SWR and dividends

[Live And Learn]

Example:
91k Annual expenses
12k work and/or SS
79k Withdrawal required

BUT ... what if I get 10k in dividends ? Do I subtract that from the 79K ?? I'm assuming not since the dividends will fall as the portfolio balance is reduced but I wanted to be sure

Thanks !

 

[packrat44]

Example:
91k Annual expenses
12k work and/or SS
79k Withdrawal required

BUT ... what if I get 10k in dividends ? Do I subtract that from the 79K ?? I'm assuming not since the dividends will fall as the portfolio balance is reduced but I wanted to be sure

Thanks !

Yes. Your 79k withdrawal is composed of many components - stock dividends; interest; bonds; sale of stock/bonds/real estate/precious metals/etc.

 

[clifp]

Example:
91k Annual expenses
12k work and/or SS
79k Withdrawal required

BUT ... what if I get 10k in dividends ? Do I subtract that from the 79K ?? I'm assuming not since the dividends will fall as the portfolio balance is reduced but I wanted to be sure

Thanks !

Dividends are included in the investment returns which enable a 4% SWR, so you can't double count them.

 

[Live And Learn]

Thanks - thats what I tought but then I read a couple of other posts and started to doubt myself.

 

[Alan]

Yes. Your 79k withdrawal is composed of many components - stock dividends; interest; bonds; sale of stock/bonds/real estate/precious metals/etc.

Dividends are included in the investment returns which enable a 4% SWR, so you can't double count them.

Exactly what I do. If I need a $50k withdrawal and there are $30k in dividends then I will have to sell $20k of assets.

 

[W2R]

Several of us just live off our dividends, but that doesn't mean that our SWR is 0.0%.

Yes, as the other have already said more eloquently, dividends are counted as part of one's withdrawals during retirement.

 

[Danmar]

Agree with previous posters but the advantage to having significant dividends is that you don't have to sell as much of your portfolio to support your spending. I don't need to sell anything on an ongoing basis but if I did I think it would introduce another risk factor. IE I sell the wrong stock. If you are in index ETF's it wouldn't matter as much.

 

[Chuckanut]

Sell dividends or sell growth. I don't see the difference.

 

[Ed_The_Gypsy]

Sell dividends or sell growth. I don't see the difference.

Dividends are steadier, more reliable, less sensitive to market valuations. CGs are unpredictable.

I can rely more on a 4% dividend than 7% NAV growth. By buying a decent dividend producer, I can reasonably anticipate capital gains on top of my dividends.

 

[Alan]

Sell dividends or sell growth. I don't see the difference.

Dividends are pretty consistent.

If you have cash in your portfolio then you can sell assets while they are up and put the proceeds into cash, and use your cassh to top up the withdrawals that dividends don't cover. If you have several down years in a row then you'll have to sell assets when they are lower than you'd like.

 

[marko]

Dividends are pretty consistent.

If you have cash in your portfolio then you can sell assets while they are up and put the proceeds into cash, and use your cassh to top up the withdrawals that dividends don't cover. If you have several down years in a row then you'll have to sell assets when they are lower than you'd like.

That is exactly what I do. My dividends are deposited into a money market and I withdraw from that as needed. As you say, that way I don't get caught in the 'market timing' game...the money is there and ready.

 

[walkinwood]

Go to Bob's financial website and read some of the SWR related papers especially the ones by Bengen - if you haven't already. You'll gain a solid understanding of the some of thinking behind the SWR.

Nice user name btw. All the best.

 

[Chuckanut]

Growth versus dividends? Well, to each his own. There is an old Ferengi saying "just make the money which ever way you can!".

 

[Live And Learn]

Thanks for the link Walkinwood.

Just read a thread about how the OP felt s//he was back in college. I'm starting to feel that way too !!! I'm learning SO MUCH here !!! I love it

Thanks to all

 

[WilliamG]

Go to Bob's financial website and read some of the SWR related papers especially the ones by Bengen - if you haven't already. You'll gain a solid understanding of the some of thinking behind the SWR.

This website no longer works and I haven't seen a post from Bob in quite a while. Anyone know why? Hope he is ok.

