thoughts on retirement portfolio and advise

[parhur]

I have about 5 years till retirement. My question is moving from a growth type portfolio of mainly stocks to a dividend paying portfolio. Can I assume from a mix of REITS, preferred and common stocks, MLPs and some bonds that I could receive a 6 to 6.5% rate of return. I plan on retiring with $700,000 and using $600,000 to create a 6% dividend stream. Leaving $100,000 for growth. I really don't want to do the 4% withdraw plan. In Ya'll's opinion is this feasible or am I wish full thinking. Please advise.

 

[MBAustin]

Welcome, parhur. With the limited info you've provided, I think most folks here would think this is a risky plan. What are your issues with the traditional 3-4% (depending on your age at retirement) withdrawal strategy?

 

[Meadbh]

I have about 5 years till retirement. My question is moving from a growth type portfolio of mainly stocks to a dividend paying portfolio. Can I assume from a mix of REITS, preferred and common stocks, MLPs and some bonds that I could receive a 6 to 6.5% rate of return. I plan on retiring with $700,000 and using $600,000 to create a 6% dividend stream. Leaving $100,000 for growth. I really don't want to do the 4% withdraw plan. In Ya'll's opinion is this feasible or am I wish full thinking. Please advise.

NO.

 

[REWahoo]

With the limited info you've provided, I think most folks here would think this is a risky plan.

^ What she said.

The logical solutions are a larger portfolio (delaying retirement) and/or reduced spending. Probably not what you wanted to hear.

 

[parhur]

Welcome, parhur. With the limited info you've provided, I think most folks here would think this is a risky plan. What are your issues with the traditional 3-4% (depending on your age at retirement) withdrawal strategy?

I just don't like the ideal of withdrawing. I guess a 4% withdraw would be ok if the funds are growing 6 to 10%.

 

[jjflyman]

IMO, it is risky to have almost all your money in the stock market. The stock market is great, until it isn't. And it can drop significantly in a hurry, with no warning. Counting on (or expecting) 6-8% return on you money in the market is risky.

 

[pb4uski]

You can probably create a 6% dividend stream, but it will likely be highly volatile and high risk. No disrespect to the OP, but it is a bit of a naive question.

Now if you want a 6% total return, that is a whole different kettle of fish.

 

[NW-Bound]

Many stocks paying 6% dividend paid 3% before they ran into trouble and their price dropped in half. That's how the yield was doubled.

Then, their price dropped again, and they cut dividends, or even go bankrupt.

It's not as safe as it seems.

 

[bingybear]

Many stocks paying 6% dividend paid 3% before they ran into trouble and their price dropped in half. That's how the yield was doubled.

Then, their price dropped again, and they cut dividends, or even go bankrupt.

It's not as safe as it seems.

I had a friend who showed me his retirement portfolio. He had MLPs that kicked out a really nice distribution and the price oscillated between $20 and $28. I think it still kicks out a similar % dividend (haven't really checked), but is is not under $4/sh. Many MLPs took a beating a few years ago.
If you are real good a picking your investments, monitoring them, and trading them before the fall.... then it might work. My friend did well until he didn't.

What you are proposing is likely doable if you are good. But I don't take that risk level as I don't have a rich uncle to refund my retirement.

 

[Chuckanut]

MLPs strike me as very risky for the vast majority of people.

 

[CyclingInvestor]

As a hard-core dividend investor since 1993, especially since retirement in 2006, I have found very few stocks (no MLPs or preferreds for me) that even yield 5% that are both reasonably safe and offer much dividend growth. My current portfolio yields 3.7% (29 stocks, of which 7 are REITs, 2 are pipeline, and 1 utility), with dividends growing about 8% each year. I would have trouble raising the yield without lowering standards. I have been hit 3 times by dividend cuts in that time (included in the average dividend growth). A 6% target would involve owning riskier stocks, probably with little prospect of growth.

