PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

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sigma_frq1
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PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

Hi,

I came here while researching PSLDX and FIRE (early retirement) aspects. There is a wealth of information here, and I hope to understand two things.

1. I know PSLDX is not recommended in a taxable account. But how would it look like in taxable if want to do early retirement? Since there will be no other significant income, does the tax treatment improve, such that it can be viable?

2. What if you also become an ex-part in the near future. Does anyone know how that scenario should be evaluated in terms of taxes?
I believe there is ~$107 k of foreign income exemption, but instead, here the main income is from PSLDX. I'm not sure how to understand this.

Thanks for any guidance on this.
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kilowattcorn
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Re: PSLDX during FIRE and/or ex-pat status

Post by kilowattcorn »

sigma_frq1 wrote: Thu Oct 14, 2021 6:33 am 1. I know PSLDX is not recommended in a taxable account. But how would it look like in taxable if want to do early retirement? Since there will be no other significant income, does the tax treatment improve, such that it can be viable?
In a taxable account, PSLDX's distributions are are taxed as income or capital gains, so your marginal tax rates would apply (https://www.bogleheads.org/wiki/Marginal_tax_rate).

PSLDX is fun but it is expensive. See the long-running thread at viewtopic.php?t=305950 for more discussion. There are many income-producing options out there and some of them may be a better fit for you. If you provide additional details about your situation (such as: state, other income, goals, timeline, and other assets), you will get higher quality answers. viewtopic.php?t=6212 has a template you could use.
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sigma_frq1
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Re: PSLDX during FIRE and/or ex-pat status

Post by sigma_frq1 »

kilowattcorn wrote: Thu Oct 14, 2021 11:39 am
sigma_frq1 wrote: Thu Oct 14, 2021 6:33 am 1. I know PSLDX is not recommended in a taxable account. But how would it look like in taxable if want to do early retirement? Since there will be no other significant income, does the tax treatment improve, such that it can be viable?
In a taxable account, PSLDX's distributions are are taxed as income or capital gains, so your marginal tax rates would apply (https://www.bogleheads.org/wiki/Marginal_tax_rate).
Thanks.
occambogle
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by occambogle »

The Foreign Earned Income Exemption (FEIE) is for earned income - all dividends etc from funds, ETFs etc are passive income so are not included in that.
As a non-US resident you are not allowed to buy US mutual funds (like PSLDX), but can continue to hold whatever you have before becoming an expat. But you can buy US ETFs as an expat, though if you are resident in the EU it is very difficult. Unfortunately PSLDX does not have any direct ETF equivalent.
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sigma_frq1
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

occambogle wrote: Sat Oct 16, 2021 3:33 am The Foreign Earned Income Exemption (FEIE) is for earned income - all dividends etc from funds, ETFs etc are passive income so are not included in that.
As a non-US resident you are not allowed to buy US mutual funds (like PSLDX), but can continue to hold whatever you have before becoming an expat. But you can buy US ETFs as an expat, though if you are resident in the EU it is very difficult. Unfortunately PSLDX does not have any direct ETF equivalent.
Valuable feedback. I was thinking of buying PSLDX before relocating and then just holding it. I think that would work.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by Booogle »

This is what you want in a taxable account:

NTSX

https://www.optimizedportfolio.com/ntsx/
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sigma_frq1
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

Booogle wrote: Sat Oct 16, 2021 12:15 pm This is what you want in a taxable account:

NTSX

https://www.optimizedportfolio.com/ntsx/
I don't think NTSX would be suitable to generate income for FIRE.
PSLDX also has more leverage.
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Re: PSLDX during FIRE and/or ex-pat status

Post by cflannagan »

kilowattcorn wrote: Thu Oct 14, 2021 11:39 am PSLDX is fun but it is expensive.
Yep - a bit better now. Used to be over 1% expense ratio, but it's now knocked down to 0.59%-0.61%. Effective 7/30/2021. https://www.pimco.com/en-us/investments ... -fund/inst
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by whodidntante »

It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by Booogle »

sigma_frq1 wrote: Sun Oct 17, 2021 9:13 am
Booogle wrote: Sat Oct 16, 2021 12:15 pm This is what you want in a taxable account:

NTSX

https://www.optimizedportfolio.com/ntsx/
I don't think NTSX would be suitable to generate income for FIRE.
PSLDX also has more leverage.
Chasing dividends has been debunked a million times.

Dividends are a simply a forced sale of your shares.

Selling shares of NTSX would be the same thing as PSLDX's distributions.
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sigma_frq1
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

whodidntante wrote: Sun Oct 17, 2021 10:01 am It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
Booogle wrote: Sun Oct 17, 2021 10:58 am Chasing dividends has been debunked a million times.

