, there are ways to cover one's expenses in retirement beyond the SS stream that could work including if it were just the lower dividend withdrawal rate. It's too difficult to generalize and say that the AA has to be a specific 85/15, 80/20, 75/25, 70/30, 60/40, etc... to pull it off without knowing all of the particulars (amount needed, size of portfolio, dividend yield, etc...).

Regardless, the current dividend yield on the S&P 500 is not too much to write home about. Neither is the yield on the dividend Aristocrats ETF (NOBL). A SWR using just the dividend yield of either to meet all of your expenses beyond SS certainly would allow for continued portfolio growth and the ability to pass on to your heirs the remainder as inheritance.

CyclingDuo
You are correct that the current dividend yield is a long way from impressive. That said, forgetting about dividends cuts for the moment (I am not denying they happen just hear me out) if we do get a serious drop in the market while the dividend amount per share will remain constant the yield as measured by percentage should increase significantly. So I am what I am trying to understand is if that increased yield percentage might at that point make moving to a higher equity allocation feasible and provide me with a viable source of income while I wait for equities to recover. And going forward as equities recover the amount of the dividend per share will hopefully remain constant or even rise at a rate commensurate with inflation.
Whether the yield is sub 2% or higher than 3-4% due to a contraction in share price point of purchase, it doesn’t really matter. You would still be drawing down the portfolio no matter what the yield - or rather “yield on cost” - would be. Don’t let the mental tease of a lower share price, higher dividend yield sway you.

CyclingDuo
I would think it would matter because regardless of price you are getting a $X.XX a share dividend, but with a contracted share price at the time of purchase you are buying more shares.
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schachtw
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Re: Anyone retired and living off SS and Dividends?

Post by schachtw »

Yes, my wife and I can manage our joint SS, wife’s small pension, and our taxable dividends. The dividends equate to approximately a 1% withdrawal rate.

Will be taking initial RMD this December, likely to transfer funds to taxable.
TN_Boy
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

TheTimeLord wrote: Mon May 23, 2022 9:22 am
dbr wrote: Mon May 23, 2022 9:13 am The question is "Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?

We are going to have to wait and see if people reply.

I personally have SS and pension income, but we did not decide to increase our allocation to stocks and then live at whatever spending level would result from SS, pensions, and dividends.

It would be true in our case that if we were to increase the allocation to all stocks, that a 2% dividend rate could work for us now. That result is partly due to luck in having ten years of a bull market in stocks, a scenario that did not have to happen. It could also happen that if stocks fall and stay down for some time that either yield would have to go up or we would have to spend more than dividends.

The point in all this is that living on SS (pensions) and dividends might be a thing that could happen but it is not a very logical way to plan one's retirement finances. The question would be that if there are people who do this or if someone would plan to do this, what would be the point?

A better approach would be to look at planner like this one: https://engaging-data.com/visualizing-4-rule/ put in 95% stocks and then study how much spending might be possible and contemplate the possible outcomes for wealth in the future.
Let me try to explain it this way. I am trying to wrap my mind around if it is reasonable to believe SS and dividends can provide a secure enough base for one's expenses that it is a viable option for some retirees who are seeking the the possibility of higher returns to use an aggressive AA knowing that their increased equity allocation will throw off dividends helping to offset their loss of income from Fixed Income assets.

I think to put it in very BH terms what I am really asking is can Dividends be considered ballast, at least to some extent.
The answer to:
I am trying to wrap my mind around if it is reasonable to believe SS and dividends can provide a secure enough base for one's expenses that it is a viable option for some retirees who are seeking the the possibility of higher returns to use an aggressive AA knowing that their increased equity allocation will throw off dividends helping to offset their loss of income from Fixed Income assets.
is no. Dividends are irrelevant here. If the amount you withdraw is small (say 2%) then you can go 90/10 equity/bonds by either living off dividends (if the 90% stocks yields enough) or by selling some of the stock. It .... just ..... doesn't ...... matter.

Dividends are not ballast. They are merely part of the equity total return.

We've had dozens of threads on dividends. Generally the sides cannot convince each other :-). I will argue that finance theory (as taught in universities*) and practice show that basically total return is all that matters in the end. The key is the withdrawal amount, not the method you use to get the withdrawal.

* it is of course possible that people who have studied how company finance works in detail for a living are all wrong.
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Re: Anyone retired and living off SS and Dividends?

Post by BigJohn »

There’s nothing magical or different about dividends. If you’re able to live off just dividends you’re also saying that you have an SWR in the range of 2-2.5%. At that level you can probably invest most anyway you want and have no worries. That also means you have a portfolio that’s approach 50x your needs which is out of reach for the vast majority of people.
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LilyFleur
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Re: Anyone retired and living off SS and Dividends?

Post by LilyFleur »

TheTimeLord wrote: Mon May 23, 2022 9:48 am
dbr wrote: Mon May 23, 2022 9:28 am
TheTimeLord wrote: Mon May 23, 2022 9:15 am
You are correct that the current dividend yield is a long way from impressive. That said, forgetting about dividends cuts for the moment (I am not denying they happen just hear me out) if we do get a serious drop in the market while the dividend amount per share will remain constant the yield as measured by percentage should increase significantly. So I am what I am trying to understand is if that increased yield percentage might at that point make moving to a higher equity allocation feasible and provide me with a viable source of income while I wait for equities to recover. And going forward as equities recover the amount of the dividend per share will hopefully remain constant or even rise at a rate commensurate with inflation.
If you want a viable source of income why chain yourself to dividends and then worry if they will be sustained? Why not do what a lot of other people do and just take what you need to spend having made estimates that a given asset allocation will most likely survive the withdrawals with some estimate of what will be left over when you die. What is the reason to want to believe you can invest in all equities?

You can get a first cut at estimating what will happen by putting your numbers in FireCalc or any other retirement calculator, setting the asset allocation to 95/5 and then seeing what the chances are. I just did that assuming a $1M portfolio, $20k a year in dividends (2%), $50k a year in SS, and a specified spend of $70k. The program estimates zero chance of running out of money in 30 years and estimates that at the end of 30 years the retiree will have between $1M and $12M left. Of course in practice you would just spend the $70k and not restrict yourself to spending whatever dividends are paid as the market goes up and down.

Trying to go through this by a route of thinking dividends are ballast or something like that is neither here nor there. Just do the math.
Don't want to go all equities, for a few reasons including liquidity. But dividends are going to be paid out so I am trying to understand how I should see them interacting with my AA, although arguably this only applies to dividends in a taxable account since they others can be re-invested without tax consequences. I have done all that math.
The index funds in my 401k automatically re-invest the dividends. I don't have the ability to do anything with them.

Bottom line, I think a variety of investment sources and types of accounts to draw from in retirement is a good idea. Dividends from SCHD in taxable, pension, Social Security, RMDs, and Roth. Then you have flexibility for the best tax strategy, year by year. Some cash for when the market is down, if it will take a while for your bond market index fund to recover.

Depending, of course, on what you have access to.
TheNightsToCome
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Re: Anyone retired and living off SS and Dividends?

Post by TheNightsToCome »

TN_Boy wrote: Sun May 22, 2022 10:30 pm
TheNightsToCome wrote: Sun May 22, 2022 1:06 pm
Harmanic wrote: Sun May 22, 2022 12:37 pm
TheTimeLord wrote: Sun May 22, 2022 12:21 pm
Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
The probably comes from comparing growth and dividends. For many companies, a large part of growth comes from retained earnings, which is a strategic choice vs paying higher dividends. So how do you separate the retained earnings from dividends? You don't! Which is why investors who chase high yield companies/funds are misunderstanding how true yield is achieved.
There is empiric evidence that contradicts this:https://papers.ssrn.com/sol3/papers.cfm ... _id=390143

Surprise! Higher Dividends = Higher Earnings Growth
Posted: 27 May 2003
Robert D. Arnott
Research Affiliates, LLC

Clifford S. Asness
AQR Capital Management, LLC

Abstract
We investigate whether dividend policy, as observed in the payout ratio of the U.S. equity market portfolio, forecasts future aggregate earnings growth. The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low. This relationship is not subsumed by other factors, such as simple mean reversion in earnings. Our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth. Rather, it is consistent with anecdotal tales about managers signaling their earnings expectations through dividends or engaging, at times, in inefficient empire building. Our findings offer a challenge to market observers who see the low dividend payouts of recent times as a sign of strong future earnings to come.
I can't download the paper. Does it argue/show that investors in dividend focused stocks have higher returns than other investors (adjusting for factors, etc).
It has been a long time since I read the article, but I'm fairly confident that was not part of the study. Arnott and Asness looked at payout ratios and the relationship to subsequent earnings growth, showing that the relationship was the opposite of conventional wisdom.
Leesbro63
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Re: Anyone retired and living off SS and Dividends?

