Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 08-25-2016, 09:35 AM   #21
Thinks s/he gets paid by the post
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 4,668
Quote:
Originally Posted by Amethyst View Post
I got fed up with paying taxes on reinvested CG, and then trying to account for the already-paid-taxes-on-it-part when I sold shares. The mutual fund companies are unable to take previously-paid taxes into account when they compute your gains. So I figured we were paying some portion of our taxes twice. Now I just take the CG in cash and reinvest them somewhere else...or spend them, as we have had a lot of expenses in the past five years.

Nobody told us about this nonsense when we started investing....it was all, "Oh, buy a no-load mutual fund, and be sure to send them a check every month, it's called dollar cost averaging!"
Really? They weren't increasing your basis in the fund with reinvested CGs?
__________________

__________________
RunningBum is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-25-2016, 09:50 AM   #22
Thinks s/he gets paid by the post
 
Join Date: May 2014
Posts: 2,742
I agree with Runningbum; the brokerage reports your basis (what you paid for it PLUS any distributions already taxed) when you sell. Investors used to have to keep track of that but this way it's convenient for you and makes the IRS happy since the basis is less likely to be fudged.
__________________

__________________
athena53 is offline   Reply With Quote
Old 08-25-2016, 09:53 AM   #23
Recycles dryer sheets
 
Join Date: Dec 2014
Location: St. Charles
Posts: 446
Quote:
Originally Posted by W2R View Post

Living off my dividends is a sort of game that I play with myself, just to see if I can do it. I realize that I would be fine just taking 3.5% off the top and that was my original plan. However for the first six years of my retirement, up until last year, I was taking an average of 2.0% and felt more at ease spending that amount. That 2.0% was easily covered by dividends alone for each individual year.
OP here. W2R's comment is really closer to what I was driving at. With 2/3 of our investments in tax deferred accounts we will make an effort to do Roth conversions, as opposed to spending from the deferred account.
__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
CardsFan is offline   Reply With Quote
Old 08-25-2016, 10:17 AM   #24
Full time employment: Posting here.
 
Join Date: Nov 2009
Posts: 504
Quote:
Originally Posted by CardsFan View Post
I know most here look at total return investing, and up until now, that has been my focus. Now that I am retired, I am looking at the accounts in more detail, and it seems that just income, which was over 5% last year, could support us (actually 30 % more income than we budget!). I assume this is all factored in to the Trinity study and FireCalc, but it is a bit of an eyeopener. I know things change over time, and in a big down market the income could go down a lot, and I know you need to account for future inflation, but still.... When SS kicks in in 5 years at FRA, our income needs will be cut in half.

Looks like we might leave a lot of money on the table
Quote:
Originally Posted by ejman View Post
That's what I've been doing since ER end of 2002. Works for me. It's really beyond my comprehension how (apparently) some folks reinvest their taxable dividends and Cap Gains in their taxable accounts and then take out (sell shares) in the same accounts for their annual withdrawals. But to each his own...
We've been living off taxable account dividends and occasionally LTCGs since we retired (retired at 58 - 7 years now). Also take divs (occasionally LTCGs) off Roth accounts as they don't count against income with Affordable Care Act. We both took social Security @ 62, but wife's is not used for base living expenses (as it goes away when one of us does). We lived off savings stash before then.

Have the quarterly Divs set up to transfer directly to our local bank. Take the year end realized LTCGs occasionally to replenish our cash account at Ally (normally reinvest). Haven't had to sell anything during the last seven years (for cars, daughter's wedding, etc) working it this way. Taxable is less than a third of our investments, and look to do Roth conversions between 65-70 to minimize IRA taxes when RMDs kick in at 70.5. Affordable care act subsidy manipulation for another 1.5 years for wife.
__________________
fritz is offline   Reply With Quote
Fill 15% Bucket with Cap Gains instead of Roth Conversions?
Old 08-25-2016, 10:25 AM   #25
Thinks s/he gets paid by the post
Huston55's Avatar
 
Join Date: Jul 2011
Location: The Bay Area
Posts: 1,690
Fill 15% Bucket with Cap Gains instead of Roth Conversions?

