Author Topic: How do you plan to live off your investments in a practical sense?  (Read 10172 times)

kiwichick

  • 5 O'Clock Shadow
  • *
  • Posts: 69
Just wondering how you intend to live off of your investments when you reach FIRE. For example, do you expect to be paid dividends and just live off them (which aren't much in the US - about 2%? - bit better for NZ stock market at about 4%pa), or will you sell enough stock to cover 1 year's worth of expenses and stick it in a savings account until you need it?

Just curious about how people approach this. :-)

mrpercentage

  • Handlebar Stache
  • *****
  • Posts: 1236
  • Location: PHX, AZ
Re: How do you plan to live off your investments in a practical sense?
« Reply #1 on: August 31, 2015, 10:21:58 PM »
I will live off of the dividends of hand picked dividend stocks and will be supplemented with a 457 account that is currently in growth stocks. I will also have a pension. I will be in my mid 50's about 20 years from now, and will probably do part time work that interests me. I am an unconventional guy. Don't use me as a model of the norm.

Taran Wanderer

  • Pencil Stache
  • ****
  • Posts: 946
Re: How do you plan to live off your investments in a practical sense?
« Reply #2 on: August 31, 2015, 10:44:33 PM »
With most of our savings in a 401k and Roth IRAs, I'm figuring that we will have to sell funds periodically to replenish cash and then love off the cash for a while.  Or just let DW work because she seems to like what she is doing.  Or part time work doing something I enjoy to maintain cash flow, and continue to let the stash grow.  Kinda depends on whether we retire early, really early, or tomorrow.

okonumiyaki

  • Stubble
  • **
  • Posts: 181
Re: How do you plan to live off your investments in a practical sense?
« Reply #3 on: August 31, 2015, 10:56:39 PM »
At the moment plan is a ladder of short term bonds, refilled every year by rebalancing from an equity pool.  So maturing bonds = that year's spending

sleepyguy

  • Pencil Stache
  • ****
  • Posts: 672
  • Location: Oakville, Ontario
Re: How do you plan to live off your investments in a practical sense?
« Reply #4 on: August 31, 2015, 10:57:49 PM »
Roughly our plan when we're at 42-45ish.

- Rental income
- 1-2% withdrawal from investment accounts on a quarterly basis most likely

also
- supplemental part-time income (GF plans to work seasonally, I plan to work on income producing hobbies)

That's pretty much it, nothing too fancy.

tyir

  • 5 O'Clock Shadow
  • *
  • Posts: 60
Re: How do you plan to live off your investments in a practical sense?
« Reply #5 on: August 31, 2015, 11:25:27 PM »
Here is a good (Canadian) article on the topic. RRSP is the Canadian equivalent of 401k.

http://www.moneysense.ca/retire/a-better-way-to-generate-retirement-income/

Wadiman

  • Stubble
  • **
  • Posts: 182
Re: How do you plan to live off your investments in a practical sense?
« Reply #6 on: September 01, 2015, 02:22:44 AM »
At the moment plan is a ladder of short term bonds, refilled every year by rebalancing from an equity pool.  So maturing bonds = that year's spending

Don't want to hijack your thread kiwichick but can you elaborate on this okonumiyaki or provide a link?  Sounds very interesting - Thanks!

Left

  • Handlebar Stache
  • *****
  • Posts: 1157
Re: How do you plan to live off your investments in a practical sense?
« Reply #7 on: September 01, 2015, 02:36:01 AM »
I'll live off my dividends [hoping to get it to $1k/month] from my taxable account first (since they are already taxed, I'll use them). I then plan to rollover about $30k/year from 401k to roth ira. At which point, if I need more money I'll take it out of roth ira. If I need more than the 40k (rollover+dividend), I'll sell my stocks in my taxable account. All money is today dollars, not sure what inflation will do to this part of my plan :D

I know this isn't very tax efficient but I need a way to roll money from 401k to roth. I suppose I could just do a roth 401k but I gain more from a 401k at the moment.