Post by Leesbro63 »

Of note here might be something I remembered: Rick Ferri said that he encourages his clients to live off interest and dividends (and, of course Social Security and pensions, if any). Even for those who can't do this, interest and dividends are a good place to start. If you need a 4% SWR, half of that can come from interest and dividends, and the other half can come from selling long term capital gain assets.
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Re: Anyone retired and living off SS and Dividends?

Post by Leesbro63 »

TN_Boy wrote: Mon May 23, 2022 4:33 pm
Dividends are irrelevant here. If the amount you withdraw is small (say 2%) then you can go 90/10 equity/bonds by either living off dividends (if the 90% stocks yields enough) or by selling some of the stock. It .... just ..... doesn't ...... matter.

Dividends are not ballast. They are merely part of the equity total return.
You are right. But since a total market index fund will produce about a 2% dividend, and interest rates are ticking up around/above 2% for intermediate term bonds, that "automatic income" is a convenient thing for conservative Bogleheads who can live off a 2-3% SWR on a balanced portfolio. And for those who need 4%, selling a little long-term capital gain stuff each year, added to that 2% automatic income, is a simple way to liquify/cashflow spending needs.
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G12
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Re: Anyone retired and living off SS and Dividends?

Post by G12 »

TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.

[Edited my original post per Mod suggestion to better represent my reason for asking this question]

I read a post a while back and it got me thinking, could the income stream produced by the dividends of broad based index funds be an offset to the need for bonds once someone started collecting SS, a pension or annuity that was sufficient to covert majority of their base expenses. The idea is that for those who accumulate more than the standard (my perception) 25x-33x by retirement, choosing a AA between 30/70-60/40 most likely won't change their financial situation. For those individuals (like myself), they would need to take more risk in order to produce returns that would make a true difference in their finances and they are in the fortunate position to have the ability to take some additional risk. That said. the risk needs to be measured and some sort of base needs to be in place just in case equities entered a period of prolonged downturn. Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?
I'll state what my wife and I have done. I retired ~ 11 years ago at 48 and my wife retired 2 years ago at 56. Like an earlier poster our largest equity holding is SCHD (~ 900k) which I have owned for 8+ years, some other dividend ETFs (some are lower yielding growth and quality oriented), some leveraged holdings yielding 7-9.5% these days, and more vanilla/standard holdings such as VWIAX, EEMV, overweight VPU, factor ETFs, individual long dated TIPS mostly bought in late 2008, EE, I, CDs, ultra short bond funds, and good bit of cash. We are just under 65% equity and don't think we will go higher longer term. We also have had a long term investment in a property that consistently generates ~ $10k net income per year and future rent increases. We also have 3 IIRAs that collectively will generate ~ $12k in taxable income withdrawals increasing annually. I would say I'm roughly 50% "bogleheadish", my wife wants nothing to do with investing so that may be a challenge later if something happens to me. We obviously are too young to draw SSI and will likely push that off to our late 60's and hopefully be able to convert TIRA to Roths in some years, and my wife will draw a small pension at 65. This year we have a large amount of EE bonds maturing (probably better to pay fed taxes on accrued interest annually but oh well) that will screw up our ongoing attempts to keep health insurance premium cost low, and those are the last of our EE bonds. Roughly 40% of our investments are in taxable accounts, plus the IIRAs, etc and the income produced from all the investments is 6 figures annually which covers all spending with a good margin. If we have to sell down taxable to bridge to SSI I am not averse to that, and have ~ $80k in remaining tax loss carry forward to offset gains on equity sales. We moved to Santa Fe in late 2020 and I somewhat underestimated the cost of buying a home, furnishings, etc but that is moderating and both our vehicles will be paid off this year, and we are keeping the 1.625% ARM for another 6.5 years and pay off the mortgage if we are still living here. If someone were to increase their portfolio holdings to 80% I would definitely consider overweighting utilities which are in positive territory YTD no matter the historical "utilities will always decline in periods of rising interest rates" mantra. YMMV, good luck.
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9-5 Suited
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Re: Anyone retired and living off SS and Dividends?

Post by 9-5 Suited »

Riprap wrote: Sun May 22, 2022 9:24 pm
9-5 Suited wrote: Sun May 22, 2022 8:53 pmBut seems fairly logical just on an apriori basis that a "spend the dividend" strategy on a broad market index will leave you with a lot of excess cash to spend on your casket.
That's one way to look at it.

However

It puzzles me why dying with a large estate after having lived below one's means, especially in retirement, is held in such contempt on Bogleheads. All the posting about optimizing one's spending and so on. Not that there is anything wrong with exploring optimization but it doesn't mean it's a goal for everyone. Leaving a large estate can be legitimate goal, don't you think?

Another way to look at it is putting one's accumulated net worth to a higher and better use. It really doesn't take a lot of spending to be happy and content.
I have no contempt for that. I will quote myself from earlier in this very thread:

“1. Maybe that’s Ok because you want to leave as much as possible to kids or charity.
2. If that’s not your goal, and you have nice things in life you just can’t bring yourself to buy, now is the time! There’s no great reason to spend any lower than 3.5% of a portfolio IMO with the exception of people who live to maximize their bequests.”
AlwaysLearningMore
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Re: Anyone retired and living off SS and Dividends?

Post by AlwaysLearningMore »

You asked if 'anyone retired is living off Social Security and dividends?'

From John C. Bogle's The Little Book of Common Sense Investing, 10th Anniversary Edition, 2017, pages 243-244:

"...As we age, we begin to rely less on the human capital that has largely got us to where we are today, and more on our investment capital. Finally, what's most important when we retire is the stream of income we need to support our needs -- the dividend checks we receive from our mutual fund investments and the monthly checks we receive from our Social Security payments.

Yes, the market value of our capital is important...What we really seek is retirement income that is steady and, if possible, grows with inflation.

Social Security fits those criteria perfectly. And, with moderate risk, a balanced mutual fund portfolio can effectively supplement (or be supplemented by) Social Security payments. About half the balanced portfolio's income comes from interest on bonds, and the other half from dividends, mostly from large-cap stocks. With only 3 significant exceptions, the dividends on the S&P 500 Index have increased every year since the Index began 90 years ago, in 1926....

A combination of Social Security payments and dividends from index funds (supplemented as necessary with withdrawals of capital) are likely to be an effective means of enjoying regular monthly income from your retirement assets."
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
TN_Boy
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

Leesbro63 wrote: Mon May 23, 2022 6:49 pm
TN_Boy wrote: Mon May 23, 2022 4:33 pm
Dividends are irrelevant here. If the amount you withdraw is small (say 2%) then you can go 90/10 equity/bonds by either living off dividends (if the 90% stocks yields enough) or by selling some of the stock. It .... just ..... doesn't ...... matter.