Dividends are a simply a forced sale of your shares.

Selling shares of NTSX would be the same thing as PSLDX's distributions.
That is illuminating for me; thank you.

Is there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by Booogle »

sigma_frq1 wrote: Sun Oct 17, 2021 11:28 amIs there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
NTSX is the closest thing to PSLDX, and is good in a taxable account.
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sigma_frq1
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

Booogle wrote: Sun Oct 17, 2021 11:31 am
sigma_frq1 wrote: Sun Oct 17, 2021 11:28 amIs there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
NTSX is the closest thing to PSLDX, and is good in a taxable account.
Is there a way to understand historically, if you did NTSX vs. PSLDX in taxable, which would come out better?
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by jarjarM »

sigma_frq1 wrote: Mon Oct 18, 2021 3:29 pm
Booogle wrote: Sun Oct 17, 2021 11:31 am
sigma_frq1 wrote: Sun Oct 17, 2021 11:28 amIs there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
NTSX is the closest thing to PSLDX, and is good in a taxable account.
Is there a way to understand historically, if you did NTSX vs. PSLDX in taxable, which would come out better?
That would be hugely dependent on your tax situation.
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sigma_frq1
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

jarjarM wrote: Mon Oct 18, 2021 3:31 pm
sigma_frq1 wrote: Mon Oct 18, 2021 3:29 pm
Booogle wrote: Sun Oct 17, 2021 11:31 am
sigma_frq1 wrote: Sun Oct 17, 2021 11:28 amIs there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
NTSX is the closest thing to PSLDX, and is good in a taxable account.
Is there a way to understand historically, if you did NTSX vs. PSLDX in taxable, which would come out better?
That would be hugely dependent on your tax situation.
If we assume 22% tax bracket, can we do a rough comparison?
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by cflannagan »

sigma_frq1 wrote: Mon Oct 18, 2021 3:41 pm If we assume 22% tax bracket, can we do a rough comparison?

Wouldn't matter considering no brokerage is going to let you buy/sell PSLDX in taxable anyway. You could however try to simulate PSLDX in taxable using individual LETFs
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sigma_frq1
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

cflannagan wrote: Mon Oct 18, 2021 4:46 pm
sigma_frq1 wrote: Mon Oct 18, 2021 3:41 pm If we assume 22% tax bracket, can we do a rough comparison?
Wouldn't matter considering no brokerage is going to let you buy/sell PSLDX in taxable anyway.
I think they do, at least one that I called confirmed that you can do so.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by cflannagan »

sigma_frq1 wrote: Mon Oct 18, 2021 4:58 pm
I think they do, at least one that I called confirmed that you can do so.
Oh, which one is it? That would be news to me, considering most of the comments I've read have said no brokerage would let you trade PSLDX in taxable. PSLDX is also considered an "institutional" fund.

Still, if you wanted to mirror what PSLDX is doing, check this thread out. viewtopic.php?t=305950

There were some good suggestions on how to replicate what PSLDX is doing. Do it that way via ETFs to give yourself better tax savings compared to going with PSLDX in taxable. The con however is you'd have to rebalance, while you wouldn't have to just putting money into PSLDX alone.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

cflannagan wrote: Mon Oct 18, 2021 5:02 pm
sigma_frq1 wrote: Mon Oct 18, 2021 4:58 pm
I think they do, at least one that I called confirmed that you can do so.
Oh, which one is it? That would be news to me, considering most of the comments I've read have said no brokerage would let you trade PSLDX in taxable. PSLDX is also considered an "institutional" fund.
Firstrade is the one I checked with.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by Booogle »

"Lastly, just to reiterate, this thing is horribly tax-inefficient in all sorts of ways. Don’t hold it in taxable. Just don’t."


https://www.optimizedportfolio.com/psldx/
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by MotoTrojan »

Equity held for a year is going to be nearly 100% long-term gains with no more tax than needed for spending; this will be marked-to-market at 60/40 long/short. A sustainable withdrawal rate will often be far lower than the distribution yield of this fund. Terrible idea, if you can even find a broker that'll let you buy it in taxable.

