Question about reinvested dividends? (account, fixed)

[macyny]

Fidelity tells me how much to withdraw according to the government formula. It was much higher before I stepped in and had them incorporate my birthdate with my husbands. It lowered it quite a bit. We need the money and I would not have anything left over to reinvest in a taxable account.

By reinvesting the RMD we would be taxed again on that money. Seems like it would be better to put it 'under the mattress.'

We have a taxable account which is our savings. I invest that money also. That is not totally invested either for the same reason. I don't know what to invest in. Everything is up so high I won't buy at these prices.

Our stocks have risen and I now face the dilemma about selling some of them. I hold Chip stocks, FB, MSFT Amazon, Apple. All way above what I paid for them. BA, which I've had for a few years is up about 50% over my cost. T and VZ are also way over my cost. T 38% of cost and VZ, 40%. I feel nervous holding on to these.

Did you put your portfolio together yourself following the butterfly chart? If so, do you trade within it? Such as the large and small caps.

Meantime, I have a lot of cash uninvested. I will consider Treasuries but only short term.

[mathjak107]

no, only new gains are taxed if you reinvest the rmd money . i will gladly pay the taxes on gains . it makes no sense what you said about stuffing it in a mattress.

i do not trade within the butterfly . i only rebalance it if things get to far from what they should be .

so far it is performing very well . stocks were down today and gold and long term treasury's ran with the ball . up another 3800.00 on a down market day .

[macyny]

I guess I wasn't clear.
Are you in control of your butterfly? Are you the person who buys and sells? Beside rebalancing, what if you want to sell a stock?

"no, only new gains are taxed if you reinvest the rmd money ." Isn't that what we all hope for?

I guess I wonder if this portfolio is yours and not controlled by anyone else, such as a broker or advisor?

Thank you.

[mathjak107]

yes ,you are in direct control . it is just like any other do it yourself passive lazy or couch portfolio as they are called ..

[mathjak107]

sp far the butterfly has been performing very nicely . once again stocks down and gold and long term treasury's run with the ball . up another 2k at the moment but we still have plenty of day left .

it is nice when you are not just betting on stocks going up and the other assets don't just mitigate the drop but have enough ooomph themselves to generate profits .

[lottamoxie]

trading stocks is fine for extra cash if living needs are met, not a good way to raise cash for the living needs

Most people in retirement do sell stocks or bonds to generate cash to fulfill living expenses. It's not like people start out with a defined nest egg of cash that meets all their living expenses forever.

[mathjak107]

yep , most of us use our portfolio's to live off of and that certainly can require selling stock . in fact the term safe withdrawal rate assumes you principal can go to zero just out side the time frame you plan for

[artillery77]

Originally Posted by macyny

Traditional IRA, Taxable savings invested.

When dividends are reinvested are they bought (reinvested) at the going price or at the price you originally bought the stock?

We own stock which we reinvest the dividends. But the stocks have run up quite high and I worry that the companies are overvalued. It bothers me to have dividends bought at the overvalued price.

As a fairly new investor, I'd appreciate advice how this works.

I see that people let dividends reinvest or 'drip' stock. But I'm concerned about a correction or problems down the line which will cause the stocks to drop. I do not want to reinvest dividends at the price they are now.

I also use Fidelity for dividend reinvestment. The dividends are used to purchase shares at the market rate as of that day. Your initial purchase price doesn't matter. If a company pays $1 a share and you have 1000 shares, you get $1000. If you have reinvestment on, Fidelity will use that $1000 to buy shares for you automatically and without a trading charge.

If a stock price of a company is high, change the security to not reinvest the dividends. Instead, you will have your cash account go up as opposed to the number of shares. If you're drawing down, this also helps so you don't need to liquidate positions you don't want to sell as well.

In fact, if you need to draw down approximately $24,000 a year, you may be able to achieve this by stopping DRIP investments. If your average yield is 4.8%, you could stay even on $2K a month. 4.8% is pretty high, but with a bit of growth, it's possible.

[mathjak107]

he likely needs 2k inflation adjusted not just 2k . it is extremely likely over time he will need to sell shares too to keep up so he has to watch his draw rate if that is the case . inflation is the wild card and without good growth effectively he is "selling off 2k a month from his investment . . dividends may increase but they don't track your personal cost of living .

this is why we have guidelines in place for what a safe draw rate should be .

[macyny]

Thank you.
We are actually withdrawing $2,200 a month. Fidelity withholds 10% for taxes. Since I moved the brokers account here I notice Fidelity sells shares of the mutual funds each month to cover the withdrawal. It also takes cash I have uninvested to cover the monthly withdrawal.
Fidelity calculates how much we have to take each year due to our ages. I do not do the calculation. Fidelity handles the whole thing automatically and sends the withdrawal to our checking account.