When I hit 50, I'll draw on a small foreign annuity that grandparents bought for me (everyone in family has one, it was like a "being born" present, I'll also "reinvest" part of it into the next generation of family members), at 60 I'll draw on a pension (won't be large since I plan to be retired by 45 so won't have too many years into it, 15 years?), at 70 I'll draw on social security. And by the time 70 hits, I hope I will have most/all of the money out of the 401k and into roth or else the minimum distributions will be taxed a bunch.

this will all be in the future though, to get to the point of $1k/month dividends, I need to work another 15-20 years. I could always just give up on this number and go early, but while I enjoy my job I see no reason to "rush" it. It'll happen when I get tired of working I suppose but until then , it's just all plans and planning.
« Last Edit: September 01, 2015, 02:44:27 AM by eyem »

bluecollarmusician

  • Bristles
  • ***
  • Posts: 411
Re: How do you plan to live off your investments in a practical sense?
« Reply #8 on: September 01, 2015, 04:27:48 AM »
My plan has always been to have as many different streams of income as possible- but the major ones will be:

Rental income- probably will have 2-3 paid off properties at any time providing some rental income
Dividends- currently all in DRIPS, but in the future could draw dividends
Interest- Lending Club, high rate investment notes, etc. Provide nice relatively stable income- not exactly tax efficient, but when my earned income goes away, I don't see this being a particular problem.  I like that they reliably spin off cash.
I also have some investments in High Yield Bonds, etc... many view this as a better situation than investing in Lending Club, and they may be right- I am just diversifying amongst cash generating investments.  I don't want everything in the best investment- I want the security of having it spread out.

Also- I don't ever plan to stop working as a musician- just be a little choosier about the gigs I do, and have a bit more freedom.
We may also continue to flip the occasional house. 

Plan to leave the Roth IRA and have that as insurance in the future for old age expenses...


patrickza

  • Pencil Stache
  • ****
  • Posts: 546
  • Age: 42
    • The Investor Challenge
Re: How do you plan to live off your investments in a practical sense?
« Reply #9 on: September 01, 2015, 04:33:48 AM »
Even though tax wise it would be better for me to sell capital to live off, I can't stop the dividends from coming, and since I'm really quite frugal, they'll be enough to live on when I pull the plug on the job. If not, then I'll sell stock I no longer want and am only holding on to for tax reasons first.

k9

  • Bristles
  • ***
  • Posts: 250
  • Age: 41
Re: How do you plan to live off your investments in a practical sense?
« Reply #10 on: September 01, 2015, 04:58:53 AM »
First, rental income, dividends and interests. Then, if this is not enough (it probably won't be), I'll sell my stocks/bonds/gold according to my AA.

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: How do you plan to live off your investments in a practical sense?
« Reply #11 on: September 01, 2015, 06:11:35 AM »
For my base living expenses, have a portfolio that allows for a 4% WR. Then just take out however much we need to cover the bills each month. Not too complicated. If there's a 50% market crash we might cut back a bit. But just sell shares, including reinvested dividends, as needed.

Mr. Green

  • Magnum Stache
  • ******
  • Posts: 2970
  • Age: 37
  • Location: Wandering
Re: How do you plan to live off your investments in a practical sense?
« Reply #12 on: September 01, 2015, 11:10:00 AM »
For my base living expenses, have a portfolio that allows for a 4% WR. Then just take out however much we need to cover the bills each month. Not too complicated. If there's a 50% market crash we might cut back a bit. But just sell shares, including reinvested dividends, as needed.
This is the most efficient way to pull cash from investments, no? Assuming we're not doing anything that is essentially timing the market.

