Now Retired: We need 3% yield on a $1.1 mil nest egg

[pb4uski]

Quote:

Originally Posted by audreyh1 It recovered quickly though - right?

I don't think so.... I dumped it and shortly thereafter our 401k sponsor dumped it... in 2010 it merged into a Well Fargo fund.

[Bestwifeever]

Quote:

Originally Posted by REWahoo See below.

[marko]

Quote:

Originally Posted by youbet And these folks frequently are just fooling themselves because they do not account for inflation. They spend the yield without adding back to the portfolio out of the yield to keep it constant in real terms. A decade or two later, even with only 2% - 3% inflation levels, they're in real trouble.

Dunno. Don't want to get into an argument over it but we haven't sold a share in the 14 years that we've been RE'd. Just living off dividends (and SS).

We have a healthy dividend bucket as a set-aside and over the years the portfolio has grown (doubled) and the dividends have increased as well.

True, inflation has been tame but I don't see a risk to the strategy at this point in time.

[racy]

I have Vanguard sell a certain dollar amount monthly from the fund in our portfolio that is most above it's target allocation. No buckets & no particular focus on "income" stocks for me. I'm in the "money is fungible" camp, too.

[audreyh1]

Quote:

Originally Posted by pb4uski I don't think so.... I dumped it and shortly thereafter our 401k sponsor dumped it... in 2010 it merged into a Well Fargo fund.

OK wow, no recovery! I was thinking of the dramatic dive of DODIX which did recover smartly, but was a pretty scary ride. They were overweight commercial paper which they tend to do.

[audreyh1]

Quote:

Originally Posted by marko Dunno. Don't want to get into an argument over it but we haven't sold a share in the 14 years that we've been RE'd. Just living off dividends (and SS). We have a healthy dividend bucket as a set-aside and over the years the portfolio has grown (doubled) and the dividends have increased as well. True, inflation has been tame but I don't see a risk to the strategy at this point in time.

As long as you have a reasonable AA with a healthy exposure to equities - at least 35% unless elderly - and you don’t exceed 3.5% to 4% withdrawals depending on your timeframe, your portfolio should be able to keep up with inflation.

The problem is if someone puts all their funds in 3% 5-year CDs and takes out all that interest every year. The principal is not growing, and thus won’t keep up with inflation.

[Cheesehead]

OP here:

Thanks everyone for your advice. I'll have to look at my options. Leaving money for an inheritance isn't the reason for not touching the principal, rather, it's to help my wife when I kick the bucket, which will be sooner rather than later for me, because she won't collect any of my social security. So I figure the more of the nest egg that is intact, the better, hence this "yield only" idea. But I do realize, from talking with older and richer friends, one needs several million to sweep the dividends, cap gains and interest using 3%, for a decent lifestyle.

[REWahoo]

Quote:

Originally Posted by audreyh1 OK - I was thinking of the dramatic dive of DODIX which did recover smartly, but was a pretty scary ride. They were overweight commercial paper which they tend to do.

Are you sure you aren't recalling the bloodbath DODBX experienced at the time, which was considerably worse than DODIX? I had up close and personal knowledge of that balanced fund's decline of more than 50% from the previous high. Outrageously bad performance for a balanced fund, and soured me on ever investing again with Dodge & Cox.

(By comparison, Wellington declined 25% about 40% from its high.)

[Texas Proud]

OP.... I just looked at my Vanguard funds and from what they say I am up 18% over the last year... if you experiment is a full year then they did not do a great job for you... only earning 9%...


I am about 80/20 though...

[audreyh1]

Quote:

Originally Posted by REWahoo Are you sure you aren't recalling the bloodbath DODBX experienced at the time? I had up close and personal knowledge of that balanced fund's decline of more than 50% from the previous high. Outrageously bad performance for a balanced fund, and soured me on ever investing again with Dodge & Cox. (By comparison, Wellington declined 25% from its high.)

No - I was talking bond funds. But even the shocking DODBX decline recovered. Not so quickly, but recover it did.

It wasn’t just the equity portion of DODBX that swooned, it was the bond portion too (DODIX) although the bond portion recovered far more quickly. It was a good example of how eschewing government type bonds in favor of commercial bonds can really bite you when things blow up.

[pb4uski]

Quote:

Originally Posted by Cheesehead .....it's to help my wife when I kick the bucket, which will be sooner rather than later for me, because she won't collect any of my social security. ...

Just curious, why is won't your wife collect any of your social security? Was her SS larger than your perhaps so yours will "go away"?

