Anyone retired and living off SS and Dividends?

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TheTimeLord
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Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.

[Edited my original post per Mod suggestion to better represent my reason for asking this question]

I read a post a while back and it got me thinking, could the income stream produced by the dividends of broad based index funds be an offset to the need for bonds once someone started collecting SS, a pension or annuity that was sufficient to covert majority of their base expenses. The idea is that for those who accumulate more than the standard (my perception) 25x-33x by retirement, choosing a AA between 30/70-60/40 most likely won't change their financial situation. For those individuals (like myself), they would need to take more risk in order to produce returns that would make a true difference in their finances and they are in the fortunate position to have the ability to take some additional risk. That said. the risk needs to be measured and some sort of base needs to be in place just in case equities entered a period of prolonged downturn. Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?
Last edited by TheTimeLord on Mon May 23, 2022 7:56 am, edited 3 times in total.
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SnowBog
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Re: Anyone retired and living off SS and Dividends?

Post by SnowBog »

Some people have the majority (if not all) of their expenses covered by social security and pensions.

I'll have two small pensions from prior employers, spouse will have reasonable pension. Even with our plan to retire early, the majority of our expenses will be covered by delayed social security and pensions. If we worked more years, that would likely get to all expenses... Our main need for retirement savings is the years between retirement and that delayed income.

As fewer people are eligible for pensions these days, that changes things going forward. It would take a larger amount of savings to support the lower withdrawal rate aligned with just dividends.
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Re: Anyone retired and living off SS and Dividends?

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Delete.
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Re: Anyone retired and living off SS and Dividends?

Post by Mike Scott »

If you have enough money to invest and expenses which fit within the approximately 2% dividends from a total stock market fund... but 50X is out of reach for most people. Most of the strategies discussed are trying to optimize and stretch smaller pots of money.
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Re: Anyone retired and living off SS and Dividends?

Post by Small Savanna »

Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
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Re: Anyone retired and living off SS and Dividends?

Post by Wanderingwheelz »

My wife still enjoys working, but our VTI/VXUS dividends are enough to cover our basic expenses. We’re a long way from SS.
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Re: Anyone retired and living off SS and Dividends?

Post by 9-5 Suited »

TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
Someone living off SS and dividends only actually has a pretty big risk of spending inefficiency on their portfolio more so than running out of money. Dividends are only about 2-2.5%. In other words, you’re likely to die with a lot of money in your accounts.

1. Maybe that’s Ok because you want to leave as much as possible to kids or charity.
2. If that’s not your goal, and you have nice things in life you just can’t bring yourself to buy, now is the time! There’s no great reason to spend any lower than 3.5% of a portfolio IMO with the exception of people who live to maximize their bequests.
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

I haven't gone back to look, but there are certainly posts on this forum from people who are living on pensions and Social Security. There are certainly people who have withdrawal rates down at the dividend yield of some stock funds and have SS and/or pensions to help do it.

I am not sure I recall reading a post from anyone who is almost all stocks and does exactly live on SS and dividends.

But it is certainly possible to be wealthy enough relative to the standard of living one would accept to do that. I do actually know people who live on SS or SS and a pension but also have no assets and hence no dividends.

What is the reason for asking?
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

dbr wrote: Sun May 22, 2022 12:15 pm I haven't gone back to look, but there are certainly posts on this forum from people who are living on pensions and Social Security. There are certainly people who have withdrawal rates down at the dividend yield of some stock funds and have SS and/or pensions to help do it.

I am not sure I recall reading a post from anyone who is almost all stocks and does exactly live on SS and dividends.

But it is certainly possible to be wealthy enough relative to the standard of living one would accept to do that. I do actually know people who live on SS or SS and a pension but also have no assets and hence no dividends.

What is the reason for asking?
The post wasn't specifically stating that. It was talking about SS and dividends and I originally misread it that they were talking about living off SS and dividends which got me thinking. The main motivation for asking is to get a feel if the dividends thrown off by broad based index funds really allow you to be more aggressive with your AA when combined with a steady source of income like SS, or said another way do dividends negate some of the need for Fixed Income assets. I probably not doing a good job of explaining what is rattling around in my head.

I haven't really thought much about dividends being a source of cash flow because up until now I just reinvested them.
Last edited by TheTimeLord on Sun May 22, 2022 12:37 pm, edited 1 time in total.
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Harmanic
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Re: Anyone retired and living off SS and Dividends?

Post by Harmanic »

TheTimeLord wrote: Sun May 22, 2022 12:21 pm
Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
The probably comes from comparing growth and dividends. For many companies, a large part of growth comes from retained earnings, which is a strategic choice vs paying higher dividends. So how do you separate the retained earnings from dividends? You don't! Which is why investors who chase high yield companies/funds are misunderstanding how true yield is achieved.
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

TheTimeLord wrote: Sun May 22, 2022 12:21 pm
Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
Well, the point is that living off dividends available from the usual mutual funds today gives you a withdrawal rate of 2% more or less. This means a person doing things that way either has a lot of wealth to invest at 95% stocks or is living on a low enough standard of living to cover most of it with SS.

The current maximum SS for a single individual is about $50k/year. The current yield on a total stock index fund is about 1.4% (SEC yield), so that person could have $1M invested and be living on $64k/year. If you have $20M, then your income from dividends is $280k/year right now and you don't have to worry about the Social Security, and that with just putting everything in a total stock index fund.

But we will have to wait and see what posters are actually doing something like this.
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Re: Anyone retired and living off SS and Dividends?

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dbr wrote: Sun May 22, 2022 12:38 pm
TheTimeLord wrote: Sun May 22, 2022 12:21 pm
Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
Well, the point is that living off dividends available from the usual mutual funds today gives you a withdrawal rate of 2% more or less. This means a person doing things that way either has a lot of wealth to invest at 95% stocks or is living on a low enough standard of living to cover most of it with SS.

