Tell me about using Dividend Funds in retirement.

[Exchme]

There is a similar thread going on at bogleheads.org that folks might find interesting:

https://www.bogleheads.org/forum/viewtopic.php?t=450734&sid=53ab84ccfdeae1a352236f6f3bb2ecb3

One of posters there put up this graphic comparing two long running Vanguard funds - their Equity Income fund (VEIPX) and Total Stock Market (VTSMX). In the 30+ years of the funds, the total results are about the same, a bit better total return in Total Stock Market and a bit smoother ride in Equity-Income.

Which all makes sense in that if one approach were obviously better than the other, folks would figure that out, do what works and the discussion would move on to the next undecidable topic.

In our case, the decision is easy, when RMDs start, the last thing I want is more "income" to pay taxes and IRMAA surcharges on, so I'm staying away from high dividend approaches, but other folks have other goals and needs.

 

[dobig]

Here's a nice dividend reinvestment calculator that can give people an idea what their future dividends will look like.

SCHD Dividend Calculator – DRIPCalc

Calculate SCHD dividends & DRIP (dividend reinvestment) returns. View portfolio growth chart & yearly results table.

www.dripcalc.com

Example.

First screen is calculating future dividend projections of SCHD based off it's past 10 year performance. There is no guarantee future performance will be the same as past performance but it's a good guideline.

Fields - one time $100,000 investment. Dividends reinvested quarterly.

Second screen shows the results of 10 years of dividend reinvestment projections.

Initial dividends were $3,649 a year. After 10 years of reinvestments you are now getting $14,200 a year and your $100,000 initial investment is now worth $307,886. After 20 years you would be getting $71,350 a year in dividends and your initial $100,000 investment would be worth $1,191,385. Of course all projections.

Now if we want to see how much we would be making without dividend reinvestments we simply multiply the original amount of shares purchased, 3,351 by the dividend after 10 years or $3.08 a share (up from original $1.11 a year per share). We see the dividend has grown to a total of $9,976 for those 3,351 shares for an effective rate of 9.98% on our original investment of $100,000. And that's with us taking out every single quarterly dividend for 10 years. After 20 years annual dividends would be $30,705 and our initial $100,000 investment is still worth $1,191,385 as with dividend reinvestment.

 

[dobig]

The point of the above isn't free money. It's the simplicity of dividend growth etfs. You don't have to worry about selling in down markets. Your income is predictable and grows every year without having to calculate inflation. And for myself, I take emotion in down markets out of the equation.

And while the majority of SCHD is qualified dividends (98.48% for 2025) which are as tax efficient as long term capital gains tax there is also an argument that can be made for those seeking low income index or growth funds as has been mentioned numerous times. The benefit being usually higher growth and complete control over their distributions for tax or other purposes. I own a number of these funds but on a smaller scale than my dividend portfolio.

It's not an argument for dividend investments being better or not. It's simply an option.

 

[FD1000]

I believe you're the only one talking about 'high' dividend.


We have a thread on CEFs if anyone is interested in that.

It's semantics.
A 3% is high compared to 0.5%.
A 10% is high compared to 3%.
You can substitute it for higher, my points stick stand.

 

[FD1000]

Be very careful with this. Standard Deviation has meaning only in the context of a "normal," or "Gaussian" distribution. And, of course, the distribution of asset prices is different for every asset and probably none are Gaussian. So, calculating SDs for different assets produces a series of meaningless numbers where comparisons of them is even more meaningless. Comparing Sharpe ratios has the same problem because those ratios are based on SDs.

Various forms of variance measurement have been popular with economists for millennia, but I have never seen an argument that variance is at all correlated with risk. Real risk is hard to quantify, which leaves us with only the Potter Stewart test: "I know it when I see it." Risk is Lehman Brothers, Enron, General Electric, Sears, Global Crossing, etc., all of which are easy to see but only in the rear view mirror.

For more than you ever wanted to know about this, read Nassim Taleb with particular attention to Extremistan and fat tails.

Good points but if you want to know how your portfolio have performed these are very good indicators.
They also have a better chance forecasting the future but not always.
I spent decades understanding risk and volatility and came to a conclusion that only selling at a very high risk market protect me.
This is why I developed my model.

 

[joejetski]

I do accept it.
My portfolio is invested at 95+% in bond OEFs with much lower volatility than even bond funds but performance is in par with stocks.

This thread is discussing high dividend.
Over the years several investors have claimed that these have offered better...
I'm still waiting for the proof that higher dividends have a consistent better Sharpe ratio.