Dividends are not ballast. They are merely part of the equity total return.
You are right. But since a total market index fund will produce about a 2% dividend, and interest rates are ticking up around/above 2% for intermediate term bonds, that "automatic income" is a convenient thing for conservative Bogleheads who can live off a 2-3% SWR on a balanced portfolio. And for those who need 4%, selling a little long-term capital gain stuff each year, added to that 2% automatic income, is a simple way to liquify/cashflow spending needs.
Absolutely. Though I'd add that 2 to 3% is a sufficiently low withdrawal that you could safely sell something if dividends were cut and you found that caused some pain. I.e the conservative Boglehead does not need to accept a variable income if they are pulling very low amounts from the portfolio.
TN_Boy
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

TheNightsToCome wrote: Mon May 23, 2022 6:39 pm
TN_Boy wrote: Sun May 22, 2022 10:30 pm
TheNightsToCome wrote: Sun May 22, 2022 1:06 pm
Harmanic wrote: Sun May 22, 2022 12:37 pm
TheTimeLord wrote: Sun May 22, 2022 12:21 pm

The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
The probably comes from comparing growth and dividends. For many companies, a large part of growth comes from retained earnings, which is a strategic choice vs paying higher dividends. So how do you separate the retained earnings from dividends? You don't! Which is why investors who chase high yield companies/funds are misunderstanding how true yield is achieved.
There is empiric evidence that contradicts this:https://papers.ssrn.com/sol3/papers.cfm ... _id=390143

Surprise! Higher Dividends = Higher Earnings Growth
Posted: 27 May 2003
Robert D. Arnott
Research Affiliates, LLC

Clifford S. Asness
AQR Capital Management, LLC

Abstract
We investigate whether dividend policy, as observed in the payout ratio of the U.S. equity market portfolio, forecasts future aggregate earnings growth. The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low. This relationship is not subsumed by other factors, such as simple mean reversion in earnings. Our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth. Rather, it is consistent with anecdotal tales about managers signaling their earnings expectations through dividends or engaging, at times, in inefficient empire building. Our findings offer a challenge to market observers who see the low dividend payouts of recent times as a sign of strong future earnings to come.
I can't download the paper. Does it argue/show that investors in dividend focused stocks have higher returns than other investors (adjusting for factors, etc).
It has been a long time since I read the article, but I'm fairly confident that was not part of the study. Arnott and Asness looked at payout ratios and the relationship to subsequent earnings growth, showing that the relationship was the opposite of conventional wisdom.
Earnings growth is indeed great, but I have yet to see good studies showing that adjusted for all relevant factors (size, value, etc) stocks that pay higher dividends create a greater total return than stocks which don't (or that higher dividend stocks return more than lower dividend stocks, adjusted for the different factors). Across different time periods.

I am stuck on total return, sorry. That's all I care about. Though since I also mostly believe in efficient markets, I think that if dividend paying stocks did indeed reliably start showing greater returns, that advantage would disappear as investors take that new wisdom into account.
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Re: Anyone retired and living off SS and Dividends?

Post by Gnirk »

Yes, that’s how we live. SS plus dividends & capital gains paid out by our mutual funds, with a 60/40 portfolio.
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Re: Anyone retired and living off SS and Dividends?

Post by doobiedoo »

TheTimeLord wrote: Sun May 22, 2022 11:37 am .. Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?
Yes. My retirement expenses are covered by Survivor's benefits, rental income (1 house), and dividends + cap gains from taxable accounts. [I am already paying taxes on those dividends + cap gain.]

My asset allocation (including my home) is 78% equities, 0% bonds, 10% cash, 12% real estate.
Not counting my home, my AA is 87/0/11/2.

I will add a couple of observations/caveats.

First, I didn't go to 78% equities in order to get enough dividends to make this work. During my accumulation phase, I was typically at 75% equities. A year before I retired, I dropped to 60% equities to mitigate SORR. Since SORR isn't an issue for me anymore, I have returned to my "normal AA".

Second, even though I mainly held passive mutual funds (typically SP500) during my accumulation phase, I now have over 50% of my net worth in individual stocks. And I only own 12 stocks -- 6 mainly for dividends. Those stocks include 3 REITs and 1 BDC whose yields range from 4-7%. [I follow Warren Buffett's investment methodology which has concentrating assets as one of its guidelines. That is the opposite of diversification.]

As poster dbr and others (including Warren Buffett) have noted, taking dividends is equivalent to selling shares.
I take the dividends because as I stated in a different thread on this forum:
doobiedoo wrote: Wed May 11, 2022 4:14 am I tried the "selling a few shares" strategy to provide an income stream. I didn't like it.
Mostly because every sell decision is an opportunity to make a mistake. In what to sell, how much to sell, etc.
If I didn't need the cash, I didn't want to sell.
But that meant when I did need cash, I had to make decisions relatively quickly on what and how much to sell.

When you are 55, deciding which stocks to sell to fund expenses seems like an acceptable plan. [It did to me.] When you are 75, it might be a struggle to make that decision correctly every time. I saw my dad make investing mistakes when he got old.

Most of us got a paycheck for 40+ years. It's easier and safer to have retirement income appear like paychecks. [That is another appeal of dividends.]

Sell decisions are complicated. Even though I still feel mentally competent at 67, it's a challenge to weigh all the issues associated with selling. e.g. taxes, rebalancing, risk diversification, future income stream effects, asset allocation, estate planning, etc. The tax issues alone are quite complicated, at least for me. And there isn't a team of CPAs, CFPs, and JDs to make the decisions. It's just me.
So that's what I do. I have been retired for 11 years.
So far I haven't had any problems with this approach. But it probably isn't exactly what the OP had in mind.
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Re: Anyone retired and living off SS and Dividends?

Post by petulant »

Let me suggest a related alternative to OP. Consider adding a third element, a single-premium immediate annuity (SPIA). A SPIA has the underlying economics of bonds, but it does not fluctuate like a bond fund. The SPIA makes distributions that are driven by interest income and by a return of principal. The payments are guaranteed throughout the retiree's lifetime, even after all principal has been returned, relying on "mortality credits," which are payments made after other retirees passed away before receiving their entire principal back.

Assume a simple numerical example similar to one earlier in the thread where a couple want to live on $100,000 per year, have $60,000 in combined social security benefits, and have a $2M stock portfolio generating 2% dividends of $40,000. It is likely that the couple could get a joint life annuity with a payout ratio of 5-6%, meaning they could generate $40,000 with an annuity principal of only about $727,000 (40000/.055). But that would still leave approximately $1.3M in stocks, which could be left to grow for some time. Further, this would work even if the couple only had a $1.5M portfolio, such that they could buy a $727,000 SPIA and still have over $750,000 in the stock portfolio to grow.

In other words, if the goal is to choose a reasonable level of income draw with which to be content, and then be aggressive with the remainder of the portfolio, such a goal could be met with a SPIA/SS income base and then remaining assets in a stock portfolio.
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

doobiedoo wrote: Tue May 24, 2022 6:26 am


Second, even though I mainly held passive mutual funds (typically SP500) during my accumulation phase, I now have over 50% of my net worth in individual stocks. And I only own 12 stocks -- 6 mainly for dividends. Those stocks include 3 REITs and 1 BDC whose yields range from 4-7%. [I follow Warren Buffett's investment methodology which has concentrating assets as one of its guidelines. That is the opposite of diversification.]

As poster dbr and others (including Warren Buffett) have noted, taking dividends is equivalent to selling shares.
I take the dividends because as I stated in a different thread on this forum:
doobiedoo wrote: Wed May 11, 2022 4:14 am I tried the "selling a few shares" strategy to provide an income stream. I didn't like it.
Mostly because every sell decision is an opportunity to make a mistake. In what to sell, how much to sell, etc.
If I didn't need the cash, I didn't want to sell.
But that meant when I did need cash, I had to make decisions relatively quickly on what and how much to sell.

When you are 55, deciding which stocks to sell to fund expenses seems like an acceptable plan. [It did to me.] When you are 75, it might be a struggle to make that decision correctly every time. I saw my dad make investing mistakes when he got old.

Most of us got a paycheck for 40+ years. It's easier and safer to have retirement income appear like paychecks. [That is another appeal of dividends.]

Sell decisions are complicated. Even though I still feel mentally competent at 67, it's a challenge to weigh all the issues associated with selling. e.g. taxes, rebalancing, risk diversification, future income stream effects, asset allocation, estate planning, etc. The tax issues alone are quite complicated, at least for me. And there isn't a team of CPAs, CFPs, and JDs to make the decisions. It's just me.
So that's what I do. I have been retired for 11 years.
So far I haven't had any problems with this approach. But it probably isn't exactly what the OP had in mind.
There is nothing wrong with managing money in whatever way is practical for a person. You have concerns that are legitimate for you. That is a different issue from a person thinking that because the income is dividends that there is any special advantage to the plan other than mechanics. This has always been the dilemma in this discussion.

I would not be so sure a decision to put that much of the portfolio into a list of 12 stocks in order to arrange for dividend distributions is such a good idea, but it is a choice and may work well enough.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

petulant wrote: Tue May 24, 2022 6:45 am Let me suggest a related alternative to OP. Consider adding a third element, a single-premium immediate annuity (SPIA). A SPIA has the underlying economics of bonds, but it does not fluctuate like a bond fund. The SPIA makes distributions that are driven by interest income and by a return of principal. The payments are guaranteed throughout the retiree's lifetime, even after all principal has been returned, relying on "mortality credits," which are payments made after other retirees passed away before receiving their entire principal back.