The current maximum SS for a single individual is about $50k/year. The current yield on a total stock index fund is about 1.4% (SEC yield), so that person could have $1M invested and be living on $64k/year. If you have $20M, then your income from dividends is $280k/year right now and you don't have to worry about the Social Security, and that with just putting everything in a total stock index fund.

But we will have to wait and see what posters are actually doing something like this.
That is why I mentioned dual income couples in my original post, assuming they would have a higher combined SS benefit. And while I didn't state it I was also thinking folks who maxed out their SS benefit by waiting until 70 to claim it.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

Harmanic wrote: Sun May 22, 2022 12:37 pm
TheTimeLord wrote: Sun May 22, 2022 12:21 pm
Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
The probably comes from comparing growth and dividends. For many companies, a large part of growth comes from retained earnings, which is a strategic choice vs paying higher dividends. So how do you separate the retained earnings from dividends? You don't! Which is why investors who chase high yield companies/funds are misunderstanding how true yield is achieved.
The reason I mentioned dividends from broad based index funds was to exclude the concept of dividend chasing.
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Re: Anyone retired and living off SS and Dividends?

Post by TheNightsToCome »

TheTimeLord wrote: Sun May 22, 2022 12:31 pm
dbr wrote: Sun May 22, 2022 12:15 pm I haven't gone back to look, but there are certainly posts on this forum from people who are living on pensions and Social Security. There are certainly people who have withdrawal rates down at the dividend yield of some stock funds and have SS and/or pensions to help do it.

I am not sure I recall reading a post from anyone who is almost all stocks and does exactly live on SS and dividends.

But it is certainly possible to be wealthy enough relative to the standard of living one would accept to do that. I do actually know people who live on SS or SS and a pension but also have no assets and hence no dividends.

What is the reason for asking?
The post wasn't specifically stating that. It was talking about SS and dividends and I originally misread it that they were talking about living off SS and dividends which got me thinking. The main motivation for asking is to get a feel if the dividends thrown off by broad based index funds really allow you to be more aggressive with your AA when combined with a steady source of income like SS, or said another way do dividends negate some of the need for Fixed Income assets. I probably not doing a good job of explaining what is rattling around in my head.

I haven't really thought much about dividends being a source of cash flow because up until now I just reinvested them.
My equity allocation is 100% international. IXUS has a trailing dividend yield of 3.55%.
https://www.morningstar.com/etfs/xnas/ixus/quote

I'm still working, but my equity portfolio dividends exceed our annual expenses.
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Re: Anyone retired and living off SS and Dividends?

Post by TheNightsToCome »

9-5 Suited wrote: Sun May 22, 2022 12:14 pm
TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
Someone living off SS and dividends only actually has a pretty big risk of spending inefficiency on their portfolio more so than running out of money. Dividends are only about 2-2.5%. In other words, you’re likely to die with a lot of money in your accounts.

1. Maybe that’s Ok because you want to leave as much as possible to kids or charity.
2. If that’s not your goal, and you have nice things in life you just can’t bring yourself to buy, now is the time! There’s no great reason to spend any lower than 3.5% of a portfolio IMO with the exception of people who live to maximize their bequests.
It looks like the trailing dividend yield of VTI is about 1.43% rather than 2-2.5%.

IXUS is a broad-based stock index fund with a trailing dividend yield of about 3.55%, above your 3.5% threshold.
Edit: According to my Fidelity account, the IXUS yield is 3.65% and the VXUS yield is 3.51%.
Last edited by TheNightsToCome on Sun May 22, 2022 1:13 pm, edited 1 time in total.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

9-5 Suited wrote: Sun May 22, 2022 12:14 pm
TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
Someone living off SS and dividends only actually has a pretty big risk of spending inefficiency on their portfolio more so than running out of money. Dividends are only about 2-2.5%. In other words, you’re likely to die with a lot of money in your accounts.

1. Maybe that’s Ok because you want to leave as much as possible to kids or charity.
2. If that’s not your goal, and you have nice things in life you just can’t bring yourself to buy, now is the time! There’s no great reason to spend any lower than 3.5% of a portfolio IMO with the exception of people who live to maximize their bequests.
I guess I am making a difference in my mind between spending some of your equity assets and needing to spend them.
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Re: Anyone retired and living off SS and Dividends?

Post by TheNightsToCome »

Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
As you note, US dividend yields have been less than 2% recently, but the average from 1871-present is about 4.29%. That is, a yield > 4% has not signaled a high risk investment for most of history. Today's low yields owe a little to the shift to share buybacks in lieu of dividends, and a lot to low interest rates driving very high equity valuations.
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

Note your question is also ambiguous as an investor can arrange dividend payout over quite a large range.

I at one time held "shares of beneficent interest" in a gas trust. It paid 10% until the gas was exhausted and the dividends, the shares, and the trust itself terminated.

There are lots of occasions when dying companies pay huge yields as they maintain dividends into bankruptcy when everything comes to a screeching halt. Historically dividends in the US stock market have declined from about 4% to less than 2% today.

Trying to somehow set spending according to dividends that can be cashed leads to not very logical thinking and possibly bad planning. It can also be perfectly feasible, but there is nothing special in that except for the convenience of how one arranges to take withdrawals.
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Re: Anyone retired and living off SS and Dividends?