Hopefully, this question is enough 'on point' for this thread. (Can't find this specific subject via a thread search.)

When structuring ER income strategies, the question of taking as much income as possible within the 15% tax bracket often arises. Given that most of what I've read about the effectiveness of Roth Conversions hinges on what future tax rates (uncertain) will be, it seems to me that capturing Cap Gains @ 0% tax within the 15% tax bracket (certain) is a better move. Of course this depends on the structure of your investments but, it seems it would work for many.

Thoughts?
__________________
You may be whatever you resolve to be.
Huston55 is offline   Reply With Quote
Old 08-25-2016, 10:57 AM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,584
"Income investors" need to be careful, they can be at higher risk than their "safe" approach might indicate. An article in today's WSJ points out some pitfalls:
-- A recent and unusual correlation between stock prices and dividends. The growth in investors hunting for dividends has pumped up the prices for high dividend payers==an likely asset bubble that will cause a significant loss in balances when the values reset. The drop could make up for many years of "safe high dividends" investors were expecting.

Quote:
The correlation between the S&P 500 and the per-share earnings of its components fell to 0.55 at the end of June from 0.90 a year earlier. That relationship, while still mildly positive, was at its lowest since 2002, according to S&P Global Market Intelligence.
(Embedded graphic)

Over the past decade, the two had been highly correlated based on the traditional premise that the more companies earn, the higher their stocks should rise. But the breakdown is one sign that other factors are driving the market.

Enter dividends, which are finding favor among investors who are starved of yield in the fixed-income markets or who are looking for stocks that they see as less risky.
That’s elevated the link between the S&P 500 and dividend yields of its components, or the annual percentage of the share price paid out in dividend income for the 12 months through each quarter. The correlation was at 0.80 at the end of the second quarter, compared with its average of minus-0.1 since 1941. It had been negative as recently as September 2014, according to S&P.
(Embedded graphic)
-- Many companies paying increased dividends despite lack of earnings growth. To pump up stock prices, a response to the demand for high dividend stocks. Obviously unsustainable, will likely end badly

The link:Dividends Can’t Drive This Market Forever - MoneyBeat - WSJ

Add to this the "normal" issues with dividend-focused investment approach (typically highly focused in certain market sectors= uncompensated risk, etc)

TANSTAAFL
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 08-25-2016, 11:11 AM   #27
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 2,890
Certainly agree that income oriented investors have to be careful about their div payers. It's one of the reasons I pick my own equities and don't rely on MF's or ETF's. Payout ratios are key and I follow these carefully. Other important metric is div growth. Working out for me.
__________________
Danmar is offline   Reply With Quote
Old 08-25-2016, 11:54 AM   #28
Recycles dryer sheets
 
Join Date: Jul 2014
Posts: 94
Quote:
Originally Posted by Danmar View Post
Certainly agree that income oriented investors have to be careful about their div payers. It's one of the reasons I pick my own equities and don't rely on MF's or ETF's. Payout ratios are key and I follow these carefully. Other important metric is div growth. Working out for me.
That's me too. I use a high dividend ETF sparingly as an adjunct to the core strategy.
__________________
timemoveson is offline   Reply With Quote
Old 08-25-2016, 12:20 PM   #29
Full time employment: Posting here.
 
Join Date: Nov 2009
Posts: 504
Quote:
Originally Posted by Huston55 View Post
Hopefully, this question is enough 'on point' for this thread. (Can't find this specific subject via a thread search.)

When structuring ER income strategies, the question of taking as much income as possible within the 15% tax bracket often arises. Given that most of what I've read about the effectiveness of Roth Conversions hinges on what future tax rates (uncertain) will be, it seems to me that capturing Cap Gains @ 0% tax within the 15% tax bracket (certain) is a better move. Of course this depends on the structure of your investments but, it seems it would work for many.

Thoughts?
I always looked at it from the married couple perspective - taxable window for married couples' 15% tax bracket is much higher than when one of you dies and you're now taxed as a single person. For us - it's enough of a gap to pull larger amounts for Roth conversions safely within that 15% bracket.
__________________
fritz is offline   Reply With Quote
Old 08-25-2016, 12:23 PM   #30
Full time employment: Posting here.
 