Assume a simple numerical example similar to one earlier in the thread where a couple want to live on $100,000 per year, have $60,000 in combined social security benefits, and have a $2M stock portfolio generating 2% dividends of $40,000. It is likely that the couple could get a joint life annuity with a payout ratio of 5-6%, meaning they could generate $40,000 with an annuity principal of only about $727,000 (40000/.055). But that would still leave approximately $1.3M in stocks, which could be left to grow for some time. Further, this would work even if the couple only had a $1.5M portfolio, such that they could buy a $727,000 SPIA and still have over $750,000 in the stock portfolio to grow.

In other words, if the goal is to choose a reasonable level of income draw with which to be content, and then be aggressive with the remainder of the portfolio, such a goal could be met with a SPIA/SS income base and then remaining assets in a stock portfolio.
My 2 biggest objections to SPIA, and correct me if I am mistaken, no inflation adjustments and state level of insurance.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
dbr
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

TheTimeLord wrote: Tue May 24, 2022 9:23 am
petulant wrote: Tue May 24, 2022 6:45 am Let me suggest a related alternative to OP. Consider adding a third element, a single-premium immediate annuity (SPIA). A SPIA has the underlying economics of bonds, but it does not fluctuate like a bond fund. The SPIA makes distributions that are driven by interest income and by a return of principal. The payments are guaranteed throughout the retiree's lifetime, even after all principal has been returned, relying on "mortality credits," which are payments made after other retirees passed away before receiving their entire principal back.

Assume a simple numerical example similar to one earlier in the thread where a couple want to live on $100,000 per year, have $60,000 in combined social security benefits, and have a $2M stock portfolio generating 2% dividends of $40,000. It is likely that the couple could get a joint life annuity with a payout ratio of 5-6%, meaning they could generate $40,000 with an annuity principal of only about $727,000 (40000/.055). But that would still leave approximately $1.3M in stocks, which could be left to grow for some time. Further, this would work even if the couple only had a $1.5M portfolio, such that they could buy a $727,000 SPIA and still have over $750,000 in the stock portfolio to grow.

In other words, if the goal is to choose a reasonable level of income draw with which to be content, and then be aggressive with the remainder of the portfolio, such a goal could be met with a SPIA/SS income base and then remaining assets in a stock portfolio.
My 2 biggest objections to SPIA, and correct me if I am mistaken, no inflation adjustments and state level of insurance.
Those things are considerations. Ironically people tend to be jealous of anyone who has a pension, even a fixed one, so go figure.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

dbr wrote: Tue May 24, 2022 9:26 am
TheTimeLord wrote: Tue May 24, 2022 9:23 am
petulant wrote: Tue May 24, 2022 6:45 am Let me suggest a related alternative to OP. Consider adding a third element, a single-premium immediate annuity (SPIA). A SPIA has the underlying economics of bonds, but it does not fluctuate like a bond fund. The SPIA makes distributions that are driven by interest income and by a return of principal. The payments are guaranteed throughout the retiree's lifetime, even after all principal has been returned, relying on "mortality credits," which are payments made after other retirees passed away before receiving their entire principal back.

Assume a simple numerical example similar to one earlier in the thread where a couple want to live on $100,000 per year, have $60,000 in combined social security benefits, and have a $2M stock portfolio generating 2% dividends of $40,000. It is likely that the couple could get a joint life annuity with a payout ratio of 5-6%, meaning they could generate $40,000 with an annuity principal of only about $727,000 (40000/.055). But that would still leave approximately $1.3M in stocks, which could be left to grow for some time. Further, this would work even if the couple only had a $1.5M portfolio, such that they could buy a $727,000 SPIA and still have over $750,000 in the stock portfolio to grow.

In other words, if the goal is to choose a reasonable level of income draw with which to be content, and then be aggressive with the remainder of the portfolio, such a goal could be met with a SPIA/SS income base and then remaining assets in a stock portfolio.
My 2 biggest objections to SPIA, and correct me if I am mistaken, no inflation adjustments and state level of insurance.
Those things are considerations. Ironically people tend to be jealous of anyone who has a pension, even a fixed one, so go figure.
I think people like income streams in general, who wouldn't, that said I think you will find a fair amount of people here who took their pensions as a lump sum if they had the option. I don't think it is a majority, but the percentage isn't zero.
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Re: Anyone retired and living off SS and Dividends?

Post by rgs92 »

If you plug an SPIA into Firecalc (or cFireSim), you can see the difference it makes in your results. [This is a regular fixed SPIA.]

Of course inflation-adjusted income streams are superior, but the results will account for this, so if you trust these calculators, you don't need to worry about the returns of each individual input component.

So the fact that there are fixed income streams does not make them non-starters per se.
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Re: Anyone retired and living off SS and Dividends?

Post by delamer »

AlwaysLearningMore wrote: Mon May 23, 2022 9:20 pm You asked if 'anyone retired is living off Social Security and dividends?'

From John C. Bogle's The Little Book of Common Sense Investing, 10th Anniversary Edition, 2017, pages 243-244:

"...As we age, we begin to rely less on the human capital that has largely got us to where we are today, and more on our investment capital. Finally, what's most important when we retire is the stream of income we need to support our needs -- the dividend checks we receive from our mutual fund investments and the monthly checks we receive from our Social Security payments.

Yes, the market value of our capital is important...What we really seek is retirement income that is steady and, if possible, grows with inflation.

Social Security fits those criteria perfectly. And, with moderate risk, a balanced mutual fund portfolio can effectively supplement (or be supplemented by) Social Security payments. About half the balanced portfolio's income comes from interest on bonds, and the other half from dividends, mostly from large-cap stocks. With only 3 significant exceptions, the dividends on the S&P 500 Index have increased every year since the Index began 90 years ago, in 1926....

A combination of Social Security payments and dividends from index funds (supplemented as necessary with withdrawals of capital) are likely to be an effective means of enjoying regular monthly income from your retirement assets."
Note the part that says “supplemented as necessary . . .”
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

rgs92 wrote: Tue May 24, 2022 9:36 am If you plug an SPIA into Firecalc (or cFireSim), you can see the difference it makes in your results. [This is a regular fixed SPIA.]

Of course inflation-adjusted income streams are superior, but the results will account for this, so if you trust these calculators, you don't need to worry about the returns of each individual input component.

So the fact that there are fixed income streams does not make them non-starters per se.
For me, I doubt I would consider a SPIA before age 75 because of the inflation exposure. Others likely have a different views.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

rgs92 wrote: Tue May 24, 2022 9:36 am If you plug an SPIA into Firecalc (or cFireSim), you can see the difference it makes in your results. [This is a regular fixed SPIA.]

Of course inflation-adjusted income streams are superior, but the results will account for this, so if you trust these calculators, you don't need to worry about the returns of each individual input component.

So the fact that there are fixed income streams does not make them non-starters per se.
Absolutely. And I agree with you that a person needs to run the models. It is not obvious by examination what the outcome will be in any given configuration. Tradeoff between no inflation indexing while also gaining life income that has no variability is not obvious in consequences and also depends on what everything else is.

I can say I have experience with this as I have been retired 15 years with a fixed pension that did not have a lump sum option. Probably the main thing that has happened is that stocks went on a bull rush and inflation had been low and my employer has not gone bankrupt, so you can't lose in that situation.

Wade Pfau has written on some of these considerations:

https://www.bing.com/search?q=pfau+spia ... d032a4504b
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

delamer wrote: Tue May 24, 2022 9:38 am
AlwaysLearningMore wrote: Mon May 23, 2022 9:20 pm You asked if 'anyone retired is living off Social Security and dividends?'

From John C. Bogle's The Little Book of Common Sense Investing, 10th Anniversary Edition, 2017, pages 243-244:

"...As we age, we begin to rely less on the human capital that has largely got us to where we are today, and more on our investment capital. Finally, what's most important when we retire is the stream of income we need to support our needs -- the dividend checks we receive from our mutual fund investments and the monthly checks we receive from our Social Security payments.

Yes, the market value of our capital is important...What we really seek is retirement income that is steady and, if possible, grows with inflation.

Social Security fits those criteria perfectly. And, with moderate risk, a balanced mutual fund portfolio can effectively supplement (or be supplemented by) Social Security payments. About half the balanced portfolio's income comes from interest on bonds, and the other half from dividends, mostly from large-cap stocks. With only 3 significant exceptions, the dividends on the S&P 500 Index have increased every year since the Index began 90 years ago, in 1926....

