Reducing stock exposure in Retirement, age 60+

[mathjak107]

For a married couple dividends are not taxable at all until taxable income exceeds $89,250. And dividends are taxable at the LT Capital gains rate of 15% until income exceeds $500,000.

With the standard deduction of $29,000, an income combining dividends and social security to get $88,000 of taxable income (which will be actually higher due to non-taxable portion of SS will pay almost nothing in tax.

For instance if Social security for a couple was 50K per year and you had 45K per year of dividend income your taxable income on SS at most would be 85% of 50K or 42.5 K less standard deduction of 29,0000 or about $1,300 in Federal tax on 95K of actual cash income. This is about equal in spendable funds to a working couple earning $140,000 before retirement.

the zero capital gains bracket is great when one qualifies..but we don’t .

even if you do the problem is that the dividends which are basically a wash take up valuable space in that bucket where actual tax free capital gains could be had from actual sales.

harvesting tax free actual gains tax free is a gift from the tax gods.

it’s a shame to eat up space with payments that may not represent even a gain to you

 

[Onda]

even if you do the problem is that the dividends which are basically a wash take up valuable space in that bucket where actual tax free capital gains could be had from actual sales.

harvesting tax free actual gains tax free is a gift from the tax gods.

I am not aware about qualified dividends being taxed at higher rate than capital gains.

 

[audreyh1]

They aren’t. I guess Mathjak would rather use realized capital gains instead of receiving qualified dividends as income. If you don’t sell any of your stocks I don’t see that it makes any difference.

 

[Onda]

They aren’t. I guess Mathjak would rather use realized capital gains instead of receiving qualified dividends as income. If you don’t sell any of your stocks I don’t see that it makes any difference.

So he must own only BRKs. He cannot own anything like QQQ, VTI, SCHD etc etc.

 

[WhenIsItTime]

We're both in our 60s (me - early, wife - mid) and are getting increasingly uncomfortably holding equities - even at our current ~22% of portfolio. Largely because of current excessively stretched valuations and what I see happening in the economy - and also because an even 25% let alone 50% drop would represent a big chunk of $$s that I'd feel pretty stupid seeing vanish (albeit, "on paper"). Instead, my gut is literally screaming at me to sell to get down to maybe 15% of the total value of our portfolio, if that.

Wondering if anyone else feels the same and has taken steps to reduce equity exposure as you get later in life?

Our goals are simple: protect what we've worked decades to accumulate, and guard against inflation best we can, while having "enough" to get to end of life comfortable (but not extravagantly). Our goals do not include planning to leave a large inheritance for heirs.

2 problems: inflation has eaten up 18% cumulative the past 3 years, and while the rate of price increases has slowed, it's reasonable to assume that it's going to continue to run at a higher than normal clip given current Federal spending and policy. So, every dollar we had saved is now worth 82 cents. I'm concerned about will happen the next 5, 10 and even 20 years that will further chip away at our piggybank. I truly believe we live in very abnormal times and do not see that changing anytime soon.

Secondly, equity valuations are stretched to what I personally think are crazy levels. Shiller PE is at 34+ (!) and peeling back the economic numbers, things are not nearly as rosy as some like to represent.

So, we're caught between a rock and hard place.

My gut tells me to lock in some profits at these levels, wait for the pullback that I'm pretty confident will occur sometime in 2024 - especially with Summer coming up AND an election year upon us, and buy back in at 10-25% (or possibly even cheaper) levels - or maybe NOT buy back in and just live off cash (CDs, MYGAs, MMs, etc). Incidentally, I've modeled that out and it works through age 90..IF inflation doesn't go totally bonzo, which there's no guarantee of anymore.

It's worth mentioning that neither of us is that likely to live to our 90s for various health reasons. I'm guessing we'll be lucky to make it to "average" life expectancy. We also (assuming we both live that long) will have pretty decent SS that will pay a good chunk of the monthly bills, assuming THAT also is still able to pay as planned. So, let's say we have ~20 years left. We could literally cash out, bury the money in the backyard (or put it all in Treasuries), and probably be fine. So I struggle to justify owning ANY stocks or bond funds. But "you HAVE to own stocks forever to keep up with inflation!" has been drilled into my head for 40+ years, and it's hard to overcome the brainwashing even though my gut is telling me "run for the hills! Save yourself, before things go 'splat' in a big way.."

Anyone else (especially those 60+) have the same concerns, assuming your goals don't include leaving a large inheritance to your heirs and you're just looking to get through end of life safely/comfortably?

From my point of view, you have raised the points that say you can/should stay in equities (inflation risk, 20 years left).

Have you spent any time looking at historical results for S&P 500 by year? Look at all the crashes (drops >20%) and time to recovery. It is usually in 3 years. At 20% equities w/SS, seems unlikely you would need that money in 3 years. Why not let it ride or even add to it to help your nest egg have the best chance of staying ahead of inflation?

 

[mathjak107]

I am not aware about qualified dividends being taxed at higher rate than capital gains.

you pay tax on an entire dividend , the same dollars coming from a capital gain. is only taxed on the gain portion

 

[mathjak107]

So he must own only BRKs. He cannot own anything like QQQ, VTI, SCHD etc etc.

brk is a big holding but i also own vti in my taxable account . i try to hold dividends down as much as i can but they are hard to avoid. the vti spin off isn’t bad

 

[mathjak107]

They aren’t. I guess Mathjak would rather use realized capital gains instead of receiving qualified dividends as income. If you don’t sell any of your stocks I don’t see that it makes any difference.

if you don’t sell then there is a big difference.

the entire dividend is taxed in a taxable account if you don’t qualify for the zero capital gains bracket .

that is regardless of a profit it or not on your end .

if you didn’t get a dividend and only had appreciation and never sold you would have no tax on unrealized gains

 

[pb4uski]

I am not aware about qualified dividends being taxed at higher rate than capital gains.

