Join Early Retirement Today
View Poll Results: How do you fund annual needs (please read post first)?
Take the dividends and use those 20 60.61%
Reinvest the dividends and sell when you rebalance to get what is needed 6 18.18%
Combination of above 7 21.21%
Voters: 33. You may not vote on this poll

Reply
 
Thread Tools Search this Thread Display Modes
Next Year Funding: Sell funds or Take Dividends
Old 07-17-2014, 02:40 PM   #1
Full time employment: Posting here.
 
Join Date: Mar 2008
Posts: 637
Next Year Funding: Sell funds or Take Dividends

We are within a year of when we will be eligible (without penalty) and need to start drawing from our retirement funds.

We think annual dividend amounts, along with other sources of income will fund our needs most years.

We are undecided if we will just take dividends, or if we will sell funds each year when we rebalance to fund our needs.

So, assuming that the income needed is approximately equal to what the dividends are- what do you do and why?

Our Vanguard advisor says reinvest dividends and sell what you need annually. Our portfolio is about 47-48-5
__________________

__________________
bizlady 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 07-17-2014, 03:48 PM   #2
gone traveling
 
Join Date: Sep 2013
Posts: 1,248
Quote:
Originally Posted by bizlady View Post
We are within a year of when we will be eligible (without penalty) and need to start drawing from our retirement funds.

We think annual dividend amounts, along with other sources of income will fund our needs most years.

We are undecided if we will just take dividends, or if we will sell funds each year when we rebalance to fund our needs.

So, assuming that the income needed is approximately equal to what the dividends are- what do you do and why?

Our Vanguard advisor says reinvest dividends and sell what you need annually. Our portfolio is about 47-48-5
I would take dividend. That will mean that you will have income stream which will grows faster then inflation (since dividends usually grow faster).

That assumes that you well balanced portfolio of low cost index funds....

BTW this is exactly what I plan to do.
__________________

__________________
eta2020 is offline   Reply With Quote
Old 07-17-2014, 04:27 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
So you only have tax-advantaged retirement funds? Nothing else? Are they split between Roth and traditional? No taxable accounts?

From tax-deferred accounts, it just doesn't matter all that much that dividends are reinvested. Indeed, it is probably a complication NOT to automatically re-invest them. So I think your question is kind of a moot point. I would just follow the Vanguard recommendation if these are really tax-deferred accounts and you don't have any taxable nor Roth accounts.
__________________
LOL! is offline   Reply With Quote
Old 07-17-2014, 04:55 PM   #4
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 882
We spend dividends and sell stuff in taxable. Everything in tax-deferred is reinvested.
__________________
jebmke is offline   Reply With Quote
Old 07-17-2014, 05:06 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
I live off my taxable account, and spend dividends. I always have some cash left over. It would be more tax efficient if I had chosen different securities (I have only individual stocks and a few etfs), but that didn't happen.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 07-17-2014, 05:08 PM   #6
Full time employment: Posting here.
 
Join Date: Mar 2008
Posts: 637
Our accounts are all taxable. No Roth- unfortunately.
__________________
bizlady is offline   Reply With Quote
Old 07-17-2014, 05:16 PM   #7
gone traveling
 
Join Date: Sep 2013
Posts: 1,248
Quote:
Originally Posted by bizlady View Post
Our accounts are all taxable. No Roth- unfortunately.
Well you will pay pretty low taxes on those dividends. IE if you had ONLY equity dividend income you would pay almost nothing in federal taxes all the way to about 90k.

It looks like you will also have bonds on which taxes will be higher.

BTW you should congratulate to yourself if you need to spend only income produced by portfolio. Many FI people "need" to sell as well......
__________________
eta2020 is offline   Reply With Quote
Old 07-17-2014, 05:17 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Now I am confused. A joint taxable account has not tax-deferred assets. An IRA or 401(k) is tax-deferred and withdrawals are taxable. But "Our account are all taxable" suggests the former, but there would be no penalties involved as mentioned in your opening post.

If you have a mix of taxable and tax-deferred, you might want to get on the Roth conversion band-wagon or at least look at that.

