Do you always take the dividend if it is less than your yearly spending when retired?

[FANOFJESUS]

Is that the smartest thing to do? I don't have any other income other than sells of mutual funds.

 

[Sojourner]

Not sure what "take the dividend" means. Dividends are distributed to me as taxable income whether I want them or not. They just accumulate in my accounts until I transfer them, spend them, or reinvest them. Perhaps you meant something like "Do you withdraw and spend your dividends each year, regardless of your annual spending needs?"

 

[FANOFJESUS]

I meant spend the dividend.

 

[aja8888]

Most of our dividends on stocks and funds are reinvested. We live off SS and accumulated cash from RMDs. I guess you could say we "spend" the ones that are not reinvested but they end up in the cash account.

 

[Mr. Tightwad]

All dividends are used to buy more stocks.

 

[FANOFJESUS]

I think the best plan is to spend them but the market can be up or down a lot when they are paid out. Could that hurt me be taking them? If I don't take them I have to pay taxes on money that I did not spend.

 

[scrabbler1]

Nearly all of my income is from stock fund or bond fund dividends. It pays my bills. Anything in excess of what I use to pay the bills gets (re)invested somewhere.

 

[MRG]

I think the best plan is to spend them but the market can be up or down a lot when they are paid out. Could that hurt me be taking them? If I don't take them I have to pay taxes on money that I did not spend.

Your dividends in taxable accounts are taxed as such. Obviously in pretax they are not. As far as market fluctuations I don't think it's an issue. You can make an argument you're buying more shares in a down market but I'm not going to waste my time worrying about it.

We quit reinvesting our interest and dividends a couple years ago. I'm not taking SS for another 5 years so they don't cover our expenses. I guess you can say we spend them first.

 

[FANOFJESUS]

The way I look at it is spend the dividend unless stock go into the red since I have no other income. I have a back up fund if they go into the red.

 

[W2R]

Most of my investments are in taxable accounts. Normally I take my dividends in cash, and then use that to rebalance at the end of the year. But I didn't do that this year.

Right now my dividends are sitting in money market. Lately I've been occupied with Covid recovery and hospital/doctor/lab bills that present a big unknown, since I don't know if they have all come through yet or how much to set aside for them. So, I have just left the money due to dividends in money market where it's not doing much for me at all, but is immediately available in case of unexpected huge medical bills.

Got to change my ways sometime soon.

Now that I am on Social Security, SS plus my mini-pension plus my RMDs more than cover my expenses. So, I don't really need my taxable dividends for living expenses right now even though they are my biggest income stream. I know, life is tough, huh? Sure wasn't this easy for me to make ends meet 50 years ago. That's OK; back then I was young, strong, active, healthy, single, and (I think) drop dead gorgeous. So money was the last thing on my mind. By now I am none of those any more, but I can buy whatever I truly want or need which is nice.

 

[corn18]

I spend the dividends. If I don't need them for spending, I buy whatever asset I need to get back to my AA. I would just prefer I never got any dividends or capital gains distributions.

 

[Sunset]

I spend the dividends. If I don't need them for spending, I buy whatever asset I need to get back to my AA. I would just prefer I never got any dividends or capital gains distributions.

We switched some , and going forward only buy ETF's or Stock to avoid the capital gains distribution Surprise

 

[steelyman]

My dividends in taxable brokerage fund Roth contributions (at $7K max, that’s not a big deal). The balance just sits for however long until I figure out what to do.

 

[disneysteve]

We switched some , and going forward only buy ETF's or Stock to avoid the capital gains distribution Surprise

We got that surprise last month. Two of our taxable funds paid out a total of about $46,000 in year-end distributions creating an unexpected 10K+ tax bill.


Some people spend their dividends and capital gains. Others reinvest them because they have other sources of income (pension, SS, RMDs, etc.). There's no right or wrong answer OP. It just depends on your situation.

 

[sengsational]

It makes a difference as to whether you're talking about pre-tax or after-tax. In my tIRA, Roth, 401k, I have the reinvestment turned-on because I don't want small bits of cash sitting there. True, the price can be up or down when the dividend is paid, but I tolerate that as just a way to dollar-cost-average, even when I'm not actively adding to savings.

