Withdrawal rate even in bad years?

[mathjak107]

it sure does matter anytime the lower returns are up front vs the higher returns .

low rates and high valuations are a pretty crappy way to kick off your first year in retirement .

well that's me , i retired in august .

 

[Danmar]

Been retired 9 years and basically have just spent divs. If these were to be cut (hasn't happened yet) I have a pretty good cash balance for a buffer.

 

[mathjak107]

why not reinvest the dividends and spend the low return cash ?

 

[Lawrence of Suburbia]

How many here can just live off dividends in retirement?

 

[W2R]

How many here can just live off dividends in retirement?

Quite a few? I guess it depends on how much your dividends are, and how little you really need/want to spend in retirement.

 

[nun]

How many here can just live off dividends in retirement?

Depends on the portfolio and the income requirements....I reinvest all dividends and plan for a negative glide path.

 

[Danmar]

Quite a few? I guess it depends on how much your dividends are, and how little you really need/want to spend in retirement.

Current yield around 3.9% on 100% equity portfolio. This would seem to approximate a SWR?

 

[Danmar]

why not reinvest the dividends and spend the low return cash ?

Because then I wouldn't have the cushion I want in case things are going poorly in the market, ie div cuts. Also, divs are fairly lumpy as is spending so a cash cushion smooths things out from month to month. Agree the cash balance brings total returns down but only represents about 2-3% of portfolio. Divs are about 50% of our income with pension the other half.

 

[mathjak107]

actually study after study shows that cash cushions are a mental issue and not a financial one .

while on the surface it looks like keeping the cash for the downturns is the better deal the drag and weight of a cash buffer in the up years actually cuts the cushion of gains in the more volatile stuff .

the end result is there is little difference spending equally from the pie vs spending down cash buffers .

there is a slight edge though to reinvesting dividends to grow while utilizing the lower return cash .

in effect by spending dividends you have less and less in equity's compounding for you at the start of each quarter then had the dividends been reinvested .

 

[Danmar]

actually study after study shows that cash cushions are a mental issue and not a financial one .

while on the surface it looks like keeping the cash for the downturns is the better deal the drag and weight of a cash buffer in the up years actually cuts the cushion of gains in the more volatile stuff .

the end result is there is little difference spending equally from the pie vs spending down cash buffers .

there is a slight edge though to reinvesting dividends to grow while utilizing the lower return cash .

in effect by spending dividends you have less and less in equity's compounding for you at the start of each quarter then had the dividends been reinvested .

Interesting. Probably right but I only invest in well established div payers and like to spend the divs because it is easy and I don't need to liquidate anything as I spend my way through retirement. Sequence of return risk might be lower doing this? Optimal? Doubt it but less risky maybe?

 

[rodi]

How many here can just live off dividends in retirement?

I agree that it's a quite a few - but many also have other income sources so they need less income from their portfolio. Rental income, pensions, SS, etc.

I expect to live off just dividends once I start collecting SS.

 

[audreyh1]

actually study after study shows that cash cushions are a mental issue and not a financial one .

while on the surface it looks like keeping the cash for the downturns is the better deal the drag and weight of a cash buffer in the up years actually cuts the cushion of gains in the more volatile stuff .

the end result is there is little difference spending equally from the pie vs spending down cash buffers .

there is a slight edge though to reinvesting dividends to grow while utilizing the lower return cash .

in effect by spending dividends you have less and less in equity's compounding for you at the start of each quarter then had the dividends been reinvested .

Personally I don't worry about cash buffers and the feared "drag" on long-term performance. My cash buffer is separate from my retirement portfolio and I use the retirement portfolio alone to determine my withdrawal rate.

I don't care about what's "mental" either - it's about managing your cash flow. And if someone is comfortable with their cash flow, they are far more likely to leave their long term investments alone when things get scary.

Psychology is a critical component of investing.

 

[BBQ-Nut]

I agree that it's a quite a few - but many also have other income sources so they need less income from their portfolio. Rental income, pensions, SS, etc.

I expect to live off just dividends once I start collecting SS.

I could also, but RMDs will kick in so, not much of choice there as DW and I don't expect to have completely converted to Roths.

 

[marko]

How many here can just live off dividends in retirement?

My guess is if you figure in SS as a supplement, a high percentage of this forum get by nicely on just those two.

 

[W2R]

My guess is if you figure in SS as a supplement, a high percentage of this forum get by nicely on just those two.

Not to mention pensions. I have both, so I generally* don't spend more than my dividends.

In three years I will start getting RMD's. But, if I want to, I suppose I could figure out what my dividends were and just spend less than that. Then I could re-invest any surplus in my taxable accounts, for example.


*(during years when I am not buying my Dream House as I did this year)

 

[NW-Bound]

actually study after study shows that cash cushions are a mental issue and not a financial one .

while on the surface it looks like keeping the cash for the downturns is the better deal the drag and weight of a cash buffer in the up years actually cuts the cushion of gains in the more volatile stuff .

the end result is there is little difference spending equally from the pie vs spending down cash buffers .

there is a slight edge though to reinvesting dividends to grow while utilizing the lower return cash .

in effect by spending dividends you have less and less in equity's compounding for you at the start of each quarter then had the dividends been reinvested .