In taxable: Take dividends in cash. In tax-deferred: Reinvest dividends.
__________________
LOL! is offline   Reply With Quote
Old 07-17-2014, 07:11 PM   #9
Full time employment: Posting here.
 
Join Date: Mar 2008
Posts: 637
Tax deferred is I suppose what I should have said. All money will be traditional IRA or rollover 401k-- all taxable (less the initial deposits).

I should have also said that it is the initial years that we have other funding. I sold a small business and have some income for the next 6 years. DH has a small non-cola pension.

If we wait til FRA for SS, then we will need to tap assets from 62-66-ish. DH hits 59.5 late next year, at which time we will have to decide what to do for 2016.
__________________
bizlady is offline   Reply With Quote
Old 07-17-2014, 07:44 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Even the initial deposits of those things are taxable when withdrawn.

What are your thoughts on Roth conversions of some of it?
__________________
LOL! is offline   Reply With Quote
Old 07-17-2014, 08:12 PM   #11
Full time employment: Posting here.
 
Join Date: Nov 2009
Posts: 510
Quote:
Originally Posted by bizlady View Post
We are within a year of when we will be eligible (without penalty) and need to start drawing from our retirement funds.

We think annual dividend amounts, along with other sources of income will fund our needs most years.

We are undecided if we will just take dividends, or if we will sell funds each year when we rebalance to fund our needs.

So, assuming that the income needed is approximately equal to what the dividends are- what do you do and why?

Our Vanguard advisor says reinvest dividends and sell what you need annually. Our portfolio is about 47-48-5
We take only dividends from our Joint (taxable) and Roth accounts at Vanguard since we retired (reinvest capital gains). We were taking quarterly dividends from our rollover IRA accounts, until we started drawing Social Security. This is due to our retiring early and having to manipulate our income for tax and ACA subsidy purposes.

You can turn on/off this option at Vanguard anytime you wish online, by changing dividend distributions from/to reinvest, or electronic transfer to your bank (or a check by mail). You can also set up to take capital gains distributions this way. I am doing this for the end of this year on our Joint account to obtain a little cash. Will turn it off after it pays out at the end of the year.

We have alerts set up on our designated bank (credit union savings) accounts to automatically notify us when they go over a certain amount. We're automatically notified when the Vanguard transfers hit our accounts (as well as our Social Security deposits). I move the money out of the savings accounts to either money market or checking - depending on the need to reset the alerts.

This scenario works very well with our Wellington and Wellesley accounts, as part of my long term retirement income stream scenario. Taking only the dividends on Roth and IRA accounts must not be a common scenario with Vanguard - they originally managed to screw up the Roth dividend distributions and did Federal tax withholding
__________________
fritz is offline   Reply With Quote
Old 07-17-2014, 08:50 PM   #12
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 3,422
With low interest rates on bank accounts, would it make more sense to reinvest dividends and sell to fund expenses?

Rather than taking dividends quarterly and having them sit in bank accounts which aren't earning much?
__________________
explanade is offline   Reply With Quote
Old 07-17-2014, 09:27 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
The standard approach should be to live off your taxable accounts (that's non-retirement accounts with no tax advantages) and Roth convert whatever makes sense from a minimum tax over your lifetime standpoint. When taxable funds run out, the withdraw from your tIRA/401k up to the top of a tax bracket and fill in the rest of your expenses with Roth withdrawals.

You can do whatever is easiest with your dividends and capital gains distributions. Cash or reinvested you will probably still need to rebalance. So either way you will be buying and selling eventually. One reason I don't reinvest dividends is because of wash sale rules, which I don't think you will have a problem with since you don't appear to have equity or bond investments in a taxable account.
__________________
Animorph is offline   Reply With Quote
Old 07-17-2014, 10:48 PM   #14
Full time employment: Posting here.
 
Join Date: Nov 2009
Posts: 510
Quote:
Originally Posted by explanade View Post
With low interest rates on bank accounts, would it make more sense to reinvest dividends and sell to fund expenses?

Rather than taking dividends quarterly and having them sit in bank accounts which aren't earning much?
On taxable accounts - dividends (and realized capital gains) are taxed whether reinvested or distributed. Selling shares of those accounts on a specific date exposes capital gains which are also taxable. This mainly affects state income taxes for us.