Cookie78

  • Handlebar Stache
  • *****
  • Posts: 1892
  • Location: Canada
Re: How do you plan to live off your investments in a practical sense?
« Reply #13 on: September 01, 2015, 11:53:20 AM »
I'm not sure yet. I still have so much to learn about this side of the equation. Posting to follow.

Here is a good (Canadian) article on the topic. RRSP is the Canadian equivalent of 401k.

http://www.moneysense.ca/retire/a-better-way-to-generate-retirement-income/

This was really helpful for me.

For my base living expenses, have a portfolio that allows for a 4% WR. Then just take out however much we need to cover the bills each month. Not too complicated. If there's a 50% market crash we might cut back a bit. But just sell shares, including reinvested dividends, as needed.

This is roughly my plan too, but I still need to learn about tax implications and other details. Is it really this simple?

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: How do you plan to live off your investments in a practical sense?
« Reply #14 on: September 01, 2015, 12:14:25 PM »
For my base living expenses, have a portfolio that allows for a 4% WR. Then just take out however much we need to cover the bills each month. Not too complicated. If there's a 50% market crash we might cut back a bit. But just sell shares, including reinvested dividends, as needed.
This is the most efficient way to pull cash from investments, no? Assuming we're not doing anything that is essentially timing the market.

It's efficient because your money stays invested for longer (instead of sitting in cash). Some people might panic seeing the market take a dive and withdrawing money, but the only way of getting around that is to do some kind of market timing or some kind of a cash buffer (which drags returns since you have X months of spending in cash for the rest of your life).

For my base living expenses, have a portfolio that allows for a 4% WR. Then just take out however much we need to cover the bills each month. Not too complicated. If there's a 50% market crash we might cut back a bit. But just sell shares, including reinvested dividends, as needed.

This is roughly my plan too, but I still need to learn about tax implications and other details. Is it really this simple?

If you're retired (and not a spendypants), you'll be pay no or almost no taxes. There is some thought involved in doing a Roth IRA Pipeline (deciding how much to convert from your 401k or traditional IRA to a Roth) each year vs selling taxable investments. But it's not too complicated. As you get closer to actually retiring you can figure that stuff out.

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: How do you plan to live off your investments in a practical sense?
« Reply #15 on: September 01, 2015, 01:39:41 PM »
If you're retired (and not a spendypants), you'll be pay no or almost no taxes. There is some thought involved in doing a Roth IRA Pipeline (deciding how much to convert from your 401k or traditional IRA to a Roth) each year vs selling taxable investments. But it's not too complicated. As you get closer to actually retiring you can figure that stuff out.

Slight caveat here on the taxable investments part - zero tax only if the current tax system remains in place. There have been periods before in US history where all dividends/capital gains are taxed, regardless of your tax bracket, and that very might well be the case in the future as well - nobody knows

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: How do you plan to live off your investments in a practical sense?
« Reply #16 on: September 01, 2015, 01:46:20 PM »
If you're retired (and not a spendypants), you'll be pay no or almost no taxes. There is some thought involved in doing a Roth IRA Pipeline (deciding how much to convert from your 401k or traditional IRA to a Roth) each year vs selling taxable investments. But it's not too complicated. As you get closer to actually retiring you can figure that stuff out.

Slight caveat here on the taxable investments part - zero tax only if the current tax system remains in place. There have been periods before in US history where all dividends/capital gains are taxed, regardless of your tax bracket, and that very might well be the case in the future as well - nobody knows

There are also deductions, exemptions, and tax credits that can make a MMM-level of spending be taxed at around zero by itself, especially if some of those funds are from taxable accounts (only the gain portion is taxable). Yes, the tax code can change to remove or lower those deductions and exemptions.

kiwichick

  • 5 O'Clock Shadow
  • *
  • Posts: 69
Re: How do you plan to live off your investments in a practical sense?
« Reply #17 on: September 01, 2015, 04:30:36 PM »
At the moment plan is a ladder of short term bonds, refilled every year by rebalancing from an equity pool.  So maturing bonds = that year's spending

I've seen people do something similar with emergency funds to boost returns instead of just letting it sit in a low interest savings account. They work out how much they need to live on in a month and set up revolving bonds (or term deposits for us kiwis) for that amount so that one matures every month. If they lose their job, they know they have a bond/deposit maturing each month to live on.

