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thoughts on retirement portfolio and advise
Old 02-22-2018, 11:38 AM   #1
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thoughts on retirement portfolio and advise

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.
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Old 02-22-2018, 01:12 PM   #2
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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?
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Old 02-22-2018, 01:48 PM   #3
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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.
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Old 02-22-2018, 01:58 PM   #4
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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.
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Old 02-22-2018, 02:18 PM   #5
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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%.
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Old 02-22-2018, 02:49 PM   #6
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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.
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Old 02-22-2018, 03:21 PM   #7
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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.
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Old 02-22-2018, 05:17 PM   #8
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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.
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Old 02-22-2018, 07:30 PM   #9
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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.
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Old 02-22-2018, 09:56 PM   #10
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MLPs strike me as very risky for the vast majority of people.
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Old 02-22-2018, 10:55 PM   #11
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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.
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Old 02-22-2018, 11:00 PM   #12
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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?
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Old 02-23-2018, 04:35 AM   #13
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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.
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Old 02-23-2018, 04:46 AM   #14
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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.
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Old 02-23-2018, 05:06 AM   #15
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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. Youíll see why you canít count on some future growth rate. Itís not that simple.
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Old 02-23-2018, 05:08 AM   #16
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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.
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Old 02-23-2018, 05:53 AM   #17
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Quoting from this article (http://review.chicagobooth.edu/finan...ink-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.”
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Old 02-23-2018, 09:14 AM   #18
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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.
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Old 02-23-2018, 09:31 AM   #19
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False thinking, I know, but it helps me sleep at night.
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Old 02-23-2018, 09:35 AM   #20
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....False thinking, I know....
Yup... that's why they call it a fallacy.
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