My dividend portfolio

[rayinpenn]

61, she is 59. I am planning to pull the pin in July - as discussed work will know exactly 1 month before I go. The job is a very good one, a saint of a boss and usually fun so we will see.

My plan
- 2 to 3 years living expenses in cash
- live on dividends and SS (I'll start that at 62) we are pretty frugal so we will likely not spend it all
- I'll pay $2,000 a month for health insurance until I'm 65 then it should drop as daughter graduates and finds job, and I go on Medicare with a supplemental.
- time to sell the big house, the investment condo and perhaps buy a smaller first floor master in a warmer climate.

My split will be 80% stocks 20% bond funds (reluctantly) - I'll struggle with buying anything other than equity mutual funds. I'm not worried about portfolio valuation I'm more concerned with increasing dividend income streams.

The wife's side is very long lived her grandmother lived until her 90s (and was a also a very successful dividend investor as well)


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[LOL!]

If you have that much in cash and an 80/20 portfolio, then you really probably have something like a 70/18/12 equities/bond/cash or a 70/30 equities/fixed_income portfolio with the cash portion dragging down your returns. Lots of people seem to do that.

The cash it seems would require a higher risk elsewhere in the portfolio such as riskier dividend-paying equities.

For myself, I try to avoid dividends since long-term capital gains will be taxed less for me. Just reducing my taxes is like an additional 2% to 5% return on my investments. If I cannot avoid dividends, then I have those investments in my Roth IRA if there is room and then in tax-deferred accounts.

 

[rayinpenn]

For myself, I try to avoid dividends since long-term capital gains will be taxed less for me. Just reducing my taxes is like an additional 2% to 5% return on my investments. If I cannot avoid dividends, then I have those investments in my Roth IRA if there is room and then in tax-deferred accounts.

Unless I'm mistaken...
1) qualified dividends from a taxable account are taxed at the same rate as Capital Gains
2) in my Ira accounts it is all ordinary income anyway

The cash is an emergency fund, I don't consider it part of our investment portfolio but your right it does soften the blend slightly.

For us going from the accumulation phase to the spending phase will be a big transition. In fact quitting will be a big deal for me I've had a full time paycheck for 40 years.

 

[LOL!]

Yes, qualified dividends are taxed at the same rate as long-term capital gains, HOWEVER …

1. Not all my index mutual funds pay 100% qualified dividends although that's what I want.

2. Dividends increase one's AGI, but

3. Realized capital gains can be offset by realized capital losses, and

4. There is no limit on the amount of realized capital losses that can offset realized gains, but there is a limit of $3,000 of excess realized losses offsetting dividends, so …

5. Capital gains may not even increase one's AGI if there are enough losses to offset them.

These are subtle points that may not come to light until one is trying to reduce AGI in order to have more room for Roth conversions in the 0% to 15% tax brackets.

 

[nun]

Why sell the investment condo? Rental income is a great diversifier and will complement the dividend income nicely. Have you considered delaying SS?

 

[MooreBonds]

The cash is an emergency fund, I don't consider it part of our investment portfolio but your right it does soften the blend slightly.

Everyone has a different definition of "emergency fund". A 2-3 year's allocation is kind of either an E-fund or falls into the "something else" category. If it is your buffer that you spend down over 2-3 years and let your dividends/cap gains replenish, then that's one thing...but since you sound like you are planning on living off of your dividends/cap gains, is that 2-3 years of cash in a zero-intrerest savings account, or is it at least in something like a 5 or 10 year CD paying at least something close to inflation so it doesn't loose (too much) after-tax purchasing power?

If it's truly only "break glass here in case of emergency", odds are you won't ever need it...in which case I would suggest CDs or I-bonds or something that at least pays something more than 0.01%. Even if you have to cash in I-bond or CD early to pay a penalty, odds are you won't ever have to come to that...or if you do, you'll at least have some dividends to live off of, and you wno't need all CDs cashed in (in which case divide it up into 6 months expenses in each CD, so you only cash in one as needed).

 

[rayinpenn]

Why sell the investment condo? Rental income is a great diversifier and will complement the dividend income nicely.

Good point.
1) Because I don't want to be an absentee landlord - time to move and start a new adventure.
2) My co-owners (wife and sil) are tired of destructive tenants and said they won't do one more thing over there.

Thankfully we have a very nice lady there for the past few years...

Have you considered delaying SS?

While my health isn't bad - there are a few things that make me feel that I don't think I'll live much past seventy ...


As to capital gains
1 I never sell
2 my funds have very low turnover.
As such, I just don't generate much capital gains

 

[rayinpenn]

If it's truly only "break glass here in case of emergency", odds are you won't ever need it...in which case I would suggest CDs or I-bonds or something that at least pays something more than 0.01%. Even if you have to cash in I-bond or CD early to pay a penalty, odds are you won't ever have to come to that...or if you do, you'll at least have some dividends to live off of, and you wno't need all CDs cashed in (in which case divide it up into 6 months expenses in each CD, so you only cash in one as needed).

Thanks sounds like a great idea... Never had experience with i-bonds looks like I need to do some research.


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[Mulligan]

Thanks sounds like a great idea... Never had experience with i-bonds looks like I need to do some research.


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Ibonds have a 10k annual limit plus 5k if bought through your tax refund, so I imagine 25k per couple is max yearly contribution. FWIW, I just pulled all my money out of IBonds last year and put it more to work. As Moorebonds said, people do it differently, and I certainly do with my "break in case of emergency".....Though I have a few thousand laying around, I keep everything else invested now, so my emergency money is credit card 18 month, 0% access checks with 2% initial fee. Heck, just last year I bought my car with one of those access checks, and will have it paid off before the 18 months is up.


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[nun]

A 4 or 5 year CD will get you 2% which is better than having money sitting at 0%. A 5 year ladder of CDs is a nice way to put emergency money to work. Of course you can also get a bit of return from cash back on your credit cards charges. A good place for emergency cash is a stable value fund if you have access to one in your retirement accounts. Personally I use TIAA-Traditional deferred annuity for emergency cash as it pays 4%, but I'm limited to withdrawing 10% of the account each year. And I have to pay income tax on withdrawals.

 

[pb4uski]

With online savings accounts at about 1% that's were my cash is. My fixed income is mostly CDs (those 3% 5 year CDs that PenFed offered a couple years ago and 5 year target maturity bond funds (which to me are similar to CDs).

 

[Sunset]

While my health isn't bad - there are a few things that make me feel that I don't think I'll live much past seventy .......

Perhaps you should think of your long life wife, because unless she earned her own SS, she will be living on yours after you die.
So if you start SS at 62 it will be a lot lower than if you delay to 70.

You left out if she has her own SS or not.