For my base living expenses, have a portfolio that allows for a 4% WR. Then just take out however much we need to cover the bills each month. Not too complicated. If there's a 50% market crash we might cut back a bit. But just sell shares, including reinvested dividends, as needed.

Do you have to pay brokerage to sell those shares? In NZ, it costs a minimum of $30 to sell each lot of shares (so if you wanted to sell funds from 3 different stocks/etfs, then you would pay $90+). Expensive to do that every month.

My Own Advisor

  • 5 O'Clock Shadow
  • *
  • Posts: 71
  • Location: Canada
    • My Own Advisor
Re: How do you plan to live off your investments in a practical sense?
« Reply #18 on: September 01, 2015, 06:12:45 PM »

forummm

  • Walrus Stache
  • *******
  • Posts: 7388
  • Senior Mustachian
Re: How do you plan to live off your investments in a practical sense?
« Reply #19 on: September 01, 2015, 07:16:32 PM »
For my base living expenses, have a portfolio that allows for a 4% WR. Then just take out however much we need to cover the bills each month. Not too complicated. If there's a 50% market crash we might cut back a bit. But just sell shares, including reinvested dividends, as needed.

Do you have to pay brokerage to sell those shares? In NZ, it costs a minimum of $30 to sell each lot of shares (so if you wanted to sell funds from 3 different stocks/etfs, then you would pay $90+). Expensive to do that every month.

No, Vanguard has no redemption fees for Vanguard funds in the US. I guess you would have to optimize your withdrawals with those fees in mind. Perhaps a balanced fund would be ideal because you would only need to sell one fund each time. And you could sell a larger amount for multiple months and put it in something that's free to pull from to pay bills.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3620
  • Age: 42
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: How do you plan to live off your investments in a practical sense?
« Reply #20 on: September 02, 2015, 02:34:09 PM »
We plan to just go part-time before 40 and live off it initially while reinvesting all earnings until 50 or so.

When we fully retire we should be able to live off my share of profits from the company I'm building, and rent from our properties. It's quite realistic to expect $1-2k from the former and at least as much from the latter.

Dividends will be our fallback, and a full 4% WR would be the worst-case scenario. I would rather let the retirement accounts snowball to $10M+ and leave it all to a worthy cause. But it's there if we need it.

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 7898
Re: How do you plan to live off your investments in a practical sense?
« Reply #21 on: September 02, 2015, 02:51:27 PM »

Villanelle

  • Magnum Stache
  • ******
  • Posts: 4060
Re: How do you plan to live off your investments in a practical sense?
« Reply #22 on: September 02, 2015, 03:46:13 PM »
We expect the bulk of our money to come from a military pension.  We hope to have several rentals running at that point as well.  And there may be part time work of some kind.

Beyond that, our very loose plan right now is to simply sell stocks quarterly, which with think is often enough to adjust as needed, but not so often as to be major pain.  By then, I will probably have streamlined our investments into only a few funds, so there shouldn't be a ton of decisions or balancing involved.  If things are streamlined enough, I'll set up an auto-withdraw monthly (or even twice a month) that covers anticipated living expenses plus a cushion, and then just tinker as needed if we have a spendy few months or if we are building up a surplus in the checking/savings. 

kiwigirls

  • Stubble
  • **
  • Posts: 172
Re: How do you plan to live off your investments in a practical sense?
« Reply #23 on: September 02, 2015, 03:49:51 PM »
From an NZ perspective I would probably hold 2 years expenses on term deposit ( ladder them so they mature each quarter).  It is still possible to get 4% on deposit which is OK.  You will need to sell down shares each quarter to replenish the cash supplies (4*$30 so overall expense is only $120pa).  By having 2 years on term deposit it means you don't have to sell on the down market ie when the market is like this don't cash out and wait for the market to recover and then take out a larger tranche next quarter or the quarter after.