A combination of Social Security payments and dividends from index funds (supplemented as necessary with withdrawals of capital) are likely to be an effective means of enjoying regular monthly income from your retirement assets."
Note the part that says “supplemented as necessary . . .”
Yes, that quote from Bogle looks like it says that you should live on SS and dividends and ends up not saying that at all. One is left completely perplexed as to what Mr. Bogle actually intended this to mean. In reality it is just a recitation of what actually happens to most people, which is that they have Social Security, they have bonds that pay interest (called dividends if a fund), they have stocks (funds) that pay dividends, and they sell shares and withdraw the proceeds. Besides that, if the assets are in tax deferred accounts the interest and the dividends cannot be withdrawn as such anyway; all that exists is whatever distributions one takes from the accounts. Mr. Bogle does not mention that. He also does not include pensions or annuities in his description.
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Re: Anyone retired and living off SS and Dividends?

Post by SnowBog »

TheTimeLord wrote: Tue May 24, 2022 9:44 am
rgs92 wrote: Tue May 24, 2022 9:36 am If you plug an SPIA into Firecalc (or cFireSim), you can see the difference it makes in your results. [This is a regular fixed SPIA.]

Of course inflation-adjusted income streams are superior, but the results will account for this, so if you trust these calculators, you don't need to worry about the returns of each individual input component.

So the fact that there are fixed income streams does not make them non-starters per se.
For me, I doubt I would consider a SPIA before age 75 because of the inflation exposure. Others likely have a different views.
I believe there are SPIA available with an inflation option, but it's fixed (like 2% annual) not variable (tied to CPI or another metric) - as I think all the COLA type options no longer exist...

Age 75 is probably good timing for mortality credits as well... Buying too early runs the risk of dying before you get your money back.

Depending on how much of an income stream - and how long your horizon is - other options like EE Bonds and I Bonds can pay a role. See the threads on the EE Bond Manifesto and I Bond Manifesto for more info.
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Re: Anyone retired and living off SS and Dividends?

Post by delamer »

dbr wrote: Tue May 24, 2022 9:51 am
delamer wrote: Tue May 24, 2022 9:38 am
AlwaysLearningMore wrote: Mon May 23, 2022 9:20 pm You asked if 'anyone retired is living off Social Security and dividends?'

From John C. Bogle's The Little Book of Common Sense Investing, 10th Anniversary Edition, 2017, pages 243-244:

"...As we age, we begin to rely less on the human capital that has largely got us to where we are today, and more on our investment capital. Finally, what's most important when we retire is the stream of income we need to support our needs -- the dividend checks we receive from our mutual fund investments and the monthly checks we receive from our Social Security payments.

Yes, the market value of our capital is important...What we really seek is retirement income that is steady and, if possible, grows with inflation.

Social Security fits those criteria perfectly. And, with moderate risk, a balanced mutual fund portfolio can effectively supplement (or be supplemented by) Social Security payments. About half the balanced portfolio's income comes from interest on bonds, and the other half from dividends, mostly from large-cap stocks. With only 3 significant exceptions, the dividends on the S&P 500 Index have increased every year since the Index began 90 years ago, in 1926....

A combination of Social Security payments and dividends from index funds (supplemented as necessary with withdrawals of capital) are likely to be an effective means of enjoying regular monthly income from your retirement assets."
Note the part that says “supplemented as necessary . . .”
Yes, that quote from Bogle looks like it says that you should live on SS and dividends and ends up not saying that at all. One is left completely perplexed as to what Mr. Bogle actually intended this to mean. In reality it is just a recitation of what actually happens to most people, which is that they have Social Security, they have bonds that pay interest (called dividends if a fund), they have stocks (funds) that pay dividends, and they sell shares and withdraw the proceeds. Besides that, if the assets are in tax deferred accounts the interest and the dividends cannot be withdrawn as such anyway; all that exists is whatever distributions one takes from the accounts. Mr. Bogle does not mention that. He also does not include pensions or annuities in his description.
It makes absolute sense to spend any interest/dividends from taxable accounts before doing any withdrawals (from any type of account), if maybe that is what he was getting at.

But if not, I agree the statement doesn’t clear anything up.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Anyone retired and living off SS and Dividends?

Post by TG2 »

TheTimeLord wrote: Sun May 22, 2022 11:37 am Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?
Well, no, I did not increase my allocation. I have always been 100/0 and have never held bonds. I also don't expect that to ever change. All of my base expenses are more than covered just by SS alone so do not even need dividends. With a $1 million+ portfolio, I do not have to live on that little but I could if necessary. Do I feel safe taking risk? Of course. I figure I only need about a quarter of a million invested to get by the rest of my life. All of my investments over that are a bonus. The only problem I have is that I have to increase spending to make sure that my withdrawal rate is not negative! Fortunately I am figuring that part out. :D
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Re: Anyone retired and living off SS and Dividends?

Post by wolf359 »

dbr wrote: Tue May 24, 2022 9:51 am
delamer wrote: Tue May 24, 2022 9:38 am
AlwaysLearningMore wrote: Mon May 23, 2022 9:20 pm You asked if 'anyone retired is living off Social Security and dividends?'

From John C. Bogle's The Little Book of Common Sense Investing, 10th Anniversary Edition, 2017, pages 243-244:

"...As we age, we begin to rely less on the human capital that has largely got us to where we are today, and more on our investment capital. Finally, what's most important when we retire is the stream of income we need to support our needs -- the dividend checks we receive from our mutual fund investments and the monthly checks we receive from our Social Security payments.

Yes, the market value of our capital is important...What we really seek is retirement income that is steady and, if possible, grows with inflation.

Social Security fits those criteria perfectly. And, with moderate risk, a balanced mutual fund portfolio can effectively supplement (or be supplemented by) Social Security payments. About half the balanced portfolio's income comes from interest on bonds, and the other half from dividends, mostly from large-cap stocks. With only 3 significant exceptions, the dividends on the S&P 500 Index have increased every year since the Index began 90 years ago, in 1926....

A combination of Social Security payments and dividends from index funds (supplemented as necessary with withdrawals of capital) are likely to be an effective means of enjoying regular monthly income from your retirement assets."
Note the part that says “supplemented as necessary . . .”
Yes, that quote from Bogle looks like it says that you should live on SS and dividends and ends up not saying that at all. One is left completely perplexed as to what Mr. Bogle actually intended this to mean. In reality it is just a recitation of what actually happens to most people, which is that they have Social Security, they have bonds that pay interest (called dividends if a fund), they have stocks (funds) that pay dividends, and they sell shares and withdraw the proceeds. Besides that, if the assets are in tax deferred accounts the interest and the dividends cannot be withdrawn as such anyway; all that exists is whatever distributions one takes from the accounts. Mr. Bogle does not mention that. He also does not include pensions or annuities in his description.
Remember, that book was originally written in the early 2000's, and published in 2007. Mr. Bogle's advice needs to be taken within the context of the time and from his (much longer) investing experience and history.

During the 90 years between 1871 and 1960, the S&P 500 annual dividend yield never fell below 3%. In fact, annual dividends reached above 5% during 45 separate years over the period. The average dividend yield between 1970 and 1990 was 4.03%. Although it declined to 1.90% between 1991 and 2007 (when the book was originally published), bond interest rates were higher than now and declining, leading to a steady climb in bond value.

A 60/40 balanced fund strategy was very popular during this period and was quite viable. It was considered so traditional and common that he felt no need to elaborate or explain it in detail.

What is perplexing now (after a 2 decade war on savers and very low interest rates) made more sense back then.
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Re: Anyone retired and living off SS and Dividends?

Post by petulant »

TheTimeLord wrote: Tue May 24, 2022 9:23 am
petulant wrote: Tue May 24, 2022 6:45 am Let me suggest a related alternative to OP. Consider adding a third element, a single-premium immediate annuity (SPIA). A SPIA has the underlying economics of bonds, but it does not fluctuate like a bond fund. The SPIA makes distributions that are driven by interest income and by a return of principal. The payments are guaranteed throughout the retiree's lifetime, even after all principal has been returned, relying on "mortality credits," which are payments made after other retirees passed away before receiving their entire principal back.