[RunningBum]

Quote:

Originally Posted by Cheesehead OP here: Thanks everyone for your advice. I'll have to look at my options. Leaving money for an inheritance isn't the reason for not touching the principal, rather, it's to help my wife when I kick the bucket, which will be sooner rather than later for me, because she won't collect any of my social security. So I figure the more of the nest egg that is intact, the better, hence this "yield only" idea. But I do realize, from talking with older and richer friends, one needs several million to sweep the dividends, cap gains and interest using 3%, for a decent lifestyle.

Just because you are taking from your nest egg doesn't mean you will have less left. If you have a dividend driven portfolio, you might wind up with less than with a growth or index portfolio.

Say with your $1.1M you generate $33K in dividends, and the stocks grow at 2% ($22K). You haven't touched the principal, and you have (edit correction $1.122M.

But what if you go with a total index portfolio, which I think generates about 2% in dividends these days, and it grows 4%? You get $22K in divs, withdraw another $11K, and the stocks grow $44K. OMG you've touched the principal! But you have (edit correction $1.133M, while still supplying the $33K you needed from the portfolio.

"Might" is the keyword here, because a dividend portfolio can generate a better total return. The numbers I use are just an example, not based on any reality, and are biased to support my point. But the point is, look for total return, which makes your portfolio last the longest. Whether you use dividend paying stocks, a broad index, or growth stocks is up to you, but this is why some (many?) of us look at total return rather than dividends.

[bmcgonig]

The Blackrock fund is just a managers pick of some mutual funds and ETFs. At the moment 40% are in junk and bank loans. Some preferred also. What you're betting is that the manager will get you out of that long before the next recession cos they will suck at that point. He might do a great job or he might do what pb's Dodge and Cox did. I wouldn't put more than a small portion of my fixed income money in it.

[COcheesehead]

Quote:

Originally Posted by Cheesehead I thought the idea is to not liquidate shares, to live as much as possible off the yield, correct? To avoid Sequence of Return Risk and taxes? Got to cut the grass, will check later. Thanks

Cheesehead meet COcheesehead. I grew up in Wisconsin, but now live in Colorado.
In my mind living off yield and return sequence risk are two separate issues.
Having short term resources whether it be cash, bond ladders, CD’s are the answer for the return sequence issue. Living off yield is how you choose to manage your WR.

[pb4uski]

Quote:

Originally Posted by bmcgonig .... He might do a great job or he might do what pb's Dodge and Cox did. I wouldn't put more than a small portion of my fixed income money in it.

Agree, but for the record my bad experience was with Evergreen, not Dodge & Cox... that was REWahoo.

[HFWR]

My yield in 2017 was roughly 2.77%, from boring index etfs, though that includes a 10% stake in a REIT that yields in the high sevens...

[daylatedollarshort]

Quote:

Originally Posted by Cheesehead What can we do to protect ourselves from the buffeting of trade wars, inflation, rising interest rates, the upcoming recession and volatility?

Our solution is to continue to live below our means, focus on sustainable living and use a matching strategy. If you can keep up with inflation, with a matching strategy your safe withdrawal rate over 30 years is 3.33%, more with any returns over inflation. More on matching strategies - https://www.bogleheads.org/wiki/Matching_strategy

[Gumby]

Quote:

Originally Posted by pb4uski Just curious, why is won't your wife collect any of your social security? Was her SS larger than your perhaps so yours will "go away"?

I'm not cheesehead, but my wife doesn't get any Social Security spousal benefit now and won't get a survivor benefit when I die due to the Governmental Pension Offset (GPO), because she gets a teacher's pension. She's not eligible on her own account, since teachers in this state do not contribute to social security. This circumstance affects our financial planning. For example, I will take social security at 62 and thereby avoid taking money out of the nest egg so it will be larger for her (she will likely survive me). I also have a paid up whole life policy that, if annuitized, will make up for the loss of my social security.

[Bigdawg]

Quote:

Originally Posted by RunningBum Say with your $1.1M you generate $33K in dividends, and the stocks grow at 2% ($22K). You haven't touched the principal, and you have $1.32M.

Umm, I'm not very good at math. Help me out here.

$1,100,000 generates $33,000 =$1,133,000

and another $22,000 in growth so $1,133,000 plus $22,000 = $1,155,000

Even if you add the div's to the principal and growth you still don't have $1.32M.

Did I miss something?

[RunningBum]

Quote:

Originally Posted by Bigdawg Umm, I'm not very good at math. Help me out here. $1,100,000 generates $33,000 =$1,133,000 and another $22,000 in growth so $1,133,000 plus $22,000 = $1,155,000 Even if you add the div's to the principal and growth you still don't have $1.32M. Did I miss something?

Apparently I'm not as good at math as I thought I was. I made the corrections in my post. I assumed you'd spend the 33K so in the dividend scenario your portfolio would be $1,122,000 with the 2% growth. $1,133,000 in the index scenario where you grow 4% but spend 1% of that, along with your 2% dividends.