Originally Posted by Gone4Good
Living off of portfolio income is certainly a viable strategy.
But just know that from 2008 to 2009 dividends on the SPX dropped 24%. It took them about 3 years to recover that previous high not accounting for inflation.
So I'd want to make sure I had some cushion to protect against downturns in my income. Dividends aren't quite as reliable or as stable as is widely assumed.
Didn't Ray suggest 3 years of living expenses in cash? Presuming he lives off the dividends and they drop by 25 percent, his 3 years of cash should provide at least 10 years of cushion using the cash to fill in for the lost dividends.
That's a similar strategy, Ray, that I'm shooting for. Although I avoid individual equities all together and use ETF's. VTI/VXUS/SPY/VYM. Current dividend yield is around 2.5%. Div yield Did not fall 24% in financial crisis either. Broadly diversified. No bonds.
Safe withdraw at this level is estimated to be 2.5% or so and still be able to keep up with inflation.
Our WR right now is higher at 3.5% , but we are using part time side hustles to make that 1% up, and to keep portfolio WR to just dividends for the next 5-7 years - sort of a test drive and to reduce longer term SOR risk. We are upper 40s.. Long long time horizon hopefully (God willing).
Edit: And being older of social security age makes this even more feasible as some portion of your income is annuitized and your actual portfolio WR is likely lower due to SS