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

[ncbill]

We have to just agree to disagree on that and the bond thing, ERD50. The whole bond issue and Nisprius posts have been debated endlessly on bogleheads by better brains than mine on both sides of the issue and I know which view won me over.

Again, "bonds beat stocks" only works if you knew in advance to pick specific bonds (not a bond fund) and hold those bonds for 20 years.

I can also beat equity index fund returns (e.g. the S&P 500) if you let me go back ~20 years and pick individual stocks that turned out to be winners:

Happy 20th IPO anniversary! $1,000 in Amazon 20 years ago is now worth $638,000

 

[ERD50]

Again, "bonds beat stocks" only works if you knew in advance to pick specific bonds (not a bond fund) and hold those bonds for 20 years.

I can also beat equity index fund returns (e.g. the S&P 500) if you let me go back ~20 years and pick individual stocks that turned out to be winners:

Happy 20th IPO anniversary! $1,000 in Amazon 20 years ago is now worth $638,000

+1

I went back and read that thread in a bit more detail. I'm actually surprised that DLDS offered that link up as any sort of support for bonds, because it works against her.

hah - I just deleted two paragraphs of response I was working on, because in writing and trying to support DLDS as far as I could (which still doesn't support what she is saying), I realized that even her narrow view is wrong anyhow.

First, as ncbill and I have pointed out, a bond portfolio of 100% 20 year bonds, cherry-picked in the rear view mirror, just is not what anyone is going to choose for a 100% bond portfolio. So it is meaningless if that portfolio did better than stocks over some specific time period. If a portfolio never existed, did it make a sound in the forest?

But then I saw the next flaw in her statement. She's saying that since stocks did worse than this phony bond portfolio for even one time period, that stocks would be the riskier investment on the downside, so the 100% bond portfolio is safer, and could provide a higher 100% historically safe WR.

The flaw is, they showed the one or two periods that this phony portfolio did better than stocks. OK. But what was the worst 30-35 year period for this phony bond portfolio? If that was worse than the worst 30-35 year period of a balanced portfolio, it all falls apart. Even for a phony, cherry-picked bond portfolio.

So DLDS, what was the return on a 100% 20 year bond portfolio in the worst 35 year period in history? That's the point we need to measure against. And realistically, it should be for a bond allocation that someone would actually implement, with a minimum of effort, and no crystal ball or rear view mirror.

A bridge too far.

-ERD50

 

[Chuckanut]

FWIW, before I retired I ran my numbers through Firecalc and a MonteCarlo simulator. To my pleasant surprise, both said I could retire. So I did.

 

[Chuckanut]

So DLDS, what was the return on a 100% 20 year bond portfolio in the worst 35 year period in history? That's the point we need to measure against. And realistically, it should be for a bond allocation that someone would actually implement, with a minimum of effort, and no crystal ball or rear view mirror.

A bridge too far.

-ERD50

+1

My take on this discussion and I think what you are driving at is that the goal is not to get the last dollar out of our investments, but to avoid a failure where we run out of money before we run out of years. (Radical stuff, huh?) Historically, the mixed AA does that very well.

 

[Helena]

.

Many banks are now paying 3% and higher on FDIC insured 5-year CDs.

I recently moved money into one of those at my local Dallas bank, with the interest sent to my checking account.

 

[ShokWaveRider]

Vanguard Prime MM is paying 2.02% on monthly balances.

 

[ERD50]

+1

My take on this discussion and I think what you are driving at is that the goal is not to get the last dollar out of our investments, but to avoid a failure where we run out of money before we run out of years. (Radical stuff, huh?) Historically, the mixed AA does that very well.

Well, each individual can define their own goals. Some are willing to take a higher risk of running out, to be able to spend more. And the (historical) odds are still pretty good (better than 50/50) for some pretty high WR (8%?). Take your choice!

But yes, in terms of the discussion DLDS and some of us are having, the measurement is not running out of money, the remaining portfolio at death isn't a consideration for this (not true for everyone, but that's the condition here - at least as I understand it).