You also have stated in earlier posts that you “jump ship” sell your positions with a goal of never losing more than 1%. So, based on that strategy, it doesn’t matter what you are invested in, as long as you have enough $$$ to cover you when you are out of the market, any strategy wins. Many people are not market timers and stay invested through the ups and downs, including retirees. A number of them likely have a stash of cash for SORR. Others use indicators to go to cash or build cash because they do not have a cash stash for SORR for various reasons. Lots of ways to skin the cat.

 

[joejetski]

It's semantics.
A 3% is high compared to 0.5%.
A 10% is high compared to 3%.
You can substitute it for higher, my points stick stand.

I think your perspective depends on the financial setting. For example, during ZIRP, your first example would be a reasonable statement, based off investment safety (CD vs dividend), whereas currently, with CDs just above 3%, your 2nd statement is more reasonable. It is setting and time dependent, but definitely not semantics. There are also a spectrum of yield rates that income investors select from based on their risk tolerance. But you know that, given your portfolio is bond OEFs.

 

[RunningBum]

Absolutely!

If someone had told me when I was young and living in a trailer park or later on in my teen years after Dad left leaving us destitute that one day I'd have almost $3 mil in investments in my 50's I'd have fallen over in shock and joy. I'm going for singles and doubles because I'm never going back.

I hope dear old dad found you later in life and asked for money, so you could tell him to shove off.

 

[dobig]

I hope dear old dad found you later in life and asked for money, so you could tell him to shove off.

This isn't the place to get into it but I will say it went exactly like one might expect.

I'm sure there are plenty of others on here who had similar rough childhoods who scratched and clawed to get where they are today. The opportunity to do that is why I believe we live in the greatest country on earth. Warts and all.

 

[Flyfish1]

My portfolio is invested at 95+% in bond OEFs with much lower volatility than even bond funds but performance is in par with stocks.

Very intriguing. Would you mind telling us what some of your holdings are? I'm curious.

 

[Lorenzo]

The point of the above isn't free money. It's the simplicity of dividend growth etfs. You don't have to worry about selling in down markets. Your income is predictable and grows every year without having to calculate inflation. And for myself, I take emotion in down markets out of the equation.

I have very much appreciated learning from your contributions to this thread, and as I have said, I'm seriously considering getting more into dividends. But can we please drop from the list of benefits the not having to "worry about selling in down markets"? Virtually nobody is worried about that, as we have set aside a cushion to guard against it. It seems to me that virtually nobody is relying entirely on a growth portfolio.

 

[OldShooter]

... not having to "worry about selling in down markets"? ...

More importantly, this is irrelevant. Case 1 is that the company pays its regular dividend. This happens regardless of whether the market is up or down. The stock goes down by the amount of the dividend. Case 2 is that the stockholder sells stock with proceeds equal to the Case 1 dividend. The value of the position goes down by the amount of the "home-made" dividend. Both cases produce exactly the same result, the shareholder's position is reduced by the amount of the dividend.

Up or down markets, the result is the same. Now if the shareholder decides to reduce the amount of their home-made dividend because the market is down. that is another matter completely. Home-made dividends at least offer that option, where dividends paid by the company do not.
https://www.investsmart.com.au/investment-news/homemade-dividends/130336 "Since money has no memory of how it arrived into the hands of an investor, it can come via dividend or capital sold without portfolio effect. As the well-known financial economist Ken French put it: “Investors should be indifferent to how they raise cash, whether through dividends and interest, or through the sale of shares—a method [Nobel prize winner] Merton Miller called homemade dividends.”

 

[Running_Man]

Be very careful with this. Standard Deviation has meaning only in the context of a "normal," or "Gaussian" distribution. And, of course, the distribution of asset prices is different for every asset and probably none are Gaussian. So, calculating SDs for different assets produces a series of meaningless numbers where comparisons of them is even more meaningless. Comparing Sharpe ratios has the same problem because those ratios are based on SDs.

Various forms of variance measurement have been popular with economists for millennia, but I have never seen an argument that variance is at all correlated with risk. Real risk is hard to quantify, which leaves us with only the Potter Stewart test: "I know it when I see it." Risk is Lehman Brothers, Enron, General Electric, Sears, Global Crossing, etc., all of which are easy to see but only in the rear view mirror.

For more than you ever wanted to know about this, read Nassim Taleb with particular attention to Extremistan and fat tails.

Standard deviation and Sharpe ratios are incomplete—not meaningless. They work best when you understand their assumptions and supplement them with downside and tail-risk measures.