Join Date: Nov 2009
Posts: 504
Quote:
Originally Posted by samclem View Post
"Income investors" need to be careful, they can be at higher risk than their "safe" approach might indicate. An article in today's WSJ points out some pitfalls:
-- A recent and unusual correlation between stock prices and dividends. The growth in investors hunting for dividends has pumped up the prices for high dividend payers==an likely asset bubble that will cause a significant loss in balances when the values reset. The drop could make up for many years of "safe high dividends" investors were expecting.

-- Many companies paying increased dividends despite lack of earnings growth. To pump up stock prices, a response to the demand for high dividend stocks. Obviously unsustainable, will likely end badly

The link:Dividends Canít Drive This Market Forever - MoneyBeat - WSJ

Add to this the "normal" issues with dividend-focused investment approach (typically highly focused in certain market sectors= uncompensated risk, etc)

TANSTAAFL
We're 52% stock and 48% bonds (medium duration corporates yielding +2.25%)
__________________
fritz is offline   Reply With Quote
Old 08-25-2016, 12:57 PM   #31
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 2,112
+1 on samclem

I have the impression that the new 'always win' strategy of 'everyone' is buying low beta dividend yielders. I guess due to comparing dividends with savings and bond yields + their success in coming through 2009.

Valuations there, consumer staples and discretionary essentially, are going up much more than the market it seems, creating a mini-bubble of sorts.

P&G, Pepsi, KO, Kraft, Kellogs are all pretty high up there, just like Nike, Starbucks, Yum, Dollar Tree, McD, ..

Yet another safe haven lost?
__________________
Totoro is online now   Reply With Quote
Old 08-25-2016, 01:20 PM   #32
Thinks s/he gets paid by the post
 
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 2,890
Quote:
Originally Posted by Totoro View Post
+1 on samclem

I have the impression that the new 'always win' strategy of 'everyone' is buying low beta dividend yielders. I guess due to comparing dividends with savings and bond yields + their success in coming through 2009.

Valuations there, consumer staples and discretionary essentially, are going up much more than the market it seems, creating a mini-bubble of sorts.

P&G, Pepsi, KO, Kraft, Kellogs are all pretty high up there, just like Nike, Starbucks, Yum, Dollar Tree, McD, ..

Yet another safe haven lost?
Must be different in Canada. Don't own any of these names. I have Cdn names in banking, telco. Pipes. and utilities. My banks in particular have done very well over many years.
__________________
Danmar is offline   Reply With Quote
Old 08-25-2016, 02:21 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 5,461
Send a message via Skype™ to kcowan
Quote:
Originally Posted by Danmar View Post
I think there is general agreement amongst investment professionals that a total return approach is optimal, although there are many who embrace an income approach in retirement. Usual reasons cited include convenience, consistency, and often a sense that divs are in some way more reliable than earnings. But this is unlikely.
I can't stop myself from looking at total return and percentage payout from earnings once in a while, but that does not generate immediate action, just things to watch for an adjustment to mix.
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Old 08-25-2016, 02:46 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 15,475
Quote:
Originally Posted by Huston55 View Post
Hopefully, this question is enough 'on point' for this thread. (Can't find this specific subject via a thread search.)

When structuring ER income strategies, the question of taking as much income as possible within the 15% tax bracket often arises. Given that most of what I've read about the effectiveness of Roth Conversions hinges on what future tax rates (uncertain) will be, it seems to me that capturing Cap Gains @ 0% tax within the 15% tax bracket (certain) is a better move. Of course this depends on the structure of your investments but, it seems it would work for many.

Thoughts?
For us, this will happen naturally as we are living on taxable accounts from ER at 56 until SS starts at FRA or 70... I liquidate equities in our taxable accounts each year and inevitably realize gains on those liquidations and then top them up to the top of the 15% tax bracket with Roth conversions.