-ERD50

 

[GTFan]

What makes you think I am taking a defensive position? Just stating a case. Fact in our case. Why take ANY risk if you do not have to?

You do realize that if you have substantial taxable assets in the market that you can't just easily move everything to your 'no risk' ladders, right? At least not without significant tax consequences.

Notwithstanding the validity of the idea, which I personally reject as the typical put the money under the mattress strategy.

 

[ShokWaveRider]

You do realize that if you have substantial taxable assets in the market that you can't just easily move everything to your 'no risk' ladders, right?

Yes of course. But we do not.

 

[daylatedollarshort]

You do realize that if you have substantial taxable assets in the market that you can't just easily move everything to your 'no risk' ladders, right? At least not without significant tax consequences.

Notwithstanding the validity of the idea, which I personally reject as the typical put the money under the mattress strategy.

The mattress strategy may not work because the money would not be keeping up with inflation. But real rates interest rates in the U.S. have historically been around 2%. Currently TIPS 5 years are at around .7% + plus inflation. The best 5 year CDs look to be around 3.2%. The 100 / 30 years = 3.33% works in general as long as the retiree's portfolio real rate after inflation is at least zero, and of course allowing for variations in personal inflation rates, allowing for taxes, etc.

 

[GTFan]

Yes of course. But we do not.

My point here is that it's easy to say 'take a no-risk CD approach' when there's no tax consequences to doing so. Many ERs can't/won't do this even if they thought it was a good idea because they've heavily invested in the market to get to FIRE. It would take years to switch to such a drastically different strategy without tax consequences.

I always LOL a bit when reading these 'you already won the game' articles and strategies. Well sure, but how did you get there?

 

[Dtail]

My point here is that it's easy to say 'take a no-risk CD approach' when there's no tax consequences to doing so. Many ERs can't/won't do this even if they thought it was a good idea because they've heavily invested in the market to get to FIRE. It would take years to switch to such a drastically different strategy without tax consequences.

I always LOL a bit when reading these 'you already won the game' articles and strategies. Well sure, but how did you get there?

I haven't won the game, but imagining that I could switch easier being mostly in TIRA, which of course has other issues.

 

[pb4uski]

.... I always LOL a bit when reading these 'you already won the game' articles and strategies. Well sure, but how did you get there?

My plan is to dance with the girl that brung me to the dance.... her name is Equities.

 

[RobbieB]

Me too. I will always have equities.

Having nothing but bonds and CD's would scare me more than 100% equities.

But one extreme is almost as bad as the other.

 

[Circles]

I retired 6 years ago, for the first few years I was still picking stocks with about half my money and the other half was in VWELX.
Read or saw something on line from JL Collins (you can google him) made sense, could not be easier. Spent some time investigating his philosophy and decided I would go in that direction also.
About 88% of Roth and Taxable IRA are in VTI (Vanguard total stock market etf) no individual stocks and no bonds. Has been doing great. You cant be much more diversified, spread across over 3,000 companies, extremely low cost.
I keep three years of withdraws in a money market fund, replenish to 3 years at the end of each year. If I ever have a negative year I will not replenish that year and continue on. I am taking 4% per year, so I have 12% or so in cash.

 

[NoMoreJob]

Money is fungible (love that word!) and where it comes from does not matter.

fungible (adj.)
"capable of being used in place of another; capable of being replaced," 1818, a word in law originally, from Medieval Latin fungibilis, from Latin fungi "perform" (see function (n.)) via phrases such as fungi vice "to take the place." Earlier as a noun (1765).

Above from here: https://www.etymonline.com/word/fungible

"fungibilis" is even better in my opinion!

