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Living off of Dividends after FIRE?
Old 08-07-2010, 09:56 AM   #1
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Living off of Dividends after FIRE?

On some of the threads I noticed some forum members saying they're living off of their monthly dividends. I wanted to ask what mix of assets they use to get the payout of those dividends....Bonds (interest payments), stocks, etc.

Right now, with me being only 30 I reinvest all my dividends back into my retirement accounts, but is there a ratio that one can expect to use as an estimate. (For instance, if I have $1 million in my retirement account in a 60/40 stock/bond account I can expect around $X payout per month/quarter)
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Old 08-07-2010, 10:01 AM   #2
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If Unclemick were around (where is he?) you'd get a "pssst, Wellesley" post...

Vanguard Wellesley Income Fund
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Old 08-07-2010, 10:29 AM   #3
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Before making a commitment to that I approach I highly recommend reading this: https://institutional.vanguard.com/i...P_TotalRet.pdf

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Old 08-07-2010, 10:34 AM   #4
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Quote:
Originally Posted by REWahoo View Post
If Unclemick were around (where is he?) you'd get a "pssst, Wellesley" post...

Vanguard Wellesley Income Fund
Keep in mind Wellesley is 40/60. Wellington, https://personal.vanguard.com/us/Fun...FundIntExt=INT is 60/40 but both give you an idea of what different mixes will yield.
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Old 08-07-2010, 10:45 AM   #5
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https://personal.vanguard.com/us/Fun...T#hist=tab%3A1

Let's not forget Vang. High Yield Corp. 7% current yield. I'd wait for a pullback to get into it - price up recently.
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Old 08-07-2010, 11:21 AM   #6
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Quote:
Originally Posted by REWahoo View Post
If Unclemick were around (where is he?) you'd get a "pssst, Wellesley" post...

Vanguard Wellesley Income Fund
He checked in yesterday, but doesn't post much anymore. Maybe the heat has slowed him down.

Just ran an analysis on my AA and I have roughly a 25/75 blend. My stocks are pretty much all dividend producers and the fixed income portion made up of cd's, bond funds, with a small portion in high yield bond funds. My overall yield is close to 3% which is enough to support my budget.
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Old 08-07-2010, 01:04 PM   #7
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Before making a commitment to that I approach I highly recommend reading this: https://institutional.vanguard.com/i...P_TotalRet.pdf

DD
Wow, what a great read, thank you!
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Old 08-07-2010, 01:53 PM   #8
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Almost all from bond funds, and most of that from a single high-yield (not junk) bond fund. The stock mutual fund reinvests its own dividends. Any excess from the bond funds is reinvested into the high-yield (not junk) bond fund.
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Old 08-07-2010, 04:18 PM   #9
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Since stocks yield about 2% and bonds from 4% to 5%, just any old portfolio will put you at 3% or so. So you can live off of dividends easily without doing anything special.
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Old 08-07-2010, 07:12 PM   #10
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I'm floating around 55/45 equities/bonds. bonds are mostly longish munis averaging about 5.7% yield to face value (not market value, since they have gone up in price since I bought them). Dividend and interest yield is around 3.7% or so right now. I do have some T, VZ, and MO thrown into the mix for a tad extra cash flow, but won't be adding much there. Tax on dividends is an issue we need to watch carefully.

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Old 08-07-2010, 09:29 PM   #11
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Dex, I remember when you were advocating Vanguard High Yield and you absolutely nailed it. Could you please give us another heads-up next time around? I'll pay closer attention.
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Old 08-07-2010, 10:04 PM   #12
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We'll be living off a combination of rents and dividends (a small amount of interest) when we eventually quit the rat race. Current projections are about 60% rents and 40% dividends.