Assume a simple numerical example similar to one earlier in the thread where a couple want to live on $100,000 per year, have $60,000 in combined social security benefits, and have a $2M stock portfolio generating 2% dividends of $40,000. It is likely that the couple could get a joint life annuity with a payout ratio of 5-6%, meaning they could generate $40,000 with an annuity principal of only about $727,000 (40000/.055). But that would still leave approximately $1.3M in stocks, which could be left to grow for some time. Further, this would work even if the couple only had a $1.5M portfolio, such that they could buy a $727,000 SPIA and still have over $750,000 in the stock portfolio to grow.

In other words, if the goal is to choose a reasonable level of income draw with which to be content, and then be aggressive with the remainder of the portfolio, such a goal could be met with a SPIA/SS income base and then remaining assets in a stock portfolio.
My 2 biggest objections to SPIA, and correct me if I am mistaken, no inflation adjustments and state level of insurance.
SPIAs are typically not inflation adjusted, but they can be purchased with a pre-planned escalation factor like 2% per year. More importantly, a SPIA stands in the context of an overall financial situation, not just by itself. First, SS+SPIA has an inflation adjustment on the SS. For some retirees, they may find that while they experience some inflation, they do not experience as much as the CPI, so an increase in SS is reasonable--for example, for homeowner retirees. Second, with 1/2 to 2/3 of the portfolio still invested separately, the retiree could make a decision at any point to add a new annuity or start withdrawing some portion of the portfolio in the future. Additionally, the retiree would likely be well-served to start with more than the non-negotiable budget. Using the previous example numbers, imagine the retiree needs about $80K at a minimum to live, but works in $20K per year to cover non-essential travel, fun activities, gifts, etc. That provides a lot of runway for inflation--if it's 3%, that means the retiree won't get below the $80K in starting, real money (the minimum) for 25 years. (It takes that long because while the $80K might go up 3%, so does $60K of the SS.) In other words, obviously somebody who puts 100% of their wealth into a SPIA (which is probably not even legal for the insurance agent) will face a severe inflation threat, but to just wave your hands and say inflation!! to a SPIA for a portion of the portfolio doesn't really make sense.

Second, what does state level of insurance have to do with it? You're talking about relying on corporate dividends that have no contractual guarantee for up to 40% of living expenses, but you might complain about state insurance not covering 100% from AA or AA+ insurance companies that have never had issues?
TN_Boy
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

dbr wrote: Tue May 24, 2022 9:26 am
TheTimeLord wrote: Tue May 24, 2022 9:23 am
petulant wrote: Tue May 24, 2022 6:45 am Let me suggest a related alternative to OP. Consider adding a third element, a single-premium immediate annuity (SPIA). A SPIA has the underlying economics of bonds, but it does not fluctuate like a bond fund. The SPIA makes distributions that are driven by interest income and by a return of principal. The payments are guaranteed throughout the retiree's lifetime, even after all principal has been returned, relying on "mortality credits," which are payments made after other retirees passed away before receiving their entire principal back.

Assume a simple numerical example similar to one earlier in the thread where a couple want to live on $100,000 per year, have $60,000 in combined social security benefits, and have a $2M stock portfolio generating 2% dividends of $40,000. It is likely that the couple could get a joint life annuity with a payout ratio of 5-6%, meaning they could generate $40,000 with an annuity principal of only about $727,000 (40000/.055). But that would still leave approximately $1.3M in stocks, which could be left to grow for some time. Further, this would work even if the couple only had a $1.5M portfolio, such that they could buy a $727,000 SPIA and still have over $750,000 in the stock portfolio to grow.

In other words, if the goal is to choose a reasonable level of income draw with which to be content, and then be aggressive with the remainder of the portfolio, such a goal could be met with a SPIA/SS income base and then remaining assets in a stock portfolio.
My 2 biggest objections to SPIA, and correct me if I am mistaken, no inflation adjustments and state level of insurance.
Those things are considerations. Ironically people tend to be jealous of anyone who has a pension, even a fixed one, so go figure.
I don't think it is THAT ironic. A person with a pension "pays" for that pension over a decades long career. The "payment" is a theoretically lower salary in exchange for that retirement benefit. So the pensioner gets to retirement age, and the "paying" is over -- all the pain is gone :-)

But to get a significant monthly income from an SPIA, you need to write a VERY large check, instantly reducing your current net worth by that amount, in return for a non-inflation indexed income. And that money can never come back. It still might be the right choice ... but that's a big check.

The SPIA may indeed make sense in some situations. I would say that one situation above, where a couple gets 60% of their income from guaranteed inflation indexed SS and have 2M in investments is one where you would have a difficult time (as in never) convincing me to write a 700k check for a non-inflation indexed SPIA paying 40k a year. I'd be very very ... very .. comfortable taking 40k + inflation adjustments from a 2M portfolio. That withdrawal rate is quite low and safe.
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

TheTimeLord wrote: Tue May 24, 2022 9:23 am
petulant wrote: Tue May 24, 2022 6:45 am Let me suggest a related alternative to OP. Consider adding a third element, a single-premium immediate annuity (SPIA). A SPIA has the underlying economics of bonds, but it does not fluctuate like a bond fund. The SPIA makes distributions that are driven by interest income and by a return of principal. The payments are guaranteed throughout the retiree's lifetime, even after all principal has been returned, relying on "mortality credits," which are payments made after other retirees passed away before receiving their entire principal back.

Assume a simple numerical example similar to one earlier in the thread where a couple want to live on $100,000 per year, have $60,000 in combined social security benefits, and have a $2M stock portfolio generating 2% dividends of $40,000. It is likely that the couple could get a joint life annuity with a payout ratio of 5-6%, meaning they could generate $40,000 with an annuity principal of only about $727,000 (40000/.055). But that would still leave approximately $1.3M in stocks, which could be left to grow for some time. Further, this would work even if the couple only had a $1.5M portfolio, such that they could buy a $727,000 SPIA and still have over $750,000 in the stock portfolio to grow.

In other words, if the goal is to choose a reasonable level of income draw with which to be content, and then be aggressive with the remainder of the portfolio, such a goal could be met with a SPIA/SS income base and then remaining assets in a stock portfolio.
My 2 biggest objections to SPIA, and correct me if I am mistaken, no inflation adjustments and state level of insurance.
For what is worth, the state level of insurance would not be a big issue for me if I wanted an SPIA.

The basic SPIA doesn't have inflation adjustments -- imagine how happy you'd be right now if you had taken one of these out in 2020 for example. But even with "normal" inflation after twenty years that check does dwindle quite a bit.

I could be wrong, but I personally think very few financial advisors would recommend an SPIA for a couple with with generous SS benefits (a secure, inflation indexed annuity) who also have a large portfolio.
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TheTimeLord
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

petulant wrote: Tue May 24, 2022 3:16 pm
TheTimeLord wrote: Tue May 24, 2022 9:23 am
petulant wrote: Tue May 24, 2022 6:45 am Let me suggest a related alternative to OP. Consider adding a third element, a single-premium immediate annuity (SPIA). A SPIA has the underlying economics of bonds, but it does not fluctuate like a bond fund. The SPIA makes distributions that are driven by interest income and by a return of principal. The payments are guaranteed throughout the retiree's lifetime, even after all principal has been returned, relying on "mortality credits," which are payments made after other retirees passed away before receiving their entire principal back.

Assume a simple numerical example similar to one earlier in the thread where a couple want to live on $100,000 per year, have $60,000 in combined social security benefits, and have a $2M stock portfolio generating 2% dividends of $40,000. It is likely that the couple could get a joint life annuity with a payout ratio of 5-6%, meaning they could generate $40,000 with an annuity principal of only about $727,000 (40000/.055). But that would still leave approximately $1.3M in stocks, which could be left to grow for some time. Further, this would work even if the couple only had a $1.5M portfolio, such that they could buy a $727,000 SPIA and still have over $750,000 in the stock portfolio to grow.