In after tax, I don't have reinvestment turned-on. It's easier when it comes to figuring capital gains...just my original buy transaction, and the sell transaction. Not original buy, plus dozens of little buys associated with dividend reinvestment.

Can't say I've always followed the above rules, but mostly this way.

 

[Montecfo]

If you are getting funding from a taxable account, then you probably don't want to reinvest dividends. Just take the cash.

In deferred or Roth, you can reinvest automatically if you want. I only do that with bond funds since I like to decide independently how to invest my cash and the stock that just paid a dividend may not be my choice at that particular time.

 

[grasshopper]

I reinvest tIRA and roth, I send taxable dividends and distributions to a cash account. This keeps my bookkeeping simpler.

 

[RobbieB]

Spend. Spend as soon as they come in -

My broker transfers all divis from taxable to my checking account end of every month.

The IRA divis get re-invested but I pull from that account every year too.

 

[Zona]

Thanks for starting this thread, it’s educational to see all the replies. DH finally fully RE’d in the fall and we sat down and wrote out our withdrawal strategy. We are 50 and 46 so no RMDs yet. For dividends in our traditional IRAs and Roths we reinvest. In our taxable accounts we decided to take them as cash for the current year spend. In nine years we’ll turn reinvestment back on and start whittling down our traditional IRA balances. If anyone has comments or suggestions about this approach I’m happy to learn!

 

[donheff]

We switched some , and going forward only buy ETF's or Stock to avoid the capital gains distribution Surprise

I have almost everything in mutual funds instead of ETFs because that's where I started out and I don't trade very often. I don't understand why ETF distributions present less of a surprise than mutual funds. Don't they both just aggregate the underlying stock distributions?

 

[NW-Bound]

I have lots of individual stocks and ETFs, in addition to some MFs from way back when.

Most of them pay dividends, and this money commingles with the cash that I have in each account. And about 25% of my stash is in cash and cash equivalents. And my cash level goes up/down due to my option selling activities and the options getting assigned.

The only way I know how much dividend I received in total is to go to Quicken -> Investing -> Portfolio -> Report -> Investment Income -> Last Year

Just did that and found out that dividend+interest income was 2% for me last year. And I withdrew less than that, so it is all good.

PS. It just occurred to me that the S&P pays only 1.3% in dividend. I got way more than that, and I am not even 100% invested. I guess I must have a lot more dividend paying stocks than I realized. I have lots of tech stocks and did not think I get that much dividend overall.

There's no way I could manage without Quicken.

PPS. I do not buy a stock for its dividend. I buy stocks based on their P/E in relation to their growth prospect. Some pay a high dividend, some don't.

 

[Sunset]

I have almost everything in mutual funds instead of ETFs because that's where I started out and I don't trade very often. I don't understand why ETF distributions present less of a surprise than mutual funds. Don't they both just aggregate the underlying stock distributions?

No. There is a structural difference where in a mutual fund other people selling causes you to have a declared capital gain. When other people sell their ETF shares it doesn't affect others.


https://www.investopedia.com/articl...differences-between-etfs-and-mutual-funds.asp

"The ETF structure results in more tax efficiency, too. Investors in ETFs and mutual funds are taxed each year based on the gains and losses incurred within the portfolios. But ETFs engage in less internal trading, and less trading creates fewer taxable events (the creation and redemption mechanism of an ETF reduces the need for selling). So unless you invest through a 401(k) or other tax-favored vehicles, your mutual funds will distribute taxable gains to you, even if you simply held the shares. Meanwhile, with an all-ETF portfolio, the tax will generally be an issue only if and when you sell the shares. "

 

[Koolau]

Since I own only one individual stock, it's the only dividend stock which I "extract" the dividends from - primarily to simplify my basis calculations. Otherwise, dividends are just reinvested in my Roths or 401(k) funds.

Otherwise, I never think of dividends - I only think of overall growth of my funds. YMMV

 

[Badger]

All the dividends from all MF and individual stocks go into MM accounts. I am past time for the need to buy more shares of those funds/stocks. Of course if the market drops significantly I may use some of the cash for new purchases that will be part of inheritance. For the moment everything is on autopilot.


Cheers!