A word of caution - in the long run total returns matter more than the dividend yield. Reaching for yield (i.e. buying high yielding stocks only) can be dangerous.
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Old 08-07-2010, 10:46 PM   #13
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Dex, I remember when you were advocating Vanguard High Yield and you absolutely nailed it. Could you please give us another heads-up next time around? I'll pay closer attention.
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A word of caution - in the long run total returns matter more than the dividend yield. Reaching for yield (i.e. buying high yielding stocks only) can be dangerous.
Agreed. I was smart/lucky(? - time will tell) enough to get into hi-yield bonds near their lows. But some smart people here have convincing arguments against them (long term). Since I got in at (what seems like a) a good point, I'm not too worried. But I wouldn't call it a slam-dunk.

another data point - all this talk about AA. I've been surprised at just how insensitive FIRECALC results are to AA. There seems to be a wide latitude that works, so check it out and do whatever is comfortable. At least that's my take, but run the numbers for yourself, what do I know?

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Old 08-08-2010, 12:22 AM   #14
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I would like to have at least my 'fixed' expenses covered with dividends during retirement. I haven't gotten to the amount of $$ that will be yet. But as a general rule I would like approximately 45% of my income during retirement to come from a dividend portfolio (buy and hold) ala CyclingInvestor and ESRwannabe.

Now just to get Congress to keep the 15% (or lower) tax rate on dividends
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Old 08-08-2010, 10:35 AM   #15
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Dex, I remember when you were advocating Vanguard High Yield and you absolutely nailed it. Could you please give us another heads-up next time around? I'll pay closer attention.
Listen to the Aug 8 report - it has a good summary of what to expect. Let me know what you think.
Terry Laundry's T Theory? Observations: Terry Laundry's Weekly T Theory? Observations for August 8 2010
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Old 08-08-2010, 10:41 AM   #16
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But some smart people here have convincing arguments against them (long term). Since I got in at (what seems like a) a good point, I'm not too worried. But I wouldn't call it a slam-dunk.
I am not a buy and holder advocate. There are times for cash, bond or stocks. Listen to the T-Theory posted above. There are cycles in the markets. I plan to be in 100% cash soon.

If, I and others like T-theory are correct - after a decline, High yield corp bonds will be the place for income and price appreciation for 3-6 years. Stocks will be in decline during that time period. When we read stories that the stock market is dead - that will probably be the bottom - similar to the early 80s. We have been in a secular bear market since 2000 and it is not over. The 2016 bottom time period would be in line with the length of other bear market lengths.
http://www.amateur-investor.net/Secu...ll_Markets.htm

These are not my ideas but those smarter than me.

Rothchild said - 'buy when there is blood in the streets'
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Old 08-08-2010, 11:01 AM   #17
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TEGBX looks to me to outpeform the vangaurd funds and holds higher quality bonds, looking at yahoo.
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Old 08-11-2010, 03:20 AM   #18
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My 100% individual stock portfolio yields about 3.1% currently and supports my 4yo retirement. Dividend growth rate has been 7-12% per year. Largest holdings at the moment are PG, JNJ, ADP, ABT, KO, SYY.
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Old 08-11-2010, 07:44 AM   #19
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My 45:45:10 (equities:bonds:cash) portfolio yielded about 2.9% in dividends in 2009. This is a more or less buy-and-hold mutual fund portfolio based on a planned asset allocation.

My planned SWR is 3.0%, so that is essentially just the dividends. Right now I am withdrawing a little more (3.5%) until I claim my SS retirement benefits.
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Old 08-11-2010, 08:41 AM   #20
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I have asked similar questions and read those same threads mentioned above.

Here is a good thread
Dividend investing- do you get a 3% yield?

S&P 500 yields just under 2.% on your initial investment (today) and usually has yielded a little higher than that.

Just about everyone responding to the thread I linked to is yielding much higher than 3%.

Be sure to distinguish between the following:

1) Living off dividends alone (this to me implies a portfolio of 80-100% stocks and the PAYOUT generated is more than expenses).

2) Living off dividends and interest. As you pointed out dividends and interest will be generated from stocks and bonds. This would be a more diversified approach than above.

3) Living off dividends, interest and capital gains. A derivative of #2.

4) Living off portfolio and selling shares to meet income needs and dealing with portfolio value more than the payout of the investments in the portfolio.


It has been mentioned more than once that
a) dividends account for most of the growth in the S&P 500 over long periods of time
b) the dividend yield of the S&P 500 has exceed inflation

Which are some advantages to using a dividend centric approach.
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