Standard deviation measures how much an investment’s returns jump around. The Sharpe ratio lets you know if you have been compensated for taking that jumping around asset compared to investments that don't jump around much at all like TBILLS. It is a historical look at certainty of return in a given time period. This is a good measure of performance to make a comparison among assets. If you do not believe variance is correlated to risk and that risk is only the result of an investment blowing up in a tail risk event, then you have a very low withdrawal rate.

Taleb is excellent at pointing out flaws in models, but much weaker at offering practical advice you can actually apply consistently—beyond broad ideas like “avoid fragility.” He’s far better at tearing things down than building usable systems.

His core claim—that extreme events dominate market outcomes—is overstated. While extreme events do occur, the last 50 years suggest their long-term impact is often absorbed by markets rather than permanently defining them.

The real risk for most investors—especially retirees—isn’t a once-in-a-century catastrophe like an asteroid wiping out the financial system. It’s far more mundane and far more likely: a market downturn combined with ongoing withdrawals that deplete a portfolio before it has time to recover.

In other words, the practical problem isn’t surviving the unimaginable—it’s managing sequence-of-returns risk in a world that, most of the time, continues to function.

 

[FD1000]

Why I love posting in threads like this one?
Almost every myth or statements I read about, I can prove it's not always right, and this is exactly what I have done over 25 years. I found the exceptions. Since the exceptions are very unique, there are not many of them and that works better with my style of using up to 5 funds.
I have consistently beat the indexes and simple funds for performance and lower risk.

Examples:
* Higher income come has something superior, such has better performance or risk-adjusted returns
* Higher volatility = better performance
* Higher distribution=higher volatility
* Diversification works.

Income? We have seen several claims that can't be proved based on math. If you sell shares, income is superior in down markets. No.
Income is simple, the SP500 is extremely simple and impressive.

Higher volatility= better performance
QLENX debunks this.
PRWCX debunks this if you compared to the SP500 since 2000.
PIMIX easily beat typical bonds for performance+lower SD for at least 8 years from 2009-10

Higher distribution=higher volatility.
See PIMIX above
EGRIX in the last 3 years.

Diversification works. It doesn't if you want to achieve better risk-adjusted returns.
I already pointed out several funds above and why I haven't held indexes since 2000.
You should stayed from the funds below.
The SP500 lost money for 10 years from 01/2000 to 01/2010.
While SCHD used to be pretty good compared to the SP500 for years prior to 2023, it was terrible during for 3 years during 2023-5.
PDI was good for years from 2010 to 2019. If was horrible for 5 years from 2019 to 2023.

good trader.

 

[OldShooter]

... Taleb is excellent at pointing out flaws in models, but much weaker at offering practical advice you can actually apply consistently—beyond broad ideas like “avoid fragility.” ...

True. But not all problems have solutions.

 

[joejetski]

Why I love posting in threads like this one?
Almost every myth or statements I read about, I can prove it's not always right, and this is exactly what I have done over 25 years. I found the exceptions. Since the exceptions are very unique, there are not many of them and that works better with my style of using up to 5 funds.
I have consistently beat the indexes and simple funds for performance and lower risk.

Examples:
* Higher income come has something superior, such has better performance or risk-adjusted returns
* Higher volatility = better performance
* Higher distribution=higher volatility
* Diversification works.

Income? We have seen several claims that can't be proved based on math. If you sell shares, income is superior in down markets. No.
Income is simple, the SP500 is extremely simple and impressive.

Higher volatility= better performance
QLENX debunks this.
PRWCX debunks this if you compared to the SP500 since 2000.
PIMIX easily beat typical bonds for performance+lower SD for at least 8 years from 2009-10

Higher distribution=higher volatility.
See PIMIX above
EGRIX in the last 3 years.

Diversification works. It doesn't if you want to achieve better risk-adjusted returns.
I already pointed out several funds above and why I haven't held indexes since 2000.
You should stayed from the funds below.
The SP500 lost money for 10 years from 01/2000 to 01/2010.
While SCHD used to be pretty good compared to the SP500 for years prior to 2023, it was terrible during for 3 years during 2023-5.
PDI was good for years from 2010 to 2019. If was horrible for 5 years from 2019 to 2023.

good trader.

I am with you on PIMIX, long time holder/accumulator and one of my uncles favorite funds.

 

[olyveoil]

I have very much appreciated learning from your contributions to this thread, and as I have said, I'm seriously considering getting more into dividends. But can we please drop from the list of benefits the not having to "worry about selling in down markets"? Virtually nobody is worried about that, as we have set aside a cushion to guard against it. It seems to me that virtually nobody is relying entirely on a growth portfolio.

Sure.
Can we also drop the "dividinds are not free money" strawman argument?
Can we also not assume that dividend investing is an all or nothing concept?
Can we also drop the assumption that "high dividend" chasing is the chosen path?
Lastly, can we drop the "dividends are just a forced sell" tripe?