Post by TheNightsToCome »

Harmanic wrote: Sun May 22, 2022 12:37 pm
TheTimeLord wrote: Sun May 22, 2022 12:21 pm
Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
The probably comes from comparing growth and dividends. For many companies, a large part of growth comes from retained earnings, which is a strategic choice vs paying higher dividends. So how do you separate the retained earnings from dividends? You don't! Which is why investors who chase high yield companies/funds are misunderstanding how true yield is achieved.
There is empiric evidence that contradicts this:https://papers.ssrn.com/sol3/papers.cfm ... _id=390143

Surprise! Higher Dividends = Higher Earnings Growth
Posted: 27 May 2003
Robert D. Arnott
Research Affiliates, LLC

Clifford S. Asness
AQR Capital Management, LLC

Abstract
We investigate whether dividend policy, as observed in the payout ratio of the U.S. equity market portfolio, forecasts future aggregate earnings growth. The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low. This relationship is not subsumed by other factors, such as simple mean reversion in earnings. Our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth. Rather, it is consistent with anecdotal tales about managers signaling their earnings expectations through dividends or engaging, at times, in inefficient empire building. Our findings offer a challenge to market observers who see the low dividend payouts of recent times as a sign of strong future earnings to come.
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Re: Anyone retired and living off SS and Dividends?

Post by radiowave »

TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
Yes ... sort of

Just retired last summer after a long career in healthcare and currently meeting expenses with dividends and a couple of small pensions. Holding off on starting SS until 2023. We are DINKs and DW is still working part time job until next spring when she plans to retire. Her SS PIA will offset her current income. We are AA 60/40, paid off mortgage and no debt which was the plan going into retirement. Mostly have total stock funds in taxable, e.g. VTSAX and abt 2 years in cash instruments to cover any additional expenses. Annual expense around $60K. Our SWR = 0% right now and when I start SS next year, unlikely we'll need to make any withdrawals from the portfolio until RMDs start in a few years.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

dbr wrote: Sun May 22, 2022 1:00 pm Note your question is also ambiguous as an investor can arrange dividend payout over quite a large range.

I at one time held "shares of beneficent interest" in a gas trust. It paid 10% until the gas was exhausted and the dividends, the shares, and the trust itself terminated.

There are lots of occasions when dying companies pay huge yields as they maintain dividends into bankruptcy when everything comes to a screeching halt. Historically dividends in the US stock market have declined from about 4% to less than 2% today.

Trying to somehow set spending according to dividends that can be cashed leads to not very logical thinking and possibly bad planning. It can also be perfectly feasible, but there is nothing special in that except for the convenience of how one arranges to take withdrawals.
OP
TheTimeLord wrote: Sun May 22, 2022 11:37 am ......... and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
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Re: Anyone retired and living off SS and Dividends?

Post by delamer »

TheTimeLord wrote: Sun May 22, 2022 12:31 pm
dbr wrote: Sun May 22, 2022 12:15 pm I haven't gone back to look, but there are certainly posts on this forum from people who are living on pensions and Social Security. There are certainly people who have withdrawal rates down at the dividend yield of some stock funds and have SS and/or pensions to help do it.

I am not sure I recall reading a post from anyone who is almost all stocks and does exactly live on SS and dividends.

But it is certainly possible to be wealthy enough relative to the standard of living one would accept to do that. I do actually know people who live on SS or SS and a pension but also have no assets and hence no dividends.

What is the reason for asking?
The post wasn't specifically stating that. It was talking about SS and dividends and I originally misread it that they were talking about living off SS and dividends which got me thinking. The main motivation for asking is to get a feel if the dividends thrown off by broad based index funds really allow you to be more aggressive with your AA when combined with a steady source of income like SS, or said another way do dividends negate some of the need for Fixed Income assets. I probably not doing a good job of explaining what is rattling around in my head.

I haven't really thought much about dividends being a source of cash flow because up until now I just reinvested them.
Our taxable fund has been 80%-85% equities for the last few years. The dividends/capital gains thrown off can vary a lot from year-to-year. The portfolio is pretty much broad-based index funds, although there are legacy dividend stocks that make up about 15% of the total.

For the 5 years that I have data on, the annual low was 25% off from the annual high. Although 3 of the 5 years were within $1,000 of each other (nominally).
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Re: Anyone retired and living off SS and Dividends?

Post by jh »

TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
I am retiring early at age 46, after June 30, on a taxable portfolio made up of almost $1M in the Schwab US Equity etf SCHD, which has a dividend yield of around 3%. That will be my sole source of income until age 60+. While working my living expenses were around $35k per year excluding taxes. My dividend income will start off close enough to this and dividend growth will have me making much more than that amount in a few years.
Retired in 2022 at the age of 46. Living off of dividends.
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Re: Anyone retired and living off SS and Dividends?

Post by Flyer24 »

Update: After PM to confirm that OP is asking for himself, the thread is unlocked.
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Re: Anyone retired and living off SS and Dividends?

Post by CyclingDuo »

TheTimeLord wrote: Sun May 22, 2022 11:37 amA read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
In terms of funds needed beyond SS - especially say for a dual income couple as you inquire - I think it is entirely possible. At least while both members of the couple are alive and receiving SS, I do not see why it is not feasible provided both members of the couple delayed the SS long enough until at least FRA if not until age 70 and have worked long enough careers to receive a decent amount. Coupled with enough dividend income to cover what SS does not cover to meet their desired income level in retirement seems a legitimate strategy. Obviously, it depends on what the overall annual household expenses are for the couple and the size of the portfolio, but if the SS streams are in reason and the portfolio is producing enough dividend income - why not?

We are not yet there quite yet in terms of retirement (wife retires next year), but will eventually have a dual income SS stream after working full 35-40+ year careers. In our case, there will also be a pension before we get to the dividend stream as an additional option to combine with whatever the SS and pension streams cover in retirement expenses. Every household is unique in terms of SS amount and when taken, size of portfolio and the dividend amount, pension or no pension, etc.... which leads to many of these threads failing to converse on the same level.

