Transitioning from an accumulation/Growth mindset to a Retirement Income Plan

[TheWizard]

...I think taxes in retirement are an entirely different creature compared to taxes while working. I pay pretty careful attention to taxes; even so it took me several years to get stuff dialed in and learn all the nuances for my situation.

They definitely are and it helps if you are knowledgeable about the system.

When working, all I had was W-2 income with proper withholding. Other income was generally negligible.

In retirement, I decided to stay with withholding for the most part, using a sort of sequential approach.
That means my first source of retirement income in 2013 was:
- lifetime annuity income
- monthly 403(b) withdrawals in lieu of SS
I set up withholding on those two streams back then and never changed it.

Except that when I started SS at age 70, I started max withholding from that and discontinued those 403(b) withdrawals.

Along the way, I did strategic Roth conversions and usually paid the extra tax using a fourth quarter estimated payment.

With the start of RMDs, I'm back to another (quarterly) income stream and more withholding.
It all works out...

 

[dobig]

I wouldn't jump on the dividend band wagon 100%. Companies that pay dividends are typically Value companies, that operate very different from Growth companies. NOBL contains all the Dividend Aristocrats that have increased their dividends for at least 25 years. The current yield is 2.09%. For more info, see ProShares S&P 500 Dividend Aristocrats ETF (NOBL - BATS)

There are better alternatives to NOBL such as DGRO, VIG and FDVV. More growth oriented with 2 - 3% dividends with close to double digit yearly dividend growth.

I know they're not the cup of tea for our total return investors but for us income investors they're gold.

 

[SunGuy]

Yeah, my parents did this to a portion of their funds, it helped them put at a slight risk maybe 15% of their funds, to gain an extra $1-2k a month of income. win/win for them.

 

[junkanoo]

There are better alternatives to NOBL such as DGRO, VIG and FDVV. More growth oriented with 2 - 3% dividends with close to double digit yearly dividend growth.

I know they're not the cup of tea for our total return investors but for us income investors they're gold.

I'm not following that logic. As you already mentioned, these are more growth-oriented positions paying reasonable dividend yields ... why wouldn't a total return investor be happy with that? It's the 5-6% payers that should be of concern. YMMV.

 

[dobig]

I'm not following that logic. As you already mentioned, these are more growth-oriented positions paying reasonable dividend yields ... why wouldn't a total return investor be happy with that? It's the 5-6% payers that should be of concern. YMMV.

Some total return investors get a little cranky when they hear dividends.

Then it turns into a debate and everyone gets cranky.

 

[Semi-Retyrd]

This is such a common phase that we all (hopefully) face at one point in our lives, that I almost called this a Case Study in to Retirement Income.
The DW and I are on the threshold of ER. We are in the final phase of dissolving our small family Corporation. We are trying to account for all of common topics concerning creating and living off of a paycheck in retirement such as (SORR) Sequence of Returns Risk, paying estimated taxes, controlling income for ACA health credits, Roth conversions, maxing out tax brackets, living off investments versus Investment income. You know, all the things that keep a preretiree (is that a word) up at night. It gets overwhelming at times and I can see how people turn to a management company to plan all of this out for them.
We have restructured our portfolio from a growth oriented one, to a more dividend focused one. I would love feedback, suggestions or ideas on how to improve our plan and for the excess cash we are holding onto as a result of shutting down the business. We are both 55 and are child free. We are very frugal with an annual budget of $60,000.
Our current portfolio consists of:
TAXABLE
VMRXX Fed MM $465,188
TAX DEFERRED
His SEP IRA VHYAX $382,602. High Dividend Yield Index
VTSAX $176,729. Total SM Index
Her SEP IRA VBTLX $336,362. Total Bond Market index
VIGI. $342,386. International Divided Appreciation Index
Simple IRA. VTSAX$142,313. Total SM Index
Simple IRA. VTSAX$142,658. Total SM Index
I-Bond. $25,768. Treasury Direct
NON TAXABLE
His Roth. VHYAX $272,267. High Dividend Yield Index
Her Roth. VTSAX$226,784. Total SM Index
HSA. FSKAX$167,468. Fidelity Total SM Index

TOTAL $2,680,525

The plan as it goes right now for 2026 is to start taking the dividends from the total bond and dividend funds. Add $15,000 a year from doing 72T withdrawals and top off the income from our after tax account. Some questions off of the top are:
How do you get an accurate picture of dividend income for the year from funds we just acquired? I tried to look at what they paid out for 2024 if I held what I currently do and I figured it in the ballpark of $33,200.
Alternate suggestion to the Total Bond fund? I thought it would be good for diversification and income, which both may be true, but the returns kill me.
I thought of adding CEFs or other alternative investments, but the fees bother me being a low cost Boglehead type of investor.
Should I bother with the 72T withdrawals? I had met with a fee only advisor 3 years ago and this was part of an income plan he had put together. It’s a minimal amount, but would help to spread the income around and reduce future RMDs. What to put the excess cash in? I was thinking of keeping 2-3 years worth of cash (120-180,000) and putting the rest in VOO or VTI. I still need to manage income for ACA health care credits for the next ten years. Do you foresee me having to make estimated tax payments?
If you made it this far, I thank you and appreciate it. This forum is truly invaluable for the knowledge and insights you all share. I know I unpacked a lot here, so any suggestions are welcome.

Here are my thoughts -
Between age 55 and whenever you take SS you need income. If it is non-taxable then you have room to roll money from your TIRAs to your ROTHs.

The best type of income for a taxable account is constructive return of capital, since it is tax free. One of the better funds for this is SPYI which currently offers approx 1%/month distributions that are approx 95% return of capital. This fund is less risky than a standard S&P 500 fund like VOO (SD 9.63 vs 13.37) but with lower total return. Return of capital lowers your cost basis and when your basis hits zero, you have to start paying capital gains on the distributions. So this defers your tax for around eight years. Example - $200K of SPYI would give you approx $2K/month of income of which only approx $100 would be taxable. This is not risk free as SPYI has a beta of .7, so if VOO drops 10% SPYI would drop about 7%. In general you should do as much IRA to ROTH conversion as possible before taking SS, because the taxability of SS benefits can add 8.5% to your marginal tax bracket.

For your TIRAs and ROTHs, I suggest your read my thread - Why I like Certain Alternative Investments. You can do much better in risk adjusted performance with certain funds once you can get past the myth that they are more risky than index funds. If you see the logic in these you might want to start with a small allocation to build confidence. These are medium term investments in that you might need to change them every few years. The major downside is that they are boring for people that like to research individual stocks and trade a lot. An investment that offers index beating returns with almost no risk seems like taking candy from a baby and can make one feel guilty and is no fun if you like the excitement of big swings in your portfolio.

 

[target2019]

I appreciate everyone’s input and sharing your thoughts and own strategies with me. You have shown me the error of my thinking and I am taking corrective actions. When you don’t have someone to talk to and show you the way, this community is so helpful to be able to bounce ideas off of. Thank you

Would you mind sharing any errors in your original thinking? Any thoughts on your corrective actions?