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Old 12-30-2014, 08:28 PM
 
Location: Florida
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I prefer to use dividends and interest as opposed to selling assets. The theory leans a little toward total return investing (and selling assets) and not investing for income but I feel better if I do not have to sell assets.

I think you also want a cash reserve for down markets (dividend cuts) and emergencies.

I would also want dividends and interest to cover the RMD but it probably will not if you have relatively safe investments. Thus some assets will have to be sold. Reinvest the excess cash.


I think the dividend/interest method works best if your expenses are under your income.
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Old 12-30-2014, 09:12 PM
 
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You might want to spend some time on the Economics-Investing forum. There have been lots and lots of discussions on withdrawal rates and handling money in retirement.
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Old 12-30-2014, 10:53 PM
 
Location: Sacramento
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I had my parents invested in the Vanguard High Yield Corporate Bond Fund, and having the monthly interest transferred to their checking account at the first of each month.

When my dad first retired 22 years ago we put about 70% of their money in that fund, with the rest in an international growth fund. After about 5 years we transferred about 25% of the international growth fund money into the high yield corporate bond fund, increasing the monthly payment. After the 10th year we moved 50% of the remaining international growth money into the high yield corporate bond fund, again increasing the payment. A few years ago we moved the remainder of the international growth money into the high yield corporate bond fund to again increase the payment.

So far, the monthly interest in addition to Social Security has been sufficient to fund them a comfortable retirement.
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Old 12-31-2014, 01:06 AM
 
Location: it depends
6,074 posts, read 5,330,925 times
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Quote:
Originally Posted by mathjak107 View Post
Do you send in 1/2 an electric bill if markets fall for a few years and dividends are cut?

If inflation kicks up and interest and dividends lag you would have to
sell stocks at a loss to make up shortfalls.

Most retirees keep a few years of withdrawals in safe money. Then dividends and interest is reinvested and can grow. Keep a few years in fixed income and you have money to replenish the safe money until stocks come back and you can refill at a gain.
I think you overstate the volatility of stock dividend income streams. Dividends are far less volatile that the market; in fact, history suggests a fairly dependable pattern of growth over time. Certainly there are many blue chips with nary a reduction over the last 25 years. There is no connection between stock prices and dividends in the short run: many companies raised dividends each year through the 2007-2009 "crash" while the stock price went down 20-40% or more.
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Old 12-31-2014, 02:03 AM
 
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if you can't pay the bills when the dividend stream is cut or slashed without selling at a loss it is a problem.

In 2008, a record 62 companies in the Standard & Poor's 500 index cut their dividends, amounting to nearly $41 billion in lost payouts. Another $30 billion of S&P 500 dividend reductions occurred in just the first two months of 2009, more than the preceding quarter's record-breaking total.

when the smoke cleared 100 billion in dividends were slashed or cut.

the real question is why bother doing it that way. there is no difference which pocket you take the money from. it is just there are better ways of drawing money that can be more consistant by using a cash buffer to keep the flow constant.

why do you think water tanks are used on roof to collect water rather than just allowed to run downward as it pumps?

it is a smoother flow that stays consistant..

Last edited by mathjak107; 12-31-2014 at 02:30 AM..
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Old 12-31-2014, 02:09 AM
 
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Quote:
Originally Posted by rjm1cc View Post
I prefer to use dividends and interest as opposed to selling assets. The theory leans a little toward total return investing (and selling assets) and not investing for income but I feel better if I do not have to sell assets.

I think you also want a cash reserve for down markets (dividend cuts) and emergencies.

I would also want dividends and interest to cover the RMD but it probably will not if you have relatively safe investments. Thus some assets will have to be sold. Reinvest the excess cash.


I think the dividend/interest method works best if your expenses are under your income.
yep , if you want to use the dividends directly you need the slack in the budget to do so and or the cash buffer . in the end though they are all the same ,just different pockets .

there is no difference at all.

historically just drawing 4% inflation adjusted over 30-35 years would have left you just as broke as many times pulling dividends directly as spending down systematically.

Last edited by mathjak107; 12-31-2014 at 02:32 AM..
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Old 12-31-2014, 04:09 AM
JRR
 
Location: Middle Tennessee
3,676 posts, read 2,222,849 times
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Quote:
Originally Posted by JRR View Post
We are withdrawing 1% from our 401ks every quarter, so the amount fluctuates. We keep approximately 2 1/2 years of withdrawals in short term bond funds, replenishing the withdrawal amounts as stocks reach our sell trigger. We did sell our Apple stock yesterday, so this quarter withdrawal will come from those proceeds instead of the short term bond funds.

I supplement the withdrawals with what I make trading in a taxable account.
I should have said we withdraw 1% every quarter from our IRAs that were rolled over from our 401ks.
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Old 12-31-2014, 04:20 AM
 
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we are retiring in july and have our plan ready to go.

basically we will hold 2 years withdrawals in cash and channel all dividends and interest into our cash holdings .

if the dividends and interest provide enough to cover our needs than great ,next year i can leave things as is and don't need to refill.

if markets are poor and dividends cut i always have the cash ready to go.

fixed income would be the next in line to be liquidated in the event of an extended downturn.

eventually if it kept up long enough equities would have to be sold at a loss. but for the most part the plan should hold up ..
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Old 12-31-2014, 06:21 AM
 
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Think of all the dividend income and potential stock price appreciation you are losing by having two years of distributions in cash!

Quote:
Originally Posted by mathjak107 View Post
we are retiring in july and have our plan ready to go.

basically we will hold 2 years withdrawals in cash and channel all dividends and interest into our cash holdings .

if the dividends and interest provide enough to cover our needs than great ,next year i can leave things as is and don't need to refill.

if markets are poor and dividends cut i always have the cash ready to go.

fixed income would be the next in line to be liquidated in the event of an extended downturn.

eventually if it kept up long enough equities would have to be sold at a loss. but for the most part the plan should hold up ..
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Old 12-31-2014, 06:58 AM
 
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with that thought think about the disaster that can take place the first 5 years if a downturn hits . the overspending down and selling stocks at a loss can collapse an entire 30 year time frame. it would be no different than a trader having a string of losses day one before he made a dime of profit.

the first 5 years of a retirement are the most crucial and the first 15 determine the entire 30 year outcome. if the first 5 years are good it does not matter much how you structure withdawals ,the buffer is built.

i think you would be hard pressed to find any retirees drawing 4% or so and not keeping a few years in cash at the least..

for many entering retirement or even retired with no pensions more downside protection is worth a whole lot more than any additional upside at this stage.

that is why unless the pay checks never stop as in a pension there are 2 stages . the accumulation stage which is pedal to the metal maximize every dollar , to the decumulation stage which is not focused on growing richer anymore as much as it about not growing poorer. not by inflation ,not by extended downturns.

Last edited by mathjak107; 12-31-2014 at 07:07 AM..
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