Our dual SS + dividends based on when we currently plan to take them using today's dollars would currently equal 79% of our current gross income. Throw in the pension on top of the SS + dividends and we would be at 108% of our current gross income. In other words, we are not averse at all to just using the dividends in retirement for a portion of our living expenses.

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Re: Anyone retired and living off SS and Dividends?

Post by Godot »

jh wrote: Sun May 22, 2022 1:24 pm
TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
I am retiring early at age 46, after June 30, on a taxable portfolio made up of almost $1M in the Schwab US Equity etf SCHD, which has a dividend yield of around 3%. That will be my sole source of income until age 60+. While working my living expenses were around $35k per year excluding taxes. My dividend income will start off close enough to this and dividend growth will have me making much more than that amount in a few years.
Interesting. Do you have other investments apart from the $1m in SCHD?
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Re: Anyone retired and living off SS and Dividends?

Post by GerryL »

TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
I am retired and covering my expenses with SS, two tiny pensions (<$700/mo) and dividends from my taxable account. The taxable account is VBIAX, so 60/40, and a stash of company stock that I am gradually shrinking (by moving to my DAF). RMDs from my IRA are gravy. Or more like frosting (travel and other splurges) on the retirement cake. Extra cash goes into VBIAX, so the dividends could conceivably increase.

What matters is how much you have saved and how much you spend.
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Re: Anyone retired and living off SS and Dividends?

Post by 9-5 Suited »

TheNightsToCome wrote: Sun May 22, 2022 12:50 pm
9-5 Suited wrote: Sun May 22, 2022 12:14 pm
TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
Someone living off SS and dividends only actually has a pretty big risk of spending inefficiency on their portfolio more so than running out of money. Dividends are only about 2-2.5%. In other words, you’re likely to die with a lot of money in your accounts.

1. Maybe that’s Ok because you want to leave as much as possible to kids or charity.
2. If that’s not your goal, and you have nice things in life you just can’t bring yourself to buy, now is the time! There’s no great reason to spend any lower than 3.5% of a portfolio IMO with the exception of people who live to maximize their bequests.
It looks like the trailing dividend yield of VTI is about 1.43% rather than 2-2.5%.

IXUS is a broad-based stock index fund with a trailing dividend yield of about 3.55%, above your 3.5% threshold.
Edit: According to my Fidelity account, the IXUS yield is 3.65% and the VXUS yield is 3.51%.
Since dividends are paid on a dollars per share basis and the percentage is just an artifact, this will obviously shift all the time. But the median Boglehead has something like a 70%-80% US and 20%-30% international so I think the 2%-2.5% shorthand works fairly well for a rough estimation of what a withdrawal rate would be if one spent only dividends. Could be less, could be more. We'll never know in advance. But seems fairly logical just on an apriori basis that a "spend the dividend" strategy on a broad market index will leave you with a lot of excess cash to spend on your casket.
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Re: Anyone retired and living off SS and Dividends?

Post by Riprap »

9-5 Suited wrote: Sun May 22, 2022 8:53 pmBut seems fairly logical just on an apriori basis that a "spend the dividend" strategy on a broad market index will leave you with a lot of excess cash to spend on your casket.
That's one way to look at it.

However

It puzzles me why dying with a large estate after having lived below one's means, especially in retirement, is held in such contempt on Bogleheads. All the posting about optimizing one's spending and so on. Not that there is anything wrong with exploring optimization but it doesn't mean it's a goal for everyone. Leaving a large estate can be legitimate goal, don't you think?

Another way to look at it is putting one's accumulated net worth to a higher and better use. It really doesn't take a lot of spending to be happy and content.
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Re: Anyone retired and living off SS and Dividends?

Post by finite_difference »

I asked a similar question. It turns out many Bogleheads can live off SS alone.
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

TheTimeLord wrote: Sun May 22, 2022 11:37 am A read a post a a while back and it got me wondering, anyone here retired with an equity allocation of 90% or more and covering their expenses with SS and dividends from broad based index funds? At first I thought it was impractical but the more I thought about the more it seemed it be possible for some dual income couples.
I don't understand the question, or rather, why you are asking! It seems like you can answer that question for a given situation by doing the math.

Let's use concrete numbers.

1) Your yearly expenses are 100k.
2) Your SS and your spouse's SS adds up to 60k.
3) Hence you need 40k from your portfolio. Assume dividend yield on your equity (say it is total stock market) is 2%. If you have $2M in equity, it all adds up, right.

There are caveats, of course.

For one thing, when one spouse dies (and, well, they will ....) the surviving spouse is then left with only one SS payment coming in. Is the plan for the survivor to just spend less?

Another caveat is that the 2% dividend yield can vary, though it will almost surely vary less than the NAV of an equity stock fund. But there will be years when the dividend is down.

It's also not clear to me how well historically dividends have increased with inflation, though I'm sure some dividend fans will enlighten me.

Another caveat is that the current yield on VTI (vanguard total stock market ETF) is more like 1.4%. So if you needed 40k, you'd need a bigger pile than $2M.

But the whole thing seems silly to me. If you really only need about $40,000 a year from a $2M portfolio, take the dividends, and if you need more (to get to your $40k) sell something. Your withdrawal rate is so low with these numbers it will be absolutely safe to do that.

Now, if you need $40k from the portfolio and you have $6M or $8M, sure, just take the dividends and spend what you want. It won't matter -- that is basically where all these "can I just live off dividends threads" should end ... a low withdrawal rate works no matter how you frame the question.
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Re: Anyone retired and living off SS and Dividends?

