How much Cash did you have upon retiring or planning to have -2x-3x yearly expenses?

[RetireeRobert]

But using the s&p 500, it currently yields 1.3% right now (ouch). On a 100k invested, that’s 1.3k. If s&p 500 drops 50%, then the yield doubles to 2.6% and you still get 1.3k. Not a problem.

I had the same thoughts and confusion as you. Steady dividend income from a portfolio is what I would count on to help me hold a steady portfolio course and weather the storms of market downturns. Sort of an attitude of "Who really cares. My stream of bucks are still flowing in. So just hold the portfolio--and get paid to do it--and in a year or two the principal value of the portfolio is restored anyway. In the meantime I get paid to wait."

 

[tulak]

I had the same thoughts and confusion as you. Steady dividend income from a portfolio is what I would count on to help me hold a steady portfolio course and weather the storms of market downturns. Sort of an attitude of "Who really cares. My stream of bucks are still flowing in. So just hold the portfolio--and get paid to do it--and in a year or two the principal value of the portfolio is restored anyway. In the meantime I get paid to wait."

I think this is the biggest benefit to a dividend portfolio. If you can safely live off of dividends, then holding a 100% in equities isn’t an issue. That’s something most total return investors won’t do, since they have to deal with market volatility. Even though total return (most likely) performs better if you have the same % equity exposure.

 

[FANOFJESUS]

This doesn’t make sense to me. What is .6k?

For starters, s&p 500 is the last index I would choose if I’m trying to max dividend income. Better to choose SCHD, which currently has a 2.9% yield.

But using the s&p 500, it currently yields 1.3% right now (ouch). On a 100k invested, that’s 1.3k. If s&p 500 drops 50%, then the yield doubles to 2.6% and you still get 1.3k. Not a problem.

The only issue is if companies start cutting their dividends, but historically this rarely happens with any significance after a market drop. What’s more worrisome is a company having to cut their dividend because they are poorly run, but if you’re diversified, the hit you will take is minimal.

True but if you left in the 1.3k it would double to 2.6 when the market recovered. You are taking a 1.3k loss in a way.

 

[tulak]

True but if you left in the 1.3k it would double to 2.6 when the market recovered. You are taking a 1.3k loss in a way.

No, you're not taking a loss. You don't sell anything. If the market recovers, then the yield goes down, back to 1.3% if it fully recovers. You get the same 1.3k.

The benefit - as someone noted above - is that if you only need 1k for expenses, then the extra .3k you get can now buy shares at a cheaper price if the market drops. 2 shares at a 50% drop vs. 1 share with no drop. And now you'll get 2x dividend since you hold 2x more shares.

 

[5Miler]

When I first retired I kept 3 years living expenses in cash but now, 9.5 years into retirement, I keep a max of 12 months in cash. I check my cash balance every 3 to 6 months when I happen to think about it and top it off to 12 months again.

I recently signed up for SS which starts in Nov so first payment in Dec. My payment will be significantly more than I am spending monthly now so I will drop my monthly 401K distribution amount to just under 1% WR and adjust the dollar amount of my cash holding accordingly. Georgia doesn't tax SS, pensions or retirement account distributions which clicks all my buttons. Fed tax should drop to zero or close to it also.

I was nervous about market downturns when I first retired but retiring in 2012 has been a blessing as far as sequence of returns are concerned. If I were to do it all over again, I would probably still start off with 3 years cash if for nothing more than to get my bearing in retirement. I earn next to nothing on my cash balance but rather that than get caught short in a market downturn.

 

[FANOFJESUS]

No, you're not taking a loss. You don't sell anything. If the market recovers, then the yield goes down, back to 1.3% if it fully recovers. You get the same 1.3k.

The benefit - as someone noted above - is that if you only need 1k for expenses, then the extra .3k you get can now buy shares at a cheaper price if the market drops. 2 shares at a 50% drop vs. 1 share with no drop. And now you'll get 2x dividend since you hold 2x more shares.

It is common sense if you account is down 50% anything that comes out is down 50%. It does not matter if it is a dividend or a sell. Both are down 50%

 

[TheWizard]

The other day a watched a video of a woman worth about 1.3M(100% stocks) with 25k in cash. I do not think that is enough cash how about you?