 

[Lsbcal]

Dividends are pretty consistent.

If you have cash in your portfolio then you can sell assets while they are up and put the proceeds into cash, and use your cassh to top up the withdrawals that dividends don't cover. If you have several down years in a row then you'll have to sell assets when they are lower than you'd like.

Just want to point out one thing. Not all dividends are the same. Some companies can pay dividends from their cash flow and still maintain a growing sound business. But some companies are just paying some or all of their dividends while starving the business of much needed capital. In the later case this could just be viewed as a return of your original investment instead of a real dividend.

 

[Danmar]

Dividends are much less risky than capital gains. My portfolio generates about 3.75% and has been increasing steadily since 2010. Furthermore there were virtually no cuts in 2008/2009 although the yields went to about 7%. I always seem to have trouble deciding when(if ever) to sell and simply spending dividends makes this easier fo me.

 

[rescueme]

This website no longer works and I haven't seen a post from Bob in quite a while. Anyone know why? Hope he is ok.

Here's some info from BH:

Bogleheads • View topic - Bob's Financial Website - Move to new web host status update

Apparently he's moving things around but things didn't turn out as expected. Some pages are still available (static mode - read the latest posts) but there is no indication of if/when the info will come back on line...

 

[scrabbler1]

Because the numerator of one's SWR is really more about expenses than dividends or cap gains, it doesn't really matter much how much I get from divdends or cap gains for the purpose of calculating my SWR.

As for me, I reinvest any surplus of investment income over expenses. My dividends alone exceed my expenses so the cap gains are always reinvested. For example, in my taxable accounts:

$22k Expenses
$30k Dividends
$5k Cap Gains (varies a lot from year to year)

I reinvest the $8k of surplus dividends and all of the cap gains no matter how much they are. My SWR is $20k / my total investments (including my TIRA).

In my TIRA (which I leave alone), I reinvest all dividends and cap gains.

 

[Danmar]

@Scrabbler. That makes it easy for you. In my case I want to spend virtually all dividends and indeed the size of our portfolio reflects these plans as I spent most of any excess capital on personal use real estate. Keep a large liquid cash balance to smooth out the cash flows. So dividends+pension-small cushion= planned spend. Portfolio consists of very "blue chip" equities.

 

[WilliamG]

Here's some info from BH:

Bogleheads • View topic - Bob's Financial Website - Move to new web host status update

Apparently he's moving things around but things didn't turn out as expected. Some pages are still available (static mode - read the latest posts) but there is no indication of if/when the info will come back on line...

Thanks but that is an old thread. Read other posts and it causes concern about everything being ok with Bob.

 

[jebmke]

Furthermore there were virtually no cuts in 2008/2009

other than the entire banking sector and many other companies.

 

[Zathras]

other than the entire banking sector and many other companies.

Regarding the banking secure, very true. And here were a few other non-banking companies that reduced theirs, but not that many.

Personally, my dividends were cut about 3%, but then the dividend yield of the portfolio as a whole recovered and started growing again.

Just as with any portfolio, you need to spread out your investments to limit your risks. For example, if you were 100% in bank stocks, you would be very unhappy.

 

[clifp]

Bernstein's book has some interesting data about dividends.

At no point in history of the US has real dividend stream fallen by more than 50% even during the depression... during the most recent financial crisis.. stock prices fell by more than 50%... dividends dropped by only 23% and only temporarily

My portfolio saw a bit over 10% loss in dividend income although there were so many changes it is hard to get an exact comparison.

He says you can reasonably add about 1/2 your dividends to your permanent (safe) retirement income .

The implications of this in today's environment is that current 2% dividend yield of S&P 500 is the equivalent of 30 year TIPs bonds with 1% yields in terms of safe income. The advantage of stocks is that can use the other 1% for spending on luxuries.

 

[Danmar]

other than the entire banking sector and many other companies.

Not one Canadian bank cut dividends in the crises. No Canadian top 5 bank has cut dividends since the 1930's depression. I know that things can change but all my Canadian bank holdings rank in the top 10 stongest banks in the world. Canada has fared much better than the US during the financial crises. It seems banking is something Canada does pretty well.