willthrill81 wrote: ↑Mon Feb 17, 2020 9:37 pm
Oatmeal wrote: ↑Mon Feb 17, 2020 11:55 am
willthrill81 wrote: ↑Sun Feb 16, 2020 11:35 pm
Oatmeal wrote: ↑Sun Feb 16, 2020 11:31 pm
Question about the 4% WR. How are the dividends received from AA are calculated here in relation to the 4% WR? Assume a 60/40 for example.
I'm thinking there is a number for the dividends. Say 2% projected for the upcoming year, so then the retiree withdraws 2% more from portfolio? If yes, how does the retiree figure out the projected dividends in AA?
And were the dividend payments factored into the study posted earlier?
Dividends are just part of the total return (i.e. nothing special). So if the starting balance were $100 and dividends and interest produced $3, you withdraw all of that plus another $1 in the first year (and adjust that upward for inflation in subsequent years).
Thanks for the reply. It makes sense that it is part of the total return. My question was more of how to use that dividend number. Let's say I retire in the fall and start my withdrawals on the follow on Jan 1st. I'm thinking to withdraw 4% on that date to use thoughout the year. How do I figure out my dividend number on that day since these haven't happened yet.
You don't have to determine how much you're getting in dividends. If you are implementing the '4% rule' you just withdraw 4% of the total portfolio balance, likely selling shares, in the first year and then withdraw that same dollar amount, adjusted for inflation, in subsequent years.
It's probably easiest to set the dividends to not be reinvested. They will then be part of your withdrawal each year.
That's how I will do it... Set all dividends and capital gains from all my stock and bond funds to be sent to a money market fund.
Then sell the assets that are doing best to get to 4%.
So if I have $1 million, with 50% in stocks and 50% in bonds... Then if they are both paying 2% dividends, at the end of the year I'll have $20,000 in the money market.
I'll sell $20,000 of whichever asset is doing best. If stocks were up that year and I now have $540,000 in stocks and $500,000 in bonds, I'll sell $20,000 in stocks...
I'll have my $40,000 (4%) in the money market for next year, and I'll still have $1,020,000 in my accounts ($520k/$500k)
If stocks are down that year, I might have $420,000 in stocks and $500,000 in bonds... I'll sell $20,000 from bonds.
I'll have my $40,000 (4%) in the money market for next year, and I'll still have $900,000 in my accounts ($420k/$480k).
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59