It also depends on where your money is invested.  If you have rental pty that will give you a 5% return so will fund your retirement from the rent, if you are invested in NZ shares and REIT with good dividends that stream will fund most of your income as our shares typically pay higher dividends.  You might only need to sell shares once a year under those scenarios to top up your cash.  Whereas if you are invested heavily offshore you will need to regularly sell down the portfolio to get income to live.
 

kiwichick

  • 5 O'Clock Shadow
  • *
  • Posts: 69
Re: How do you plan to live off your investments in a practical sense?
« Reply #24 on: September 02, 2015, 04:15:19 PM »
Here is a good (Canadian) article on the topic. RRSP is the Canadian equivalent of 401k.

http://www.moneysense.ca/retire/a-better-way-to-generate-retirement-income/

This is a really good article, especially with the practical example they give. Saved for future reference.

Personally I'm not a fan of real estate investing (besides buying my own home when I'm not planning on moving around, just to avoid paying ever-increasing rent). Mostly because I don't like dealing with people. :-) I think for me, it'll be a combination of dividends + capital withdrawal. Not just for retirement, but also to fund periods of non-work or low-paid work during my working life (e.g., periods of long-term travel, or to supplement income while studying, or working low-paid post-doc positions). If I get to where I want to be, I may never fully retire if I love what I do.

Mark31

  • Stubble
  • **
  • Posts: 196
  • Location: Australia
Re: How do you plan to live off your investments in a practical sense?
« Reply #25 on: September 02, 2015, 05:40:44 PM »
Dividends, with top up from selling shares/units.

The plan would be to keep two years expenses in term deposits, topping up every six months if the market has gone up, or deferring to the next 6 month period if the market has gone down.

Iíve run the numbers using historical data on this approach for Australia, and it makes the 4 % rule more likely to succeed. It smooths out the spikes, albeit up as well as down.

Bearded Man

  • Handlebar Stache
  • *****
  • Posts: 1138
Re: How do you plan to live off your investments in a practical sense?
« Reply #26 on: September 02, 2015, 05:45:27 PM »
Currently plan on living mostly off rental income from two rental properties, and cashing out others to fund a mix of index funds and dividend stocks, not to mention a bit of Google, Microsoft, Amazon, Apple, etc.

Left

  • Handlebar Stache
  • *****
  • Posts: 1157
Re: How do you plan to live off your investments in a practical sense?
« Reply #27 on: September 02, 2015, 11:14:35 PM »
just curious, I know I said dividends but I don't know if they are "real" dividends in how people think of them.

But do you guys call bond interest dividends too? Or do you mean the strict dividends, and invest in dividend paying stocks?

When I said dividends, I meant the 1-2% from total stocks + bond payments. I also have some money in a put etf, which I consider "dividends" since I don't know what else to call them.

Kalergie

  • Stubble
  • **
  • Posts: 221
Re: How do you plan to live off your investments in a practical sense?
« Reply #28 on: September 03, 2015, 02:33:47 AM »
But do you guys call bond interest dividends too? Or do you mean the strict dividends, and invest in dividend paying stocks?

I can only speak for myself but I would count interest and dividends as one and the same. and call them distributions, income or yield. Although, I must add that dividends and interest are not the same from a tax perspective. But that's another topic I think.
« Last Edit: September 03, 2015, 02:36:35 AM by Kalergie »

Sparty

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: How do you plan to live off your investments in a practical sense?
« Reply #29 on: September 03, 2015, 11:01:11 AM »
I'll live off my dividends [hoping to get it to $1k/month] from my taxable account first (since they are already taxed, I'll use them). I then plan to rollover about $30k/year from 401k to roth ira. At which point, if I need more money I'll take it out of roth ira. If I need more than the 40k (rollover+dividend), I'll sell my stocks in my taxable account. All money is today dollars, not sure what inflation will do to this part of my plan :D

I know this isn't very tax efficient but I need a way to roll money from 401k to roth. I suppose I could just do a roth 401k but I gain more from a 401k at the moment.

