Does it make sense to stop reinvesting dividends in retirement?

[webguy]

Hey guys, probably a stupid question but I wanted to check my thinking on this with you smart folks!

For round numbers sake, say I have expenses of 100k, and a portfolio of 5M producing a 1% dividend (50k/year). Currently I'm FIREd and living off cash reserves with my investment dividends being reinvested. Once my cash runs low, I’m assuming I should switch the dividends to go to my bank account and then sell $50k stock every year to supplement. As I’m already being taxed on the dividends then it doesn’t make sense to keep reinvesting them and then sell $100k of stock I’m guessing.

Ive just reinvested dividends for the past 15 years and like that it’s essentially DCAing into the market for me every month/quarter, so turning them off seems a bit sad! 😄

[FLBiker]

I agree with this.  As you say, you're paying taxes on it anyway, so using dividends to meet the first part of your expenses makes sense.  I've done a similar thing -- we wanted to build up our cash fund pre-retirement, so we turned off dividend reinvestment as part of that.

[FireLane]

Yes, you should turn off dividend reinvestment once you retire. Use the income stream from your dividends as spending money, and if you plan to spend more on top of that, sell shares.

At best, reinvesting dividends while selling shares just adds extra complexity for the same result. More likely, it'll result in you paying higher taxes for the same level of income, because you're reinvesting the dividend income which you've already taken the tax hit on, while also incurring capital gains for the shares you sell.

[webguy]

Makes sense. Thanks guys!!

[Omy]

We FIREd in 2019 and didn't really think about doing that until 2023 when we sold one of our rentals. The dividends showing up in our checking account replaced the missing rental income quite nicely.

[Catbert]

If you have mutual funds that generate  internal capital gains, also set those to pay out rather than reinvest.

[GilesMM]

Reinvest any portion of the dividends you do not need as income and spend the rest.

[AuspiciousEight]

I stopped reinvesting the dividends from my taxable account a long time ago, and I'm not even retired yet.

They all just get added to my normal checking account and then I choose what to invest them in (or I spend the money).

This gives me more flexibility in what I'm specifically investing in or spending the money on currently.

On occasion the cash flow has been used also for emergencies, since I have rarely ever had an emergency savings account during my investing career. If some emergency happens I just put it on my credit card, keep depositing the dividends into checking, turn down the 401k contributions, then use job income and dividends to pay off the credit card the next month.

[stoaX]

We FIREd in 2019 and didn't really think about doing that until 2023 when we sold one of our rentals. The dividends showing up in our checking account replaced the missing rental income quite nicely.

I also retired in 2019 and didn't think to turn off dividend reinvesting until years later. I'm happy to see the consensus here that it's probably a good thing.