Post by TN_Boy »

TheNightsToCome wrote: Sun May 22, 2022 1:06 pm
Harmanic wrote: Sun May 22, 2022 12:37 pm
TheTimeLord wrote: Sun May 22, 2022 12:21 pm
Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
The 4% Rule/Guideline just assumes you won't run out of money before 30 years which is very different than living off the dividends. There is no problem, only a question.
The probably comes from comparing growth and dividends. For many companies, a large part of growth comes from retained earnings, which is a strategic choice vs paying higher dividends. So how do you separate the retained earnings from dividends? You don't! Which is why investors who chase high yield companies/funds are misunderstanding how true yield is achieved.
There is empiric evidence that contradicts this:https://papers.ssrn.com/sol3/papers.cfm ... _id=390143

Surprise! Higher Dividends = Higher Earnings Growth
Posted: 27 May 2003
Robert D. Arnott
Research Affiliates, LLC

Clifford S. Asness
AQR Capital Management, LLC

Abstract
We investigate whether dividend policy, as observed in the payout ratio of the U.S. equity market portfolio, forecasts future aggregate earnings growth. The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low. This relationship is not subsumed by other factors, such as simple mean reversion in earnings. Our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth. Rather, it is consistent with anecdotal tales about managers signaling their earnings expectations through dividends or engaging, at times, in inefficient empire building. Our findings offer a challenge to market observers who see the low dividend payouts of recent times as a sign of strong future earnings to come.
I can't download the paper. Does it argue/show that investors in dividend focused stocks have higher returns than other investors (adjusting for factors, etc).
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Re: Anyone retired and living off SS and Dividends?

Post by JoMoney »

It's reported that "One-third of retirees are dependent on Social Security for 90% or more of their income. And over 60% are depending on the program for more than half of their income."
From that, one could deduce that at least one-third of recipients are "living off SS and dividends", and their dividends amount to 0 (or at most 10% of the income for those where SS is making up 90% or more.)
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

JoMoney wrote: Sun May 22, 2022 10:36 pm It's reported that "One-third of retirees are dependent on Social Security for 90% or more of their income. And over 60% are depending on the program for more than half of their income."
From that, one could deduce that at least one-third of recipients are "living off SS and dividends", and their dividends amount to 0 (or at most 10% of the income for those where SS is making up 90% or more.)
I edited my originally post to clarify what I am asking.
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Re: Anyone retired and living off SS and Dividends?

Post by CyclingDuo »

TheTimeLord wrote: Mon May 23, 2022 7:41 am
JoMoney wrote: Sun May 22, 2022 10:36 pm It's reported that "One-third of retirees are dependent on Social Security for 90% or more of their income. And over 60% are depending on the program for more than half of their income."
From that, one could deduce that at least one-third of recipients are "living off SS and dividends", and their dividends amount to 0 (or at most 10% of the income for those where SS is making up 90% or more.)
I edited my originally post to clarify what I am asking.
A portion of your edit...

Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?

I believe that when one speaks about asset allocation regarding the equity/bond percentages, previous discussions here at BH have talked about AA perhaps having the latitude to be a bit higher on the equity side if one has something such as a pension. On the other hand, plenty of arguments have been made that one also has the latitude to have a lower equity AA if one's expenses are well covered in retirement. Could we extrapolate that to include a household that has a decent level of a dual income SS stream that perhaps is taken at FRA or not until age 70? I'm not opposed to that consideration, but would also include in my planning the potential reduction in SS come year 2034/35 or whenever the possibility of a reset takes place where income streams may be reduced barring any changes. i-ORP builds that into the planning by default which at least helps provide a look into the future for one's planning.

In addition to the SORR and SWR discussion, one does have to include the reality that the couple will not expire at the same time and plans must also include the household expenses with the level of income when a household becomes a single SS income stream to couple with the dividends you are speaking about utilizing for covering the household expenses.

Dividend cuts can happen during recession/bear markets. The Financial Crisis led to a larger than usual dividend cut due to the bank bailouts by the government requiring their dividends to be cut as part of the conditions.

Image
https://www.simplysafedividends.com/int ... ar-markets

Suffice it to say, there are ways to cover one's expenses in retirement beyond the SS stream that could work including if it were just the lower dividend withdrawal rate. It's too difficult to generalize and say that the AA has to be a specific 85/15, 80/20, 75/25, 70/30, 60/40, etc... to pull it off without knowing all of the particulars (amount needed, size of portfolio, dividend yield, etc...).

Regardless, the current dividend yield on the S&P 500 is not too much to write home about. Neither is the yield on the dividend Aristocrats ETF (NOBL). A SWR using just the dividend yield of either to meet all of your expenses beyond SS certainly would allow for continued portfolio growth and the ability to pass on to your heirs the remainder as inheritance.

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Re: Anyone retired and living off SS and Dividends?

Post by JoeRetire »

Riprap wrote: Sun May 22, 2022 9:24 pmLeaving a large estate can be legitimate goal, don't you think?
Anyone's personal goal is legitimate, by definition.

If that's your goal, and it doesn't detract from your other financial goals - good on you!
It really doesn't take a lot of spending to be happy and content.
Everyone has different definitions of "a lot".
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

The question is "Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?

We are going to have to wait and see if people reply.

I personally have SS and pension income, but we did not decide to increase our allocation to stocks and then live at whatever spending level would result from SS, pensions, and dividends.

It would be true in our case that if we were to increase the allocation to all stocks, that a 2% dividend rate could work for us now. That result is partly due to luck in having ten years of a bull market in stocks, a scenario that did not have to happen. It could also happen that if stocks fall and stay down for some time that either yield would have to go up or we would have to spend more than dividends.

The point in all this is that living on SS (pensions) and dividends might be a thing that could happen but it is not a very logical way to plan one's retirement finances. The question would be that if there are people who do this or if someone would plan to do this, what would be the point?