NTSX is the best bet if you want this type of exposure. Much lower expense ratio, way more tax-efficient.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by MotoTrojan »

whodidntante wrote: Sun Oct 17, 2021 10:01 am It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
BINGO!!! Yikes if they are assuming they can safely spend the entire distribution of this fund, then I don't think they should be using any leveraged products (or managing their own retirement, without a lot more knowledge growth).
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

MotoTrojan wrote: Tue Oct 19, 2021 8:58 am
whodidntante wrote: Sun Oct 17, 2021 10:01 am It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
BINGO!!! Yikes if they are assuming they can safely spend the entire distribution of this fund, then I don't think they should be using any leveraged products (or managing their own retirement, without a lot more knowledge growth).
Booogle wrote: Tue Oct 19, 2021 8:53 am "Lastly, just to reiterate, this thing is horribly tax-inefficient in all sorts of ways. Don’t hold it in taxable. Just don’t."


https://www.optimizedportfolio.com/psldx/
I am not assuming anything, hence this thread :)

Is it possible to show a hypothetical example using PSLDX and NTSX, that would illustrate a comparison of what it would look like? That would help me visualize it. We can assume two people, one has PSLDX and the other has NTSX (let's say 22% tax bucket).
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by MotoTrojan »

sigma_frq1 wrote: Tue Oct 19, 2021 3:08 pm
MotoTrojan wrote: Tue Oct 19, 2021 8:58 am
whodidntante wrote: Sun Oct 17, 2021 10:01 am It's impossible for me to know but reading the OP I got a little concerned you do not clearly understand the distinction between distributions and responsible withdrawal rates. There is no reason to give preference to a fund that generates large or regular distributions.
BINGO!!! Yikes if they are assuming they can safely spend the entire distribution of this fund, then I don't think they should be using any leveraged products (or managing their own retirement, without a lot more knowledge growth).
Booogle wrote: Tue Oct 19, 2021 8:53 am "Lastly, just to reiterate, this thing is horribly tax-inefficient in all sorts of ways. Don’t hold it in taxable. Just don’t."


https://www.optimizedportfolio.com/psldx/
I am not assuming anything, hence this thread :)

Is it possible to show a hypothetical example using PSLDX and NTSX, that would illustrate a comparison of what it would look like? That would help me visualize it. We can assume two people, one has PSLDX and the other has NTSX (let's say 22% tax bucket).
That would be a meaningful amount of work but put simply, I can say with near certainty you'd come out meaningfully ahead using NTSX. PSLDX in taxable is like burning money in the fireplace.

To be clear, you cannot safely spend the entire distribution yield of PSLDX. That is not a safe withdrawal rate.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

MotoTrojan wrote: Tue Oct 19, 2021 6:57 pm That would be a meaningful amount of work but put simply, I can say with near certainty you'd come out meaningfully ahead using NTSX. PSLDX in taxable is like burning money in the fireplace.

To be clear, you cannot safely spend the entire distribution yield of PSLDX. That is not a safe withdrawal rate.
Okay, I didn't realize it would be a lot of work to show an example - never mind then, and thanks anyway.
In my mind, it's difficult for me to visualize the issue in using PSLDX in taxable if that's the main source of US income, and the rest is foreign earned income (which would be tax-exempt). But I'll try to research this some more in order to understand better.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by MotoTrojan »

sigma_frq1 wrote: Thu Oct 21, 2021 9:11 am
In my mind, it's difficult for me to visualize the issue in using PSLDX in taxable if that's the main source of US income, and the rest is foreign earned income (which would be tax-exempt). But I'll try to research this some more in order to understand better.
I can show this quite readily, it is just hard to model the actual returns but if we simplify it to a single year I can give you an example. Step one is to start with your withdrawal strategy, do you have one? 4% withdrawal rate is a classic, although it is only really suitable for a retirement of 30 years or so, much longer (perpetual) and you'll want to be closer to 3-3.5%. But let's just call it 4% for now.

PSLDX will distribute it's entire annual return. Let's simplify and say it is 8% a year. Let's also simplify the 60%/40% long/short tax on futures returns and just call it a flat 25% tax in all cases to make this example more simple (of course in reality taxes aren't that clean, but you get the idea).

If you invest in PSLDX and utilize a 4% pre-tax withdrawal rate, in a year you get an 8% return, you'll be given an 8% distribution, pay 2% of it in taxes, keep 2% for your spending, and re-invest the remaining 4%. Key-takeaway here? You only get to spend 2% a year after-tax.

Now let's assume instead you used a tax-efficient fund and it also got an 8% return, while only distributing 2% of that as a dividend. You can take that 2% dividend, sell an additional 2% (to get you to your 4% withdrawal rate) and then pay 1% of the overall value (25% of 4%) on taxes. You now get to spend 3% a year after-tax.

I hope this helps clarify why a distribution larger than your sustainable withdrawal rate is crippling for the amount of money you actually get to spend in retirement. With something like PSLDX in many years you'll literally owe more tax than you should be withdrawing (4%).