When I hit 50, I'll draw on a small foreign annuity that grandparents bought for me (everyone in family has one, it was like a "being born" present, I'll also "reinvest" part of it into the next generation of family members), at 60 I'll draw on a pension (won't be large since I plan to be retired by 45 so won't have too many years into it, 15 years?), at 70 I'll draw on social security. And by the time 70 hits, I hope I will have most/all of the money out of the 401k and into roth or else the minimum distributions will be taxed a bunch.

this will all be in the future though, to get to the point of $1k/month dividends, I need to work another 15-20 years. I could always just give up on this number and go early, but while I enjoy my job I see no reason to "rush" it. It'll happen when I get tired of working I suppose but until then , it's just all plans and planning.

If you don't mind me asking what dividend stocks are you holding? I started out as a dividend growth investor but have been more focused on Vanguard ETFs as of late. I still own and am reinvesting dividends in JNJ, PG, O, WFC, and AAPL.

zephyr911

  • Magnum Stache
  • ******
  • Posts: 3620
  • Age: 42
  • Location: Northern Alabama
  • I'm just happy to be here. \m/ ^_^ \m/
    • Pinhook Development LLC
Re: How do you plan to live off your investments in a practical sense?
« Reply #30 on: September 03, 2015, 11:36:33 AM »


If you get there I am worthy! ;)
Hahaha... BTW, if you haven't noticed, MMM has hinted in more than one place that he's planning on something like this.

WRT dividends: I have some dividend stocks yielding 4-6% or ~$200/mo. While I don't plan on buying more, these alone could be expected to push out $4-600/mo by the time we retire.



If you don't mind me asking what dividend stocks are you holding? I started out as a dividend growth investor but have been more focused on Vanguard ETFs as of late. I still own and am reinvesting dividends in JNJ, PG, O, WFC, and AAPL.
I don't really count AAPL as a dividend stock... it's on par with the S&P average last I checked, innit?
I have about $30K worth of HASI, $7K each in SO and PEGI. I'm holding (and reinvesting dividends) maybe $3K in AAPL.
« Last Edit: September 03, 2015, 11:38:37 AM by zephyr911 »

Sparty

  • 5 O'Clock Shadow
  • *
  • Posts: 5
Re: How do you plan to live off your investments in a practical sense?
« Reply #31 on: September 03, 2015, 01:32:23 PM »
You are in correct in regards to Apple. I only included it because I am reinvesting dividends, but it doesn't qualify as a true dividend growth stock. I was hoping no one would call me out on that after I posted it ;)

2Birds1Stone

  • Walrus Stache
  • *******
  • Posts: 6389
  • Age: 1
  • Location: Earth
  • K Thnx Bye
Re: How do you plan to live off your investments in a practical sense?
« Reply #32 on: September 03, 2015, 02:11:49 PM »
Pull out 3-4% of my portfolio every year =)

From where will depend on allocation, need to rebalance, what part of an economic cycle we are in.

CanuckExpat

  • Magnum Stache
  • ******
  • Posts: 3008
  • Age: 38
  • Location: North Carolina
    • Freedom35
Re: How do you plan to live off your investments in a practical sense?
« Reply #33 on: September 03, 2015, 02:48:42 PM »
Here is a good (Canadian) article on the topic. RRSP is the Canadian equivalent of 401k.

http://www.moneysense.ca/retire/a-better-way-to-generate-retirement-income/

This is a really good article, especially with the practical example they give. Saved for future reference.