A better approach would be to look at planner like this one: https://engaging-data.com/visualizing-4-rule/ put in 95% stocks and then study how much spending might be possible and contemplate the possible outcomes for wealth in the future.
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

JoeRetire wrote: Mon May 23, 2022 9:08 am
Riprap wrote: Sun May 22, 2022 9:24 pmLeaving a large estate can be legitimate goal, don't you think?
Anyone's personal goal is legitimate, by definition.

If that's your goal, and it doesn't detract from your other financial goals - good on you!
It really doesn't take a lot of spending to be happy and content.
Everyone has different definitions of "a lot".
Exactly. The whole process starts with "What do you want?"
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

CyclingDuo wrote: Mon May 23, 2022 9:02 am
TheTimeLord wrote: Mon May 23, 2022 7:41 am
JoMoney wrote: Sun May 22, 2022 10:36 pm It's reported that "One-third of retirees are dependent on Social Security for 90% or more of their income. And over 60% are depending on the program for more than half of their income."
From that, one could deduce that at least one-third of recipients are "living off SS and dividends", and their dividends amount to 0 (or at most 10% of the income for those where SS is making up 90% or more.)
I edited my originally post to clarify what I am asking.
A portion of your edit...

Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?

I believe that when one speaks about asset allocation regarding the equity/bond percentages, previous discussions here at BH have talked about AA perhaps having the latitude to be a bit higher on the equity side if one has something such as a pension. On the other hand, plenty of arguments have been made that one also has the latitude to have a lower equity AA if one's expenses are well covered in retirement. Could we extrapolate that to include a household that has a decent level of a dual income SS stream that perhaps is taken at FRA or not until age 70? I'm not opposed to that consideration, but would also include in my planning the potential reduction in SS come year 2034/35 or whenever the possibility of a reset takes place where income streams may be reduced barring any changes. i-ORP builds that into the planning by default which at least helps provide a look into the future for one's planning.

In addition to the SORR and SWR discussion, one does have to include the reality that the couple will not expire at the same time and plans must also include the household expenses with the level of income when a household becomes a single SS income stream to couple with the dividends you are speaking about utilizing for covering the household expenses.

Dividend cuts can happen during recession/bear markets. The Financial Crisis led to a larger than usual dividend cut due to the bank bailouts by the government requiring their dividends to be cut as part of the conditions.

Image
https://www.simplysafedividends.com/int ... ar-markets

Suffice it to say, there are ways to cover one's expenses in retirement beyond the SS stream that could work including if it were just the lower dividend withdrawal rate. It's too difficult to generalize and say that the AA has to be a specific 85/15, 80/20, 75/25, 70/30, 60/40, etc... to pull it off without knowing all of the particulars (amount needed, size of portfolio, dividend yield, etc...).

Regardless, the current dividend yield on the S&P 500 is not too much to write home about. Neither is the yield on the dividend Aristocrats ETF (NOBL). A SWR using just the dividend yield of either to meet all of your expenses beyond SS certainly would allow for continued portfolio growth and the ability to pass on to your heirs the remainder as inheritance.

CyclingDuo
You are correct that the current dividend yield is a long way from impressive. That said, forgetting about dividends cuts for the moment (I am not denying they happen just hear me out) if we do get a serious drop in the market while the dividend amount per share will remain constant the yield as measured by percentage should increase significantly. So I am what I am trying to understand is if that increased yield percentage might at that point make moving to a higher equity allocation feasible and provide me with a viable source of income while I wait for equities to recover. And going forward as equities recover the amount of the dividend per share will hopefully remain constant or even rise at a rate commensurate with inflation.
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Re: Anyone retired and living off SS and Dividends?

Post by Jack FFR1846 »

How about this alternative:

Instead of tax generating dividends, hold instead non-dividend paying stocks like BRK. When you need money, sell shares strategically. Of course, long term cap gains becomes tax efficient. Or perhaps later purchased shares that have little or no gain or even a loss. The basic idea is that you have full control of what tax you will pay, unlike dividends that come out whether you like it or not.

On the SS side, it's still worthwhile to do the math and figure out what age is best for you to start it.

Personally, I do plan to manage my taxable income so that I can convert to Roth, which will reduce my RMDs in the future and actually reduce dividend paying funds I own. We'll see how that works out going forward as I'm not yet retired.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

dbr wrote: Mon May 23, 2022 9:13 am The question is "Has anyone here increased their equity allocation above 80% in retirement because they plan to have at least their base expenses covered by SS and dividends? If so have you experienced any problems or pitfalls as a result?

We are going to have to wait and see if people reply.

I personally have SS and pension income, but we did not decide to increase our allocation to stocks and then live at whatever spending level would result from SS, pensions, and dividends.

It would be true in our case that if we were to increase the allocation to all stocks, that a 2% dividend rate could work for us now. That result is partly due to luck in having ten years of a bull market in stocks, a scenario that did not have to happen. It could also happen that if stocks fall and stay down for some time that either yield would have to go up or we would have to spend more than dividends.

The point in all this is that living on SS (pensions) and dividends might be a thing that could happen but it is not a very logical way to plan one's retirement finances. The question would be that if there are people who do this or if someone would plan to do this, what would be the point?

A better approach would be to look at planner like this one: https://engaging-data.com/visualizing-4-rule/ put in 95% stocks and then study how much spending might be possible and contemplate the possible outcomes for wealth in the future.
Let me try to explain it this way. I am trying to wrap my mind around if it is reasonable to believe SS and dividends can provide a secure enough base for one's expenses that it is a viable option for some retirees who are seeking the the possibility of higher returns to use an aggressive AA knowing that their increased equity allocation will throw off dividends helping to offset their loss of income from Fixed Income assets.