Now if you hold such a small amount of PSLDX that you do intend to spend the entire distribution, that is less bad, but you are still paying 40% income tax instead of 100% in long-term capital gains like other equity products.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by firebirdparts »

Booogle wrote: Sun Oct 17, 2021 10:58 am
sigma_frq1 wrote: Sun Oct 17, 2021 9:13 am
Booogle wrote: Sat Oct 16, 2021 12:15 pm This is what you want in a taxable account:

NTSX

https://www.optimizedportfolio.com/ntsx/
I don't think NTSX would be suitable to generate income for FIRE.
PSLDX also has more leverage.
Chasing dividends has been debunked a million times.

Dividends are a simply a forced sale of your shares.

Selling shares of NTSX would be the same thing as PSLDX's distributions.
What is being chased here, to a sane person, is not dividends, but the performance itself. The fund distributes it all. Always has. it's not preferable. The performance is preferable.

A person could easily use something like UPRO/TMF/Cash or you pick and have about the same thing with different tax consequences if they wanted to. That doesn't have anything to do with "chasing dividends" or any other dull platitudes. That's just for someone who wants simliar performance and maybe having some shot at capital gains tax treatment.

To the OP, what they are distributing is mostly the total performance of the S&P500. I don't know if you knew that. If the S&P500 doesn't produce any money, then there wouldn't be much distribution. FWIW. You shouldn't view that as particularly stable. In a bull market, everybody's a genius, but they really have done a nice job with it. So far.
This time is the same
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by HomerJ »

sigma_frq1 wrote: Sun Oct 17, 2021 11:28 am Is there another 2x leveraged or otherwise fund with similar return (and risk) as PSLDX, that you would recommend instead?
What are you going to do when the market crashes and you have zero income and large losses?
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by sigma_frq1 »

MotoTrojan wrote: Thu Oct 21, 2021 6:08 pm
sigma_frq1 wrote: Thu Oct 21, 2021 9:11 am
In my mind, it's difficult for me to visualize the issue in using PSLDX in taxable if that's the main source of US income, and the rest is foreign earned income (which would be tax-exempt). But I'll try to research this some more in order to understand better.
I can show this quite readily, it is just hard to model the actual returns but if we simplify it to a single year I can give you an example. Step one is to start with your withdrawal strategy, do you have one? 4% withdrawal rate is a classic, although it is only really suitable for a retirement of 30 years or so, much longer (perpetual) and you'll want to be closer to 3-3.5%. But let's just call it 4% for now.

PSLDX will distribute it's entire annual return. Let's simplify and say it is 8% a year. Let's also simplify the 60%/40% long/short tax on futures returns and just call it a flat 25% tax in all cases to make this example more simple (of course in reality taxes aren't that clean, but you get the idea).

If you invest in PSLDX and utilize a 4% pre-tax withdrawal rate, in a year you get an 8% return, you'll be given an 8% distribution, pay 2% of it in taxes, keep 2% for your spending, and re-invest the remaining 4%. Key-takeaway here? You only get to spend 2% a year after-tax.

Now let's assume instead you used a tax-efficient fund and it also got an 8% return, while only distributing 2% of that as a dividend. You can take that 2% dividend, sell an additional 2% (to get you to your 4% withdrawal rate) and then pay 1% of the overall value (25% of 4%) on taxes. You now get to spend 3% a year after-tax.

I hope this helps clarify why a distribution larger than your sustainable withdrawal rate is crippling for the amount of money you actually get to spend in retirement. With something like PSLDX in many years you'll literally owe more tax than you should be withdrawing (4%).


Now if you hold such a small amount of PSLDX that you do intend to spend the entire distribution, that is less bad, but you are still paying 40% income tax instead of 100% in long-term capital gains like other equity products.
Very good information, makes it much clearer! It's what I was looking for, i.e. make some assumptions to simplify just to get an idea.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by Walobolo »

There is a Youtube channel called PensionCraft that has a good video called Early Retirement-Perpetual Portfolio Investment Strategies.

They do a good job explaining the pros and cons between your proposed strategy of living on dividends and the alternate strategy that is being suggested in the comments here of perceptual/safe withdrawal rates.
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Re: PSLDX during FIRE and/or ex-pat status [PIMCO StocksPLUS Long Duration Fund]

Post by MotoTrojan »

sigma_frq1 wrote: Fri Oct 22, 2021 7:07 am
Very good information, makes it much clearer! It's what I was looking for, i.e. make some assumptions to simplify just to get an idea.
Glad it helped! To frame it all nicely, with my given assumptions of 8% returns and 4% pre-tax withdrawal rate (decent ones), your after-tax cash available to spend was 50% greater! That is a HUGE difference. So even if you think PSLDX will beat 100% S&P500 (I would bet it has a great chance to, pre-tax), it is all but impossible that it outperforms by the 50% necessary to make-up for that tax impact.

Now in an IRA it is a very interesting fund, but I still personally prefer something like NTSX which has much lower fees, no active management, only treasuries, etc...
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