 

[GravitySucks]

Before I pee in your corn flakes, can you tell us:
How old are you?
Any expected pension?
Any SS?
What's your expected health insurance cost?

 

[DrRoy]

Don't get hung up on the word "withdrawing". It is about the amount that is safe to spend each year, not about the yield of your portfolio. Your safe WR also depends on your age and other sources of income, which you did not give.

 

[marko]

IMO I wouldn't confuse a portfolio income stream with a withdrawal rate. Inflation is lurking out there, among other things.

As others have noted there's some risk with high paying dividend outfits. I once owned WWE which was paying a 10% dividend. Now, not so much.

 

[audreyh1]

I just don't like the ideal of withdrawing. I guess a 4% withdraw would be ok if the funds are growing 6 to 10%.

I think you need to study portfolio survival to understand why moving above a 4% withdrawal rate is a risky plan for 30 year retirement period, and why some folks choose an even lower rate, especially for longer expected retirements. Read the FIRECALC page and run some scenarios comparing your desired rate and the more traditional recommendations. You’ll see why you can’t count on some future growth rate. It’s not that simple.

 

[audreyh1]

As a hard-core dividend investor since 1993, especially since retirement in 2006, I have found very few stocks (no MLPs or preferreds for me) that even yield 5% that are both reasonably safe and offer much dividend growth. My current portfolio yields 3.7% (29 stocks, of which 7 are REITs, 2 are pipeline, and 1 utility), with dividends growing about 8% each year. I would have trouble raising the yield without lowering standards. I have been hit 3 times by dividend cuts in that time (included in the average dividend growth). A 6% target would involve owning riskier stocks, probably with little prospect of growth.

This.

 

[racy]

Quoting from this article (http://review.chicagobooth.edu/fina...y-though-lots-investors-seem-think-they-are):
"Investors should be indifferent to sources of return, after accounting for frictions such as taxes and trading costs. A $1 dividend from a share of stock should be no more meaningful than selling $1 worth of shares, as the share price on average drops by the amount of the dividend when it is paid. But Chicago Booth’s Samuel Hartzmark and University of Southern California’s David H. Solomon demonstrate that, in practice, many investors see a stock’s dividend as an income stream, separate from the price appreciation of the stock. The researchers call this the “free-dividends fallacy.”

 

[marko]

A $1 dividend from a share of stock should be no more meaningful than selling $1 worth of shares, as the share price on average drops by the amount of the dividend when it is paid.

Well, we've discussed this dead horse ad-finitum and I don't want to restart it now. But I always think of it as selling trees versus selling the land that the trees grow on.

False thinking, I know, but it helps me sleep at night.

 

[bingybear]

False thinking, I know, but it helps me sleep at night.

+1

 

[pb4uski]

....False thinking, I know....

Yup... that's why they call it a fallacy.

 

[slv1]

I would say it's a risky idea. To get the returns you are asking it would have to be very high yield bonds etc. The other term for that is "junk bonds".

 

[FreeBear]

Agreed that depending on 6 percent every year for say 30 is risky. What about a flexible withdrawal plan, perhaps more than 6% on good years, but potentially much less on bad ones. Need integrated financial plan accounting for social security, age/longevity, marital status, expenses (survival vs desired), etc.

 

[foxfirev5]

Well, we've discussed this dead horse ad-finitum and I don't want to restart it now. But I always think of it as selling trees versus selling the land that the trees grow on.

False thinking, I know, but it helps me sleep at night.

But at least today you don't have to pay an advisor 1%+ to manage it for you. The old school never touching the principal is now trickling down four generations in my family. And that first generation started with less than nothin'. (it also helped that each generation had fewer kids than the prior).

 

[OldShooter]

... Can I assume from a mix of REITS, preferred and common stocks, MLPs and some bonds that I could receive a 6 to 6.5% rate of return. ...

You can assume anything you like. Assume 10% if you want to.

The real world, however, will tell you your yield and it is unlikely to be as generous as you want it to be, particularly if we see mean reversion in stock markets' growth.