I think to put it in very BH terms what I am really asking is can Dividends be considered ballast, at least to some extent.
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

TheTimeLord wrote: Mon May 23, 2022 9:15 am
You are correct that the current dividend yield is a long way from impressive. That said, forgetting about dividends cuts for the moment (I am not denying they happen just hear me out) if we do get a serious drop in the market while the dividend amount per share will remain constant the yield as measured by percentage should increase significantly. So I am what I am trying to understand is if that increased yield percentage might at that point make moving to a higher equity allocation feasible and provide me with a viable source of income while I wait for equities to recover. And going forward as equities recover the amount of the dividend per share will hopefully remain constant or even rise at a rate commensurate with inflation.
If you want a viable source of income why chain yourself to dividends and then worry if they will be sustained? Why not do what a lot of other people do and just take what you need to spend having made estimates that a given asset allocation will most likely survive the withdrawals with some estimate of what will be left over when you die. What is the reason to want to believe you can invest in all equities?

You can get a first cut at estimating what will happen by putting your numbers in FireCalc or any other retirement calculator, setting the asset allocation to 95/5 and then seeing what the chances are. I just did that assuming a $1M portfolio, $20k a year in dividends (2%), $50k a year in SS, and a specified spend of $70k. The program estimates zero chance of running out of money in 30 years and estimates that at the end of 30 years the retiree will have between $1M and $12M left. Of course in practice you would just spend the $70k and not restrict yourself to spending whatever dividends are paid as the market goes up and down.

Trying to go through this by a route of thinking dividends are ballast or something like that is neither here nor there. Just do the math.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

Jack FFR1846 wrote: Mon May 23, 2022 9:17 am How about this alternative:

Instead of tax generating dividends, hold instead non-dividend paying stocks like BRK. When you need money, sell shares strategically. Of course, long term cap gains becomes tax efficient. Or perhaps later purchased shares that have little or no gain or even a loss. The basic idea is that you have full control of what tax you will pay, unlike dividends that come out whether you like it or not.

On the SS side, it's still worthwhile to do the math and figure out what age is best for you to start it.

Personally, I do plan to manage my taxable income so that I can convert to Roth, which will reduce my RMDs in the future and actually reduce dividend paying funds I own. We'll see how that works out going forward as I'm not yet retired.
The tax implications of dividends will vary depending on the type of account they are held in. I can live with the amount of index shares I have in my taxable account generating enough income to be a real tax problem. But I am planning to do a lot of Roth conversions between now and taking SS.
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

dbr wrote: Mon May 23, 2022 9:28 am
TheTimeLord wrote: Mon May 23, 2022 9:15 am
You are correct that the current dividend yield is a long way from impressive. That said, forgetting about dividends cuts for the moment (I am not denying they happen just hear me out) if we do get a serious drop in the market while the dividend amount per share will remain constant the yield as measured by percentage should increase significantly. So I am what I am trying to understand is if that increased yield percentage might at that point make moving to a higher equity allocation feasible and provide me with a viable source of income while I wait for equities to recover. And going forward as equities recover the amount of the dividend per share will hopefully remain constant or even rise at a rate commensurate with inflation.
If you want a viable source of income why chain yourself to dividends and then worry if they will be sustained? Why not do what a lot of other people do and just take what you need to spend having made estimates that a given asset allocation will most likely survive the withdrawals with some estimate of what will be left over when you die. What is the reason to want to believe you can invest in all equities?

You can get a first cut at estimating what will happen by putting your numbers in FireCalc or any other retirement calculator, setting the asset allocation to 95/5 and then seeing what the chances are. I just did that assuming a $1M portfolio, $20k a year in dividends (2%), $50k a year in SS, and a specified spend of $70k. The program estimates zero chance of running out of money in 30 years and estimates that at the end of 30 years the retiree will have between $1M and $12M left. Of course in practice you would just spend the $70k and not restrict yourself to spending whatever dividends are paid as the market goes up and down.

Trying to go through this by a route of thinking dividends are ballast or something like that is neither here nor there. Just do the math.
Don't want to go all equities, for a few reasons including liquidity. But dividends are going to be paid out so I am trying to understand how I should see them interacting with my AA, although arguably this only applies to dividends in a taxable account since they others can be re-invested without tax consequences. I have done all that math.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
dbr
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Re: Anyone retired and living off SS and Dividends?

Post by dbr »

TheTimeLord wrote: Mon May 23, 2022 9:48 am
dbr wrote: Mon May 23, 2022 9:28 am
TheTimeLord wrote: Mon May 23, 2022 9:15 am
You are correct that the current dividend yield is a long way from impressive. That said, forgetting about dividends cuts for the moment (I am not denying they happen just hear me out) if we do get a serious drop in the market while the dividend amount per share will remain constant the yield as measured by percentage should increase significantly. So I am what I am trying to understand is if that increased yield percentage might at that point make moving to a higher equity allocation feasible and provide me with a viable source of income while I wait for equities to recover. And going forward as equities recover the amount of the dividend per share will hopefully remain constant or even rise at a rate commensurate with inflation.
If you want a viable source of income why chain yourself to dividends and then worry if they will be sustained? Why not do what a lot of other people do and just take what you need to spend having made estimates that a given asset allocation will most likely survive the withdrawals with some estimate of what will be left over when you die. What is the reason to want to believe you can invest in all equities?

You can get a first cut at estimating what will happen by putting your numbers in FireCalc or any other retirement calculator, setting the asset allocation to 95/5 and then seeing what the chances are. I just did that assuming a $1M portfolio, $20k a year in dividends (2%), $50k a year in SS, and a specified spend of $70k. The program estimates zero chance of running out of money in 30 years and estimates that at the end of 30 years the retiree will have between $1M and $12M left. Of course in practice you would just spend the $70k and not restrict yourself to spending whatever dividends are paid as the market goes up and down.