Well, if her pension/annuity income is $50k per year and her SS income is $25k per year, and her expenses are $60k per year, then I think she's doing fine...

 

[syd03]

Retired in Dec 2020, me 53 DH 50 with five years living expenses in cash. Will revisit in a couple years.

 

[TheWizard]

It is common sense if you account is down 50% anything that comes out is down 50%. It does not matter if it is a dividend or a sell. Both are down 50%

What if you have a 50/50 AA?
Your cash/bonds aren't down 50%, only the stock funds, right?

 

[tulak]

It is common sense if you account is down 50% anything that comes out is down 50%. It does not matter if it is a dividend or a sell. Both are down 50%

No, both are not down 50%. It's your choice if you want to spend the time to figure out how dividend yield works. Good luck!

 

[FANOFJESUS]

No, both are not down 50%. It's your choice if you want to spend the time to figure out how dividend yield works. Good luck!

A dividend is like a forced sell you have no control over. If a $1 dividend is paid out the fund or stock price drops $1 You are not $1 richer. They have just sold $1 and given it to you and called it a dividend. To make the matter worse the government thinks you have make a $1 when in real life you have made nothing.

 

[monte1022]

My 2 cents..
We are at 3.2m. Of that, 300k is CASH, 1.2m stable value/bonds, and the balance in stocks. Yep, 50/50. Strip out the CASH which serves the purpose of getting me to 59.5yo then the portfolio is 2.9m (55/45). W*rk ends 12/22 (saving 10k/mo all to fixed...taxable/Roth/pretax) and the CASH will cover 3.4yrs after that @92k/yr. At 59.5yo (in 4yr 7mo from now) the CASH will be gone. After that we will still need play the ACA income game so getting lots of CASH out will be limited by ACA income limits. We have another 300k in VWIAX taxable to help with flexibility. One of my thoughts is to "free up" another 200k from Roth for CASH purposes since the tax consequences are zero. However, that drops the AA and the only way to increase it is to add stocks to the pretax account.....pondering now!

Per my spreadsheet, the potential worst case CASH need (ie ACA subsidies go away), is a 200k shortfall between now and 65yo. If the ACA remains as is, then we will have a CASH surplus at my 65yo.

My main concern for a CASH balance is to control income for health insurance reasons. Now you know MY CASH needs until I am 65yo. I suspect that your CASH needs are different. Figure out what amount lets you accomplish whatever goal you have in mind AND sleep well at night when the market takes a dump.

FWIW, our base budget w/o healthcare or travel is 48k/yr. After my 65 year BD, I suspect 2 FULL budget years worth of cash will suffice. Perhaps that was the answer you wanted.

 

[YVRRocketSurgery]

A dividend is like a forced sell you have no control over. If a $1 dividend is paid out the fund or stock price drops $1 You are not $1 richer. They have just sold $1 and given it to you and called it a dividend. To make the matter worse the government thinks you have make a $1 when in real life you have made nothing.

You buy a stock at $10 at the beginning of the year.
Over the year, the company makes $1/share profit. The share price correspondingly increases to $11/share. They decide to pay out 100% of their profits in the form of a dividend at the end of the year. You get a $1 dividend for the share you hold. The share price correspondingly drops from $11 to $10.
In the end you are left with $1 in dividends and a share worth $10. You made $1 didn't you?

 

[RetireeRobert]

You buy a stock at $10 at the beginning of the year.
Over the year, the company makes $1/share profit. The share price correspondingly increases to $11/share. They decide to pay out 100% of their profits in the form of a dividend at the end of the year. You get a $1 dividend for the share you hold. The share price correspondingly drops from $11 to $10.
In the end you are left with $1 in dividends and a share worth $10. You made $1 didn't you?

I think so. Furthermore, if the company you invest in is well managed and happens to grow its business over the years, and correspondingly is able to prudently increase its dividends over the years, you in effect have an inflation protected income stream from the dividends. And your principal (investment in the stock) is also inflation protected because of the growing business.