Qualified dividends are not taxed at higher rates... they are subject to the same tax rates as LTCG.

 

[pb4uski]

if you don’t sell then there is a big difference.

the entire dividend is taxed in a taxable account if you don’t qualify for the zero capital gains bracket .

that is regardless of a profit it or not on your end .

if you didn’t get a dividend and only had appreciation and never sold you would have no tax on unrealized gains

And you wouldn't have any cash flow to use for fun either. Besides if not 0% then most likely 15%, so BFD. And if you're paying over 15% on LTCG don't expect much sympathy.

 

[pb4uski]

So he must own only BRKs. He cannot own anything like QQQ, VTI, SCHD etc etc.

In his case it would be brk, qqq, vti, or schd.

 

[mathjak107]

interesting article by kitces on dividends in a taxable account.

“. - However, as it turns out, having even just a little bit of equity turnover and a modest level of ongoing dividends already erodes much of the value of the tax deferral normally associated with buy-and-hold strategies. A mere 2.5% ongoing dividend can eliminate as much as 1/3rd of the benefits of tax- deferral, and just having equities turn over once per decade erases another 1/3rd of the benefits of tax- deferral over the span of 30 years.“


https://www.kitces.com/wp-content/u...-Exploring-The-Benefits-Of-Asset-Location.pdf

 

[Onda]

having equities turn over once per decade erases another 1/3rd of the benefits of tax- deferral over the span of 30 years.“


https://www.kitces.com/wp-content/u...-Exploring-The-Benefits-Of-Asset-Location.pdf

My friend that is an astronomical turnover rate. I still own ETFs and even individual stocks we bought 30 years ago.

 

[mathjak107]

not me. my portfolio is nothing like it was even pre retirement

 

[Onda]

not me. my portfolio is nothing like it was even pre retirement

And over the last 30 years you made more that 10% a year right? That is you turned 61k into 1M+ while market did only 1M.

https://seekingalpha.com/article/4108688-investor-returns-vs-market-returns-failure-endures

 

[mathjak107]

actually i have used the fidelity insight newsletter since 1987 .

i can be a dirty lil market timer at heart so i always found it best to follow some structured format and i was smart to do so .


i used the growth model up to pre retirement..so it did quite a bit more then a total market fund and the s&p 500

now i am 50/50 and was about 40/60 up until last year .

now i use the insight income model for short term money , the growth and income model for intermediate term , and vti and berkshire for long term


https://www.fmandi.com/about/performance/perf_gr.php

 

[Onda]

actually i have used the fidelity insight newsletter since 1987 .


https://www.fmandi.com/about/performance/perf_gr.php

Those models are not outperforming the S&P 500, and with turnover and taxes associated with turnover + management fees they are actually underperforming it.

https://hulbertratings.com/20-year-scoreboard/

 

[Onda]

actually i have used the fidelity insight newsletter since 1987 .

i can be a dirty lil market timer at heart so i always found it best to follow some structured format and i was smart to do so .


i used the growth model up to pre retirement..so it did quite a bit more then a total market fund and the s&p 500

now i am 50/50 and was about 40/60 up until last year .

now i use the insight income model for short term money , the growth and income model for intermediate term , and vti and berkshire for long term


https://www.fmandi.com/about/performance/perf_gr.php

As of July 2022 here is the suggested Growth model:

FEQIX 28%
FBGRX 24%
FCNTX 23%
FLPSX 13%
FMCSX 12%

Lined up with managed funds with huge fees and not overly impressive returns.

 

[mathjak107]

As of July 2022 here is the suggested Growth model:

FEQIX 28%
FBGRX 24%
FCNTX 23%
FLPSX 13%
FMCSX 12%

Lined up with managed funds with huge fees and not overly impressive returns.

each cherry picked time frame will be different as far as returns and whether it’s worth it or not .. going by my time frame since i started in 1987 are different then other dates one picks .

personally i can put portfolios together in my sleep but my problem is i always second guess the last move and contemplate the next , so i dont use them because i want the largest return. i want the discipline of someone else taking decision making off me .

grew my ira to multiple 7 figures over the years,

also keep in mind the growth model strives to be the same or less risk and volatility than the s&p .

i can easily increase gains loading in qqq with the s&p if i wanted , but then that is a different risk vs reward

i can easily surpass the returns i had by increasing risk.

in fact the sector model did very very well but higher risk

 

[Onda]

each cherry picked time frame will be different as far as returns and whether it’s worth it or not .. going by my time frame since i started in 1987 are different then other dates one picks .

personally i can put portfolios together in my sleep but my problem is i always second guess the last move and contemplate the next , so i dont use them because i want the largest return. i want the discipline of someone else taking decision making off me .

grew my ira to multiple 7 figures over the years

OK, but the bottom line is that I can just buy (outside of an of an IRA or 401k) something like 80% VTI and 20% VXUS. Collect the dividends over the years, and no, I will not have a big tax bill from it and I will oupreform maybe 95% of "profesional" investors.