In other words, if the goal is to choose a reasonable level of income draw with which to be content, and then be aggressive with the remainder of the portfolio, such a goal could be met with a SPIA/SS income base and then remaining assets in a stock portfolio.
My 2 biggest objections to SPIA, and correct me if I am mistaken, no inflation adjustments and state level of insurance.
SPIAs are typically not inflation adjusted, but they can be purchased with a pre-planned escalation factor like 2% per year. More importantly, a SPIA stands in the context of an overall financial situation, not just by itself. First, SS+SPIA has an inflation adjustment on the SS. For some retirees, they may find that while they experience some inflation, they do not experience as much as the CPI, so an increase in SS is reasonable--for example, for homeowner retirees. Second, with 1/2 to 2/3 of the portfolio still invested separately, the retiree could make a decision at any point to add a new annuity or start withdrawing some portion of the portfolio in the future. Additionally, the retiree would likely be well-served to start with more than the non-negotiable budget. Using the previous example numbers, imagine the retiree needs about $80K at a minimum to live, but works in $20K per year to cover non-essential travel, fun activities, gifts, etc. That provides a lot of runway for inflation--if it's 3%, that means the retiree won't get below the $80K in starting, real money (the minimum) for 25 years. (It takes that long because while the $80K might go up 3%, so does $60K of the SS.) In other words, obviously somebody who puts 100% of their wealth into a SPIA (which is probably not even legal for the insurance agent) will face a severe inflation threat, but to just wave your hands and say inflation!! to a SPIA for a portion of the portfolio doesn't really make sense.

Second, what does state level of insurance have to do with it? You're talking about relying on corporate dividends that have no contractual guarantee for up to 40% of living expenses, but you might complain about state insurance not covering 100% from AA or AA+ insurance companies that have never had issues?
If all companies in the index stop paying dividends I still have the shares which is worth many times the amount of the dividends. I am only looking at dividends because whether I like it or not broad based index funds distribute them. Why people see it making more sense to re-invest the dividends then sell shares to cover expenses is a mystery since this already happening automatically and you are already paying taxes on them in your taxable accounts.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Marseille07
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Re: Anyone retired and living off SS and Dividends?

Post by Marseille07 »

9-5 Suited wrote: Mon May 23, 2022 7:15 pm I have no contempt for that. I will quote myself from earlier in this very thread:

“1. Maybe that’s Ok because you want to leave as much as possible to kids or charity.
2. If that’s not your goal, and you have nice things in life you just can’t bring yourself to buy, now is the time! There’s no great reason to spend any lower than 3.5% of a portfolio IMO with the exception of people who live to maximize their bequests.”
I tend to agree 3.5% is the sweet spot, but how did you come up with that? I struggle mightily between 3% and 4%; 3.5% feels "just right," but I don't have studies or research to feel good about 3.5%.
TN_Boy
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

TheTimeLord wrote: Tue May 24, 2022 4:52 pm
If all companies in the index stop paying dividends I still have the shares which is worth many times the amount of the dividends. I am only looking at dividends because whether I like it or not broad based index funds distribute them. Why people see it making more sense to re-invest the dividends then sell shares to cover expenses is a mystery since this already happening automatically and you are already paying taxes on them in your taxable accounts.
Who is saying to re-invest dividends and then sell shares? As a couple of posts have noted, the way most people get money from their investments is:

1) spend interest and dividends (I can come up with reasons to reinvest stock dividends in taxable accounts, but that would go off into a tangent ...most people spend them).
2) sell shares as need to generate more money. This could be shares of stock funds or bond funds incidentally*

That said, I humbly suggest you are overthinking the dividend taxes here.

Suppose you have piles of money and only needed 1% of the portfolio value to fund your lifestyle. But your investments are paying out 1.5% in dividends! Thus you have to pay taxes on a 1.5% dividend ratio.

Does that mean you MUST SPEND all the dividends, all 1.5%? No. No it does not.

Dividends are a tax event, that as you say will happen. But I believe you should think of them as nothing but a tax event, then move on to deciding how you want to extract money from the investments. Don't get tangled up in the tax ramifications (though of course taxes on dividends are why many investors avoid high dividend funds in taxable accounts).

* I am following a strategy of mostly spending from the bond side of portfolio, letting the stocks run ... thus I'm spending interest, dividends, and selling shares of bond funds.
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Re: Anyone retired and living off SS and Dividends?

Post by BigJohn »

TheTimeLord wrote: Tue May 24, 2022 4:52 pm If all companies in the index stop paying dividends I still have the shares which is worth many times the amount of the dividends. I am only looking at dividends because whether I like it or not broad based index funds distribute them. Why people see it making more sense to re-invest the dividends then sell shares to cover expenses is a mystery since this already happening automatically and you are already paying taxes on them in your taxable accounts.
I agree that reinvesting then selling doesn’t make a lot of sense but I’m not sure I’ve seen many advocate that approach. What I think is the more common advice is that you shouldn’t base your investment decisions on what it takes to get enough dividends so that you never have to sell. This could manifest itself in either fund choices (ie a high dividend yield or junk bond fund) or in a higher stock allocation than you might otherwise be comfortable with. My approach is to set a conservative AA, use total index funds and only high quality bonds. Dividend reinvestment is turned off and if this does generate enough income, I’ll sell share as needed to cover expenses.
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Re: Anyone retired and living off SS and Dividends?

Post by carminered2019 »

I am working on strictly living off my dividends by age 60 and I don't see a problem of getting there.
Leesbro63
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Re: Anyone retired and living off SS and Dividends?

Post by Leesbro63 »

TN_Boy wrote: Tue May 24, 2022 4:42 pm For what is worth, the state level of insurance would not be a big issue for me if I wanted an SPIA.
It should be. We assisted my mother in purchasing an AIG inflation indexed annuity in 2007. AIG would be gone had the Fed not bailed them out in 2008. I realize now that the annuity was probably priced better than the competition, at the time, because there was stuff going on that the public did not know. It all worked out and she's sitting pretty with an inflation indexed annuity, with no inflation cap. You can't get that today. But it was that close <holding my fingers close together> to being a total bust.

I'd never buy more than the state guarantee amount with any one annuity provider (insurer).
TN_Boy
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

Leesbro63 wrote: Tue May 24, 2022 5:48 pm
TN_Boy wrote: Tue May 24, 2022 4:42 pm For what is worth, the state level of insurance would not be a big issue for me if I wanted an SPIA.
It should be. We assisted my mother in purchasing an AIG inflation indexed annuity in 2007. AIG would be gone had the Fed not bailed them out in 2008. I realize now that the annuity was probably priced better than the competition, at the time, because there was stuff going on that the public did not know. It all worked out and she's sitting pretty with an inflation indexed annuity, with no inflation cap. You can't get that today. But it was that close <holding my fingers close together> to being a total bust.

I'd never buy more than the state guarantee amount with any one annuity provider (insurer).
I'd stay under the state guarantee amount, sure. Just like I'd stay under 250k deposited in a bank account.

Was your mom's AIG annuity over the state guarantee amount?

I might have misread the original comment. By "state level" I was generally thinking, "will the state step in and take care of things if the insurer goes away." I wasn't thinking of the actual $$ guarantee amount, my mistake. Yes, I would buy multiple annuities rather than go over the limit with one. But I don't think buying multiple annuities is likely to be a big issue.
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TheTimeLord
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

TN_Boy wrote: Tue May 24, 2022 5:36 pm
TheTimeLord wrote: Tue May 24, 2022 4:52 pm
If all companies in the index stop paying dividends I still have the shares which is worth many times the amount of the dividends. I am only looking at dividends because whether I like it or not broad based index funds distribute them. Why people see it making more sense to re-invest the dividends then sell shares to cover expenses is a mystery since this already happening automatically and you are already paying taxes on them in your taxable accounts.
Who is saying to re-invest dividends and then sell shares? As a couple of posts have noted, the way most people get money from their investments is:

1) spend interest and dividends (I can come up with reasons to reinvest stock dividends in taxable accounts, but that would go off into a tangent ...most people spend them).
2) sell shares as need to generate more money. This could be shares of stock funds or bond funds incidentally*

That said, I humbly suggest you are overthinking the dividend taxes here.

Suppose you have piles of money and only needed 1% of the portfolio value to fund your lifestyle. But your investments are paying out 1.5% in dividends! Thus you have to pay taxes on a 1.5% dividend ratio.

Does that mean you MUST SPEND all the dividends, all 1.5%? No. No it does not.

Dividends are a tax event, that as you say will happen. But I believe you should think of them as nothing but a tax event, then move on to deciding how you want to extract money from the investments. Don't get tangled up in the tax ramifications (though of course taxes on dividends are why many investors avoid high dividend funds in taxable accounts).