Trying to go through this by a route of thinking dividends are ballast or something like that is neither here nor there. Just do the math.
Don't want to go all equities, for a few reasons including liquidity. But dividends are going to be paid out so I am trying to understand how I should see them interacting with my AA, although arguably this only applies to dividends in a taxable account since they others can be re-invested without tax consequences. I have done all that math.
The answer to that question is that dividends are withdrawals from the portfolio and that taking the dividends also affects how much remains allocated to stocks and how much remains in each account. That process together with market price changes decides whether or not a person might rebalance and may affect how assets are distributed across taxable and tax protected accounts. When RMDs are taken there is a transfer of assets from tax protected to taxable accounts and that may be accompanied by readjusting how funds are distributed across the different assets in the different accounts.
SnowBog
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Re: Anyone retired and living off SS and Dividends?

Post by SnowBog »

As a reminder, there is nothing special about dividends. https://www.pwlcapital.com/the-irreleva ... n-starter/
JackoC
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Re: Anyone retired and living off SS and Dividends?

Post by JackoC »

Small Savanna wrote: Sun May 22, 2022 12:09 pm Here is the problem: If you want to be broadly diversified, you would either have index funds or a portfolio of many stocks approximating the S&P 500. Dividends for the S&P 500 generally average about 2%, and less than that in recent years. So you would need to save about 50x of your annual expenses, net of social security, to produce enough income to live on. That's twice as much as the 4% / 25x rule of thumb, and probably too conservative.

Alternatively, you could invest in value stocks with higher dividends. There are plenty of stocks that yield about 4%, but in my experience a high dividend often indicates underlying problems with the company, and those are the companies most likely to cut their dividends in an economic downturn. Most people on this forum believe that you should focus on total return and not worry about dividends. That means that during retirement you are often selling stocks or mutual funds to live on, not just living on the dividends.
Assuming rationality, there's no reason on the personal side to prefer meeting an X% of portfolio spending need purely with dividends or with a mix of realized capital gain and dividends. The good reason, if it exists, to choose higher div payers has to be about the risk vs total return of each type of stock, what you spend shouldn't enter into it. It could be true you'd prefer a basket of stocks that happens to have a higher div yield. For example, if you are convinced of the diversification benefit of having some foreign stocks or even being global weight, your dividend yield will be higher (current forward looking div yield of Vanguard VTI total US is 1.52%, VT total world is 2.19%). But you wouldn't rationally do that to be able to say 'I live just on dividends' if the increase were to achieve that. And choosing to have a higher allocation to stocks and less to safe assets just to be able to say 'I live on dividends alone' is a terrible idea IMO.

Some people have mentioned 'basic expenses'. What I view as our 'basic expenses' and total average cash outflow assumed for future planning is pretty different. Anyway the difference among people who expect to withdraw 2% or 4% of assets per year, or less of more, is not whether they own stocks with higher, average or lower than average (like Vanguard Tax Managed Cap Appreciation, our main US stock fund) div yields. The difference is simply whether the person withdraws 2% or 4%, or more or less. There can be many reasons for that withdrawal to vary (outlook on return for assets in general, specific goal of leaving a bequest, the % you withdraw is just all you end up wanting to spend of the amount you happen to have ended up accumulating, etc.) but it's nothing directly to do with div yields.
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TheTimeLord
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Re: Anyone retired and living off SS and Dividends?

Post by TheTimeLord »

SnowBog wrote: Mon May 23, 2022 10:14 am As a reminder, there is nothing special about dividends. https://www.pwlcapital.com/the-irreleva ... n-starter/
From my perspective it isn't about them be special, it is about them being unavoidable thus I feel the need to manage them.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
SnowBog
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Re: Anyone retired and living off SS and Dividends?

Post by SnowBog »

TheTimeLord wrote: Mon May 23, 2022 10:22 am
SnowBog wrote: Mon May 23, 2022 10:14 am As a reminder, there is nothing special about dividends. https://www.pwlcapital.com/the-irreleva ... n-starter/
From my perspective it isn't about them be special, it is about them being unavoidable thus I feel the need to manage them.
Maybe I'm misunderstanding your question then... My impression is you were asking about living off of social security and dividends.

But there is nothing special about dividends. If the average dividend of one fund is 2% — that's no different than withdrawing 2% of another fund with no dividend (or if the dividend was reinvested for more shares - except here you deal with taxes).

So what it seems like you are ultimately talking about is using a 2% (give or take) withdrawal rate - which is basically a perpetual withdrawal rate. Whether that is in the form of dividends seems irrelevant...

Likewise, I'm not sure how that impacts AA. AA is mostly a function of your risk tolerance. If the bulk of your living expenses are covered by social security, and 100% of your expenses are covered when you include a perpetual withdrawal rate - I'm not sure how that changes your AA. Some people would view that as having a higher ability to be more aggressive. Others would view it as they have no need to be aggressive. Same situation - different perspective. Neither is right or wrong - it's all about your personal perspective.

ETA:. Re-reading your modified OP, I think it comes down to what you mean by:
For those individuals (like myself), they would need to take more risk in order to produce returns that would make a true difference in their finances and they are in the fortunate position to have the ability to take some additional risk. That said. the risk needs to be measured and some sort of base needs to be in place just in case equities entered a period of prolonged downturn.
To my prior point - one could successfully argue that you have both the ability to take more risk but no reason to do so.

You comment about "true difference in your finances" - but to what end? Is the goal to leave a large amount to your heirs, charity, etc.?

Assuming the answer is yes, how would you feel if that "prolonged downturn in equities" appeared and cut your final amount by 50% when passed on to heirs/charity?

Again, in my simple mind, AA is just a reflection of your risk tolerance.
Last edited by SnowBog on Mon May 23, 2022 11:25 am, edited 1 time in total.
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