 

[FANOFJESUS]

You buy a stock at $10 at the beginning of the year.
Over the year, the company makes $1/share profit. The share price correspondingly increases to $11/share. They decide to pay out 100% of their profits in the form of a dividend at the end of the year. You get a $1 dividend for the share you hold. The share price correspondingly drops from $11 to $10.
In the end you are left with $1 in dividends and a share worth $10. You made $1 didn't you?

You can buy I mutual fund one day before the dividend it pays out $1. The fund drops one dollar. You made no money. That is why people avoid buying before the dividend date. There is no money in doing so. Then you have to pay taxes on the dividend. So you lose money.
Now imagine the dividend is 10k-20k. You own the taxes on 10k-20k and you have made no money.

 

[TheWizard]

I keep nearly nothing in cash, the same way I did when I was working. I hate the idea of tying up any significant amount of money earning zilch or nearly zilch. I have set up my ER portfolio so it will generate enough money every month (mostly from a big bond fund) to pay my expenses. My local bank's checking account has enough money to cover any fairly small minimum balance requirements plus another $500-$700 as a cushion to cover any smaller, unforeseen expenses. Any excess money gets invested somewhere, usually to the big bond fund.

This sounds like a great idea, a bit similar to what I do.
Except I invest excess monthly retirement income into stock funds, not a big bond fund...

 

[TheWizard]

It is common sense if you account is down 50% anything that comes out is down 50%. It does not matter if it is a dividend or a sell. Both are down 50%

This is actually not true, as several others have pointed out...

 

[brett]

We keep minimal amount of cash.

BUT...we have pension income that will pay for all of our living expenses other than extended travel.

I have to believe that there is a significant difference when it comes to cash or cash like resources between those who have pension income and those who depend on investment income for retirement living expenses.

 

[disneysteve]

I have to believe that there is a significant difference when it comes to cash or cash like resources between those who have pension income and those who depend on investment income for retirement living expenses.

For sure. No pensions here. We are fully self-funded prior to SS. I plan to have 2-3 years cash when I retire next year.

 

[Letj]

What if you have a 50/50 AA?

Your cash/bonds aren't down 50%, only the stock funds, right?

I am confused. Your dividend is based on number of shares and not dependent on the value of those shares so why will your dividend decrease by 50%? What am I missing?

 

[swakyaby]

Retired with 3 years living expenses in cash. In reality though, once I directed all dividends and taxable capital gains to my checking account instead of reinvested, that 3 years of cash goes much further. I expect to drop my cash allocation down to 1 or 2 years expenses once social security starts.

 

[FANOFJESUS]

This is actually not true, as several others have pointed out...

I guess I am slow to understand this one. Let's say I buy 100k in the SP 500 for a few days before the bear. Bear comes now it is worth 50k. Let's say the dividend is 1k to keep round numbers. They send me the 1k. My account total is now 49k. You are telling me I have no loss on the 1k they sent me? (I know for tax reasons it is not called a loss but a dividend.) I am talking real life not tax talk. Others feel free to jump in and tell me how my logic is wrong. My thinking is when they paid this out I lost 1k.(Because if I have left it in the market it would have gone back to 2k in time.) Now the market might go up in the future and I might lose less than 1k or nothing in future quarters. Unless I have built up gains dividends can create a loss to my account.

 

[ncbill]

You can't count on dividends continuing in a severe bear market like the Great Recession.

If the S&P500 or other broad stock market index drops 50% the reality is many companies will simply stop paying dividends altogether.

 

[RetireAge50]

I believe FANOFJESUS is correct.

The math needs to be done on the actual money without looking at the number of shares. Because of the dividend your portfolio changed from 100% stocks to 98% stocks and 2% cash. So now you have $49 in stock and $1 in cash. So now a 100% stock increase gives you $98 in stock and $1 in cash. A $1 loss because of the dividend.

 

[jr6035]

I have way more than 5 years of expenses in cash, because I hold very little bonds and use cash for my AA. And my WR is way low.

My cash yield is not bad, because I write cash-covered puts against it. I feel a lot more comfortable doing that than holding bonds.

How do you write covered calls on cash? Or are you buying the stock with your cash? Which is a good idea.