 

[Flyfish1]

Sure.
Can we also drop the "dividinds are not free money" strawman argument?
Can we also not assume that dividend investing is an all or nothing concept?
Can we also drop the assumption that "high dividend" chasing is the chosen path?
Lastly, can we drop the "dividends are just a forced sell" tripe?

That would be so nice if that happened.

 

[FD1000]

I am with you on PIMIX, long time holder/accumulator and one of my uncles favorite funds.

PIMIX was my first dedicated bond fund.
It taught a lot about unique funds.
I liked it so much, I held from 2010 to 01/2018.
For several years it was over 50% of my total portfolio and the only bond fund I owned.
Why? Because it was by far the best bond fund I could find. That's the key to my success. I have been using only the best 2-3 ideas.
But, in 01/2018 the magic was gone per my model.

See a 3 year chart of EGRIX VS PIMIX.

SharpCharts | StockCharts.com

StockCharts.com's SharpCharts Workbench

schrts.co

I'm not here to recommend any funds.
BTW, I sold EGRIX at the end of February.

 

[junkanoo]

The point of the above isn't free money. It's the simplicity of dividend growth etfs. You don't have to worry about selling in down markets. Your income is predictable and grows every year without having to calculate inflation. And for myself, I take emotion in down markets out of the equation.

And while the majority of SCHD is qualified dividends (98.48% for 2025) which are as tax efficient as long term capital gains tax there is also an argument that can be made for those seeking low income index or growth funds as has been mentioned numerous times. The benefit being usually higher growth and complete control over their distributions for tax or other purposes. I own a number of these funds but on a smaller scale than my dividend portfolio.

It's not an argument for dividend investments being better or not. It's simply an option.

1. What about the bad years (such as 2020) when a significant number of companies lowered or eliminated their dividends? How did that take the emotions out of down markets?

2. I will grant the simplicity of Dividend ETFs and that's not an insignificant factor, for sure. However, at what cost? If instead, you owned the underlying stocks, you could enjoy valuable tax offsets (winners versus losers) while still getting your dividends.

3. Qualified Dividends are not as tax-efficient as LT Capital Gains. Qualified Dividends can not be offset like LT Capital Gains can (by using LT Losses) thus Dividends may impact important MAGI calculations such as IRMAA and Net Investment Income Tax (NIIT).

 

[target2019]

1. What about the bad years (such as 2020) when a significant number of companies lowered or eliminated their dividends? How did that take the emotions out of down markets?

2. I will grant the simplicity of Dividend ETFs and that's not an insignificant factor, for sure. However, at what cost? If instead, you owned the underlying stocks, you could enjoy valuable tax offsets (winners versus losers) while still getting your dividends.

3. Qualified Dividends are not as tax-efficient as LT Capital Gains. Qualified Dividends can not be offset like LT Capital Gains can (by using LT Losses) thus Dividends may impact important MAGI calculations such as IRMAA and Net Investment Income Tax (NIIT).

How do I find the significant companies that lowered dividends?

Instead of generalities, show me something significant. Remember that this thread has listed different div funds. How are these specific div funds affected in 2020? How were growth funds affected in 2020?

 

[junkanoo]

How do I find the significant companies that lowered dividends?

Instead of generalities, show me something significant. Remember that this thread has listed different div funds. How are these specific div funds affected in 2020? How were growth funds affected in 2020?

I'm sure you can pull some of that with Google or the like. Good luck.

 

[target2019]

I'm sure you can pull some of that with Google or the like. Good luck.

I thought we could work from your proof.

 

[dobig]

1. What about the bad years (such as 2020) when a significant number of companies lowered or eliminated their dividends? How did that take the emotions out of down markets?
.......................

Wasn't much of a cut to S&P dividends and the rebound was quick hitting record payouts the following year(1).

1.) -

• Record Streak: 2021 marked a record year for payments ($536.06 billion total, based on 377 companies), setting the stage for consecutive years of record payouts through 2024.

 

[dobig]

I'm sure you can pull some of that with Google or the like. Good luck.

I pulled up the dividend payout history using Seeking Alpha. Every dividend growth etf I've looked at had increased payouts during Covid.

You can look for yourself.

https://seekingalpha.com/symbol/DGRO/dividends/dividend-growth#source=section%3Asearch_bar%7Ccontent_type%3Aall%7Csection_asset%3Asearch-basic%7Csearch_item%3Adgro%7Crow_num%3A1%7CURL_first_level%3Asymbol%7Ctopic%3Asymbol