We have our cash account at our credit union for retirement living expenses. We keep a year of budgeted basic living expenses on hand. Our yearly expenses don't flow as evenly as we would like, but quarterly dividends help replenish that account effortlessly and automatically. The dividend amounts are pretty much known in advance on our mutual fund accounts where we have it set up to pay out. We aren't "building up" the living expense account by taking quarterly dividends, but rather replenishing/maintaining the expense account. It takes the timing of selling shares out of the equation and everything is automatic. My luck would have me selling shares at the most inopportune time....
__________________
fritz is offline   Reply With Quote
Old 07-18-2014, 05:52 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,702
I like the idea of setting aside dividends (rather than reinvest) for later withdrawal.

It prevents you from having to sell at a bad time (low price) or when you'd rather not (rally). In the end, it comes out the same, but for me it's nice to just have those dividends in the bank waiting to be withdrawn.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 07-18-2014, 07:04 AM   #16
Full time employment: Posting here.
dtbach's Avatar
 
Join Date: Apr 2011
Location: Madison
Posts: 752
We take the dividends in both taxable and IRA (leave the ROTH alone). We fund the majority of our expenses out of the IRA's vs taxable as right now I have deductions (mortgage interest and kids) that I can use for taxes.

I don't like the idea of spending down our taxable account. I can control what I take out of that more than the RMD's I will have on the IRA's come 70.5 years old.
__________________
Wild Bill shoulda taken more out of his IRA when he could have. . . .
dtbach is offline   Reply With Quote
Old 07-18-2014, 07:14 AM   #17
Full time employment: Posting here.
 
Join Date: Nov 2008
Posts: 728
I would look at what/how dividends vs selling affects your taxes. You should avoid any short term gains which triggers the highest taxes.....unless your taxable income is in a low bracket. For me, I can live off of dividends.....I don't touch my Roth since its growth is tax free and DW most likely will outlive me and can use it in the future. Also, taxes will go up in the future.....so a Roth in the future will save you money in your later years. But, we've all saved in different ways.....so you might want a CPA to give you a little advice....my does every year when we complete the previous years taxes.
__________________
jerome len is offline   Reply With Quote
Old 07-18-2014, 07:24 AM   #18
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
It's somewhat irrelevant where money comes from. Every year when you move your annual cash into the "spending bucket" it doesn't make any difference if you have been reinvesting dividends or letting them pile up in a MM account. You go through the rebalancing as needed. Letting the dividends sit as cash will be slightly better in a down market but slightly worse in an up market. I doubt either would make much of a difference.

Since most funds pay quarterly, you could pull out the dividends then for spending. This would make the dividend flow have to be balanced against your spending. I'm pretty sure you either get too little or too much from the dividend flow. Somewhere along the line you will be buying or selling funds.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 07-18-2014, 07:27 AM   #19
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: 16,424
I take dividends from taxable accounts in cash as it simplifies my taxes and reduces the monthly "paycheck" I need to draw from my retirement investments to provide cash flow for living expenses. Dividends for tax-deferred and tax-free accounts are reinvested.

Most of my taxable accounts are domestic and international equities. About 3/4 of my dividends are qualified dividends and tax-free since we are in the 15% tax bracket. Also, I get a nice foreign tax credit from my international equities that more than offsets any tax on unqualified dividends, so at the end of the day, all my dividends are tax free (federal).
__________________

__________________
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
42 year old, saved $3M, thinking to retire next year JPearl Hi, I am... 73 04-06-2014 10:57 AM
Younger Next Year Type Book for 20 Year Old? TromboneAl Other topics 10 01-08-2009 09:39 AM
Auto IRA funding - For previous year gindie FIRE and Money 3 04-23-2008 02:31 PM
(FAQ archive): Invididual Stocks vs. Funds/Active Funds vs. Passive Funds Nords Early Retirement FAQs 0 10-22-2007 04:07 PM
55 year old Texan will retire within the next year russingr Hi, I am... 7 05-25-2007 09:40 AM

 

 
All times are GMT -6. The time now is 02:41 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.