Did you change to a more dividends heavy portfolio and living mostly off the dividends?
Nope. Regular index funds (VTSAX, VTIAX, VBTLX, etc.). Dividends for the stock funds come out quarterly and the payments to our taxable account tend to roughly equal our expenses in the months they're paid. In the other months we sell shares. There's nothing magic about dividends. They're just a way to convert the value of your investment to cash, but on the company's schedule instead of yours.
In fact we recently shifted a chunk of our taxable portfolio into
Vanguard's Growth Index Fund because it has
lower dividends. Once we've spent down more of the taxable account, lower dividend income will make it more likely that we'll be able to qualify for the earned income credit. This credit has a hard cutoff once your investment income hits a certain pretty low threshold, and having a lower amount of taxable dividend income should work in our favor there.
Or perhaps switched to a bonds heavy portfolio as the yield is typically higher than the total stock portfolio?
Not really. A few years before FIRE we adopted our current asset allocation (70/20/10 stock/bond/REIT), and plan to maintain that indefinitely.
Or do people actually sell off a chunk of their portfolio at the beginning of the year to cover the year's expenses?
More like once or twice quarterly in our case, but this is basically what we do. We try to keep the checking account between $5,000 and $10,000. Dividends are automatically deposited into there, and we also sell stock to replenish as needed.
For tax efficiency we have all our bonds in retirement accounts. If market conditions would require us to sell bonds to maintain our asset allocation we still sell stock from the taxable account to pay the bills and then swap some bonds for stocks in the retirement account to get things back into balance.