But even if we had much more capital gains than I would realize before 70 I don't think I would focus on that... capital gains will likely continue to be at preferential rates.... I'm paying ~7% federal now on my Roth conversions vs 25% or more later so I'm saving 18%... more than the 15% I'll pay on capital gains later in life.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-25-2016, 02:48 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 15,475
What I always have trouble understanding is that people save for retirement but then fear using principal.... that is what you saved the money for... to spend it in your retirement! IMO if you can live on just income then you probably worked too long and will have wealthy heirs.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 08-25-2016, 02:52 PM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,584
Quote:
Originally Posted by Danmar View Post
Must be different in Canada. Don't own any of these names. I have Cdn names in banking, telco. Pipes. and utilities.
The two red flags to look for:
-- Are the PE10 ratios for your stocks higher than large market indices? Have they gone up a lot in the last few years?
-- Are companies paying out increasing dividends despite flat/decreasing earnings?

Canada is in the same low interest "punish the savers" environment as the US, it would be somewhat surprising if Canadian investors weren't also seeking higher dividend stocks--and maybe bidding them up considerably.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 08-25-2016, 02:54 PM   #37
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,545
Quote:
Originally Posted by pb4uski View Post
What I always have trouble understanding is that people save for retirement but then fear using principal.... that is what you saved the money for... to spend it in your retirement! IMO if you can live on just income then you probably worked too long and will have wealthy heirs.

Speaking as a 'wealthy heir', "never touch the principal" was drummed into me since childhood. As a kid, I'd hear elders tsk-tsk-ing someone who had 'gone to the principal' and hear them wonder aloud 'what are they thinking?!' It was an embarrassment!
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 08-25-2016, 03:15 PM   #38
Full time employment: Posting here.
 
Join Date: Jan 2013
Posts: 890
Quote:
Originally Posted by marko View Post
Speaking as a 'wealthy heir', "never touch the principal" was drummed into me since childhood. As a kid, I'd hear elders tsk-tsk-ing someone who had 'gone to the principal' and hear them wonder aloud 'what are they thinking?!' It was an embarrassment!
+1. Instruction from an early age was never to touch the invested principal. To do so was reducing the assets that produced the income and would eventually put you in a financial hole.

Of course, share buybacks weren't done much 60 years ago...
__________________
Another Reader is offline   Reply With Quote
Old 08-25-2016, 03:26 PM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,584
Quote:
Originally Posted by marko View Post
Speaking as a 'wealthy heir', "never touch the principal" was drummed into me since childhood.
But, if the companies are effectively cutting into principal (paying a dividend by neglecting R&D, marketing, etc) apparently there's no shame in spending that money.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 08-25-2016, 03:42 PM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 15,475
Quote:
Originally Posted by Another Reader View Post
+1. Instruction from an early age was never to touch the invested principal. To do so was reducing the assets that produced the income and would eventually put you in a financial hole.

Of course, share buybacks weren't done much 60 years ago...
But there is a huge difference between NEVER touch principal and sometimes touch principal and routinely touch principal. No one seems to be advocating routinely touching principal but if you touch principal in a bad year to me it is not the end of the world.

From 1976 to 2015 a 60/40 blend returned greater than 4% (assumed withdrawal) in 9 out of 39 (and sometimes only by a little bit) so if someone has a 60/40 portfolio, it will be rare that they would dip into principal, even with a 4% WR. An actually it would be rare that you would touch principal... more likely you would tap into prior undistributed income or unrealized gains.

https://www.mfs.com/wps/FileServerSe...ommand=default
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
With ETFs, Cap Gains and Divs Are Paid Together? Mo Money FIRE and Money 8 03-14-2015 07:06 PM
Retired Early; Interest - Dividends - Capital Gains use to pay annual expenses? nico08 FIRE and Money 8 08-02-2014 04:39 AM
Long term capital gains and qualified dividends and 0% taxation haha FIRE and Money 18 01-13-2013 04:45 PM
Institutional funds- Cap gains and Dividends paid? bizlady Stock Picking and Market Strategy 4 01-18-2011 04:02 PM
Living off of Dividends after FIRE? Carnage FIRE and Money 23 08-12-2010 08:42 AM

 

 
All times are GMT -6. The time now is 04:57 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.