 

[Dtail]

I retired 6 years ago, for the first few years I was still picking stocks with about half my money and the other half was in VWELX.
Read or saw something on line from JL Collins (you can google him) made sense, could not be easier. Spent some time investigating his philosophy and decided I would go in that direction also.
About 88% of Roth and Taxable IRA are in VTI (Vanguard total stock market etf) no individual stocks and no bonds. Has been doing great. You cant be much more diversified, spread across over 3,000 companies, extremely low cost.
I keep three years of withdraws in a money market fund, replenish to 3 years at the end of each year. If I ever have a negative year I will not replenish that year and continue on. I am taking 4% per year, so I have 12% or so in cash.

Welcome to the forum Circles and your first post. I also hail from Tampa. Maybe you can join our spring get together next year.

 

[Richard8655]

My take. Half in a 6-month CD at 2.26%. The other half in a high quality, low risk ETF such as Vanguard High Dividend Yield (VYM). To reach your percentage goal, you have to take a little risk these days.

 

[nvestysly]

What I'm about to say certainly doesn't apply to everyone but I've seen it work for us and for several other people who retired early, including my parents who are now deceased...

A portfolio heavy in a wide variety of equities can generate over 3% dividends. Ours has provided over 3% consistently for nearly 20 years! It's actually closer to 4% right now with a recent pull-back in the market. In addition, the overall value has grown quite substantially over time.

I'm on the board of a charitable foundation that has a similar wide variety of equities. The foundation gives away ~5% every year (an IRS rule) consisting of nearly 4% in dividends and periodically cashing some shares via capital gains and rebalancing. There is no end in sight for the continued distributions from the foundation.

My point is... I don't see the need to shy away from good quality, diversified, dividend paying equities. Do what works for you and allows you to sleep well at night. For me that means knowing (as much as I can know anything) that dividends will be coming my way on a regular basis and I can use them to pay my bills.

 

[RobbieB]

Yeah, I'm making 3% qualified dividends on my equities too. It's why I have a lot of equities.

 

[indiajust]

I wrote a mortgage through a property brokerage as accredited investor. Makes 10% before taxes. I have the first lien position and 30% equity. That provides 2k a month. I have REITs/MLPs that help out. About half my stocks have dividends. If there is any FICA left when I get there... I hope it might pay the monthly utilities worst case, rent at least, and rent+utilities best case. I've been shifting my portfolio toward 30/70 US/Intl. I'm still growing principal and am willing to live with the volatility to get long term gains.

 

[Oz investor]

for those long term gains , have you thought about ( selected ) dividend reinvestment , taking say only 50% in cash dividends ( in some shares/REITs) and letting the growth compound .

what is the best mix for future growth ( plus dividend income ) that is a billion dollar question ( if you knew the perfect answer )

good luck

 

[ERD50]

.... My point is... I don't see the need to shy away from good quality, diversified, dividend paying equities. ...

True, but there is also no need to concentrate on high-div paying equities. As has been discussed many times, total return is all that matters. It's easier to make sure you are truly diversified by just diversifying, regardless of divs.

.... For me that means knowing (as much as I can know anything) that dividends will be coming my way on a regular basis and I can use them to pay my bills.

I've never seen this validated in any of the total return versus divs threads, though some cherry-picking, rear-view-mirror attempts were made.

-ERD50

 

[Oz investor]

using div. returns to pay bills looks good on paper ( even in practice short-term )

but i suggest factor in periods of 50% reductions in divs ( AND keep a cash buffer rather than rely on credit in an emergency )

any errors in calculations to the upside can always be saved for a rainy day

i prefer div. income over share price growth ( and treasure reliable div frequency )
diversify for a reason rather than blindly follow a common mantra

cherry pick the Buffet quotes , some will help you a lot ( but they maybe different ones to which i adhere)

the willingness to be flexible is a two-edged sword , brilliant if you are careful using it

 

[audreyh1]

I simply don't worry about the yield of my portfolio. I picked an AA I could live with, and I withdraw needed funds annually, selling from whichever funds are highest if needed as I also rebalance. Doesn't matter a hill of beans to me if most of the withdrawn funds came from dividends accumulated during the year or came from trimming some funds.