* I am following a strategy of mostly spending from the bond side of portfolio, letting the stocks run ... thus I'm spending interest, dividends, and selling shares of bond funds.
I don't think so. But then again for me this is about having a higher equity allocation not dividends. And to that end the bottom line question about dividends is about whether or not it is reasonable to expect them to provide some cushion when the market is down.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
dbr
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

TheTimeLord wrote: Tue May 24, 2022 6:02 pm

I don't think so. But then again for me this is about having a higher equity allocation not dividends. And to that end the bottom line question about dividends is about whether or not it is reasonable to expect them to provide some cushion when the market is down.
The direct answer to that is no. The indirect answer is that a low withdrawal rate is a cushion against the volatility of a high stock allocation.

A different way to see that is to look at the incidence of portfolio failure and see if that depends on asset allocation. The answer to that is that if the withdrawal rate is too high then all asset allocations are likely to fail at typical times such as 30 years. If the withdrawal rate is low then no asset allocations fail. The borderline between the two is somewhere around the infamous 4% which is fairly safe as long as the stock allocation is more than about 30% but can fail badly if there are not enough stocks. It is not particularly harmful to the withdrawal rate to go 100% stocks unless one wants to hypothesize some extreme market disaster and even 1929 survived a 3.8% withdrawal rate.

Again, the likelihood of your retirement withdrawals failing has nothing directly to do with the existence of more or less in dividends. A person can get very confused about this if the result of withdrawing only dividends is to take a very low withdrawal rate, such as no more than 2% as would be the case today if the investment is in a total market index fund or even in Vanguard's high dividend fund with a current yield of 2.75%.

If the question you want answered is that for some reason you want a high stock allocation and you are worried that you will not be able to sustain your retirement by doing that, then the answer is what is your proposed withdrawal rate?
AlwaysLearningMore
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Re: Anyone retired and living off SS and Dividends?

Post by AlwaysLearningMore »

delamer wrote: Tue May 24, 2022 9:38 am
AlwaysLearningMore wrote: Mon May 23, 2022 9:20 pm You asked if 'anyone retired is living off Social Security and dividends?'

From John C. Bogle's The Little Book of Common Sense Investing, 10th Anniversary Edition, 2017, pages 243-244:

"...As we age, we begin to rely less on the human capital that has largely got us to where we are today, and more on our investment capital. Finally, what's most important when we retire is the stream of income we need to support our needs -- the dividend checks we receive from our mutual fund investments and the monthly checks we receive from our Social Security payments.

Yes, the market value of our capital is important...What we really seek is retirement income that is steady and, if possible, grows with inflation.

Social Security fits those criteria perfectly. And, with moderate risk, a balanced mutual fund portfolio can effectively supplement (or be supplemented by) Social Security payments. About half the balanced portfolio's income comes from interest on bonds, and the other half from dividends, mostly from large-cap stocks. With only 3 significant exceptions, the dividends on the S&P 500 Index have increased every year since the Index began 90 years ago, in 1926....

A combination of Social Security payments and dividends from index funds (supplemented as necessary with withdrawals of capital) are likely to be an effective means of enjoying regular monthly income from your retirement assets."
Note the part that says “supplemented as necessary . . .”
Yes, I know: I typed the post. It's not surprise he wrote that, is it?
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delamer
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Re: Anyone retired and living off SS and Dividends?

Post by delamer »

AlwaysLearningMore wrote: Tue May 24, 2022 6:28 pm
delamer wrote: Tue May 24, 2022 9:38 am
AlwaysLearningMore wrote: Mon May 23, 2022 9:20 pm You asked if 'anyone retired is living off Social Security and dividends?'

From John C. Bogle's The Little Book of Common Sense Investing, 10th Anniversary Edition, 2017, pages 243-244:

"...As we age, we begin to rely less on the human capital that has largely got us to where we are today, and more on our investment capital. Finally, what's most important when we retire is the stream of income we need to support our needs -- the dividend checks we receive from our mutual fund investments and the monthly checks we receive from our Social Security payments.

Yes, the market value of our capital is important...What we really seek is retirement income that is steady and, if possible, grows with inflation.

Social Security fits those criteria perfectly. And, with moderate risk, a balanced mutual fund portfolio can effectively supplement (or be supplemented by) Social Security payments. About half the balanced portfolio's income comes from interest on bonds, and the other half from dividends, mostly from large-cap stocks. With only 3 significant exceptions, the dividends on the S&P 500 Index have increased every year since the Index began 90 years ago, in 1926....

A combination of Social Security payments and dividends from index funds (supplemented as necessary with withdrawals of capital) are likely to be an effective means of enjoying regular monthly income from your retirement assets."
Note the part that says “supplemented as necessary . . .”
Yes, I know: I typed the post. It's not surprise he wrote that, is it?
It’s just not a good argument for living off dividends.
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marcopolo
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Re: Anyone retired and living off SS and Dividends?

Post by marcopolo »

TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.

[Edited my original post per Mod suggestion to better represent my reason for asking this question]

I read a post a while back and it got me thinking, could the income stream produced by the dividends of broad based index funds be an offset to the need for bonds once someone started collecting SS, a pension or annuity that was sufficient to covert majority of their base expenses. The idea is that for those who accumulate more than the standard (my perception) 25x-33x by retirement, choosing a AA between 30/70-60/40 most likely won't change their financial situation. For those individuals (like myself), they would need to take more risk in order to produce returns that would make a true difference in their finances and they are in the fortunate position to have the ability to take some additional risk. That said. the risk needs to be measured and some sort of base needs to be in place just in case equities entered a period of prolonged downturn. Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?
Thinking about living off "just the dividends" is just a distraction. I assume a portion of your assets are in tax deferred accounts, so you may not be able to access them directly at this point anyway. So, unless you are living off your dividends in just your taxable account, you are selling some of your holdings anyway. You might re-invest in the tax deferred account to compensate, but that just highlights that dividends are just forced sales.

There is nothing special about the percentage of the dividend yield. What you are really asking is "if I have a ton of money, can I invest more in stocks and live off a sub 2% WR"? Sure, that is part "ability to take more risk".

At you level of assets, and continuing income streams, you might consider a "spend what we need to enjoy life" withdrawal approach.
Once in a while you get shown the light, in the strangest of places if you look at it right.
dbr
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

TheTimeLord wrote: Tue May 24, 2022 6:02 pm

I don't think so. But then again for me this is about having a higher equity allocation not dividends. And to that end the bottom line question about dividends is about whether or not it is reasonable to expect them to provide some cushion when the market is down.
The direct answer to that is no. The indirect answer is that a low withdrawal rate is a cushion against the volatility of a high stock allocation.

A different way to see that is to look at the incidence of portfolio failure and see if that depends on asset allocation. The answer to that is that if the withdrawal rate is too high then all asset allocations are likely to fail at typical times such as 30 years. If the withdrawal rate is low then no asset allocations fail. The borderline between the two is somewhere around the infamous 4% which is fairly safe as long as the stock allocation is more than about 30% but can fail badly if there are not enough stocks. It is not particularly harmful to the withdrawal rate to go 100% stocks unless one wants to hypothesize some extreme market disaster and even 1929 survived a 3.8% withdrawal rate.

Again, the likelihood of your retirement withdrawals failing has nothing directly to do with the existence of more or less in dividends. A person can get very confused about this if the result of withdrawing only dividends is to take a very low withdrawal rate, such as no more than 2% as would be the case today if the investment is in a total market index fund or even in Vanguard's high dividend fund with a current yield of 2.75%.

If the question you want answered is that for some reason you want a high stock allocation and you are worried that you will not be able to sustain your retirement by doing that, then the answer is what is your proposed withdrawal rate?

PS I can add that if you look at 18 year retirement so that I can see data in my visualizer it takes a 4.8% withdrawal rate for 100% stocks in 2010 to fail, but 1966, 1068, 1969, and 1973 fail before 2010 fails and at 4.9%, 1929 fails. None of those fail for an 80/20 allocation, but if you cut the withdrawal rate to 4.5% only asset allocations of less than 20% in stocks fail. And so on and so forth.
dbr
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

marcopolo wrote: Tue May 24, 2022 6:34 pm

Thinking about living off "just the dividends" is just a distraction.
This sums up every thread we have on this, but they keep getting posted anyway.

One replies because the forum should not let misperceptions go on.

And to repeat, it is a distraction and not something that is right or is wrong, but mostly irrelevant.
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