I've always had quite a bit in cash, but it's really extra safe fixed income like I-bonds and a stable value fund in 401k. I have been thinking about moving them elsewhere for a bit better return. With lower return in the years ahead, every little bit is going to help.

 

[UpAnchor]

How many here can just live off dividends in retirement?

Depends on the portfolio and the income requirements....I reinvest all dividends and plan for a negative glide path.

I'd guess quite a few probably "can". But from perusing this forum over the last few years, I'm of the suspicion that no small percentage of those follow-or plan to follow-a total return approach. Yet were I to go into retirement with with a large enough PF (not likely), I'd be tempted to try the dividend approach. And I say that fully understanding the fungible nature of money and that it all comes out the same in the end.

 

[hnzw_rui]

I could also, but RMDs will kick in so, not much of choice there as DW and I don't expect to have completely converted to Roths.

You can always do an in-kind transfer from IRA to taxable if you don't want to sell.

 

[Danmar]

I'd guess quite a few probably "can". But from perusing this forum over the last few years, I'm of the suspicion that no small percentage of those follow-or plan to follow-a total return approach. Yet were I to go into retirement with with a large enough PF (not likely), I'd be tempted to try the dividend approach. And I say that fully understanding the fungible nature of money and that it all comes out the same in the end.

I am very concerned about total return. It is just that my portfolio generates a dividend yield that approximates a reasonable SWR. Total return has been a little over 10% CAGR since I retired in 2006 while divs have yielded from3.25% to about 4.0%. Just seems easier to spend the divs rather than reinvesting and liquidating.

 

[W2R]

I am very concerned about total return. It is just that my portfolio generates a dividend yield that approximates a reasonable SWR. Total return has been a little over 10% CAGR since I retired in 2006 while divs have yielded from3.25% to about 4.0%. Just seems easier to spend the divs rather than reinvesting and liquidating.

+1

I invest like a total return investor. But, my dividends are enough to cover my spending for now and I have them sent to a money market account at Vanguard. So, it's easy to just get my spending money from there.

 

[petershk]

I wonder if it depends on your withdrawal strategy? I'm close to ER so been thinking about this a lot.

My written plan is this:
+Maintain 60/40 asset allocation.
+Withdraw once a year simultaneously rebalancing.
+Keep one year inflation adjusted cash buffer that I "fill" at that same time.
+evaluate quarterly but only rebalance if more than 5% drift

From tracking... My WR would have been around 3-3.5% depending on market and dividend payout would be around 2.8% right now (including cash drag).

Note I'm currently moving TO the 60/40 + cash buffer so real numbers might look different by then ).

So... If I switched to dividend spending would I spend less or just invest differently . Or maybe if dividends covered 100% I'd suddenly think of myself as a dividend spender? Dunno.

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[ejman]

Could the total return folks clarify something for me please? Do you reinvest your dividends and CG in your taxable accounts and then afterwards sell the shares that you need to for your living expenses? I've been trying to wrap my head around that and having a great deal of difficulty.

 

[petershk]

Could the total return folks clarify something for me please? Do you reinvest your dividends and CG in your taxable accounts and then afterwards sell the shares that you need to for your living expenses? I've been trying to wrap my head around that and having a great deal of difficulty.

Here's what I plan to do.
Reinvest all dividends and sell annually to rebalance.

So lets say I'm 60/40 vti/bnd... Hypothetically to make it simple .

On Jan 1st or whenever I look at my spending balance. My planned annual spend is 120k...

So lets say in the last year I spent 100 and inflation adjusts it to 125k.

That means I'd need 105k to get back to "full" for next year's budget.

Let's say the portfolio drifted to 65/35... Then I would sell VTI to get that 105k.

If that gets me to 63/37, then I'd sell an addition 3% (at the same time) and reinvest it into bnd.

Let's say the drift is only 61/39 and selling 1% only gets me to 80k.. then I'd sell equally from both beyond that to get to 60/40 again.

Does that make sense?

I thought about doing dividends and if I did that I'd divert the dividends into my "spending" account and use that. If it runs short then I'd sell to rebalance... If it's too much I'd plow it back in at the rebalance period.

The reason I decided to not plan on doing this is that because of my personality it'll tempt me to fiddle with asset allocation too much

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[audreyh1]

Could the total return folks clarify something for me please? Do you reinvest your dividends and CG in your taxable accounts and then afterwards sell the shares that you need to for your living expenses? I've been trying to wrap my head around that and having a great deal of difficulty.

No - don't reinvest, but let them build up as cash in the retirement account. Most of them are paid out in December, and in January, I take my withdrawal. That can usually be taken from the accumulated distributions, if not, sell some funds. Rebalance what's remaining, then I'm done for the year.

 

[ejman]

No - don't reinvest, but let them build up as cash in the retirement account. Most of them are paid out in December, and in January, I take my withdrawal. That can usually be taken from the accumulated distributions, if not, sell some funds. Rebalance what's remaining, then I'm done for the year.

Yes, what you do makes sense. But apparently some, as in the prior post go ahead and reinvest dividends in the taxable accounts and then sell shares latter on. For the life of me I can't figure out why and I'm trying to understand what it is I'm missing.