I really liked that article as well: It was clearly written, used real world data in the examples, and had good graphics to visualize the strategy and change in portfolio value over-time.

An approach like they illustrated is what I would be tempted to follow.

I should add a caveat: that approach is probably "non-ideal" based on historical data. They are talking about holding stocks, bonds, a GIC/CD ladder, and a cash buffer. It is intuitive, safe, and psychologically satisfying. However, based on past market data, you would probably be better off not holding the cash and GIC/CD ladder.

That said, I'm more then happy to give up a bit of theoretical returns for better sleep at night, but I wanted to point out that caveat since nobody else has.

Usually around here people are quick to point out the lost return of holding cash, and then someone will talk about holding 100% equities.. :)
« Last Edit: September 03, 2015, 03:02:16 PM by CanuckExpat »

YoungInvestor

  • Bristles
  • ***
  • Posts: 409
Re: How do you plan to live off your investments in a practical sense?
« Reply #34 on: September 03, 2015, 03:04:37 PM »
Purely dividends and distributions for me.

Ideally 85% of what I actually receive, so as to give myself some buffer and growing income from raises/ reinvested dividends.

Yes there's a huge margin of safety built into that plan.

Gone Fishing

  • Magnum Stache
  • ******
  • Posts: 2836
  • So Close went fishing on April 1, 2016
    • Journal
Re: How do you plan to live off your investments in a practical sense?
« Reply #35 on: September 03, 2015, 03:15:32 PM »
Direct all taxable dividends to checking account.  Draw down taxable investments as needed.  Use available tax space to convert Traditional IRA/401(k) to ROTH as able.  When taxable investments are exhausted, start drawing down ROTH contributions, continue to convert Traditional assets as able.  If ROTH contributions are exhausted prior to 59.5, execute 72(t).

My Own Advisor

  • 5 O'Clock Shadow
  • *
  • Posts: 71
  • Location: Canada
    • My Own Advisor
Re: How do you plan to live off your investments in a practical sense?
« Reply #36 on: September 03, 2015, 06:19:02 PM »
Purely dividends and distributions for me.

Ideally 85% of what I actually receive, so as to give myself some buffer and growing income from raises/ reinvested dividends.

Yes there's a huge margin of safety built into that plan.

I like your thinking.  Once you have enough invested to live off dividends or distributions (ETFs, REITs), you can safely call it a day.

okonumiyaki

  • Stubble
  • **
  • Posts: 181
Re: How do you plan to live off your investments in a practical sense?
« Reply #37 on: September 03, 2015, 06:50:04 PM »
At the moment plan is a ladder of short term bonds, refilled every year by rebalancing from an equity pool.  So maturing bonds = that year's spending

Don't want to hijack your thread kiwichick but can you elaborate on this okonumiyaki or provide a link?  Sounds very interesting - Thanks!

It's nothing impressive.

I will probably retire to a country with a fairly volatile exchange rate.  (Indonesia)  So the plan is:

12.5% of laddered local (Rupiah) bonds, basically 2.5% a year.
12.5% international bonds
75% international equity.

Every year, rebalance between int'l bonds/ equity, and put 2.5% of net worth into a 5 year local bond.

Spend the interest from the local bonds (c.8% at the moment) and the maturing bond.  Equivalent to a drawdown rate of 3.3%.






Left

  • Handlebar Stache
  • *****
  • Posts: 1157
Re: How do you plan to live off your investments in a practical sense?
« Reply #38 on: September 03, 2015, 07:45:04 PM »
If you don't mind me asking what dividend stocks are you holding? I started out as a dividend growth investor but have been more focused on Vanguard ETFs as of late. I still own and am reinvesting dividends in JNJ, PG, O, WFC, and AAPL.
I asked earlier what people considered dividends, for myself it would be interest from G fund, VTI, VXUS and my put etfs HVPW and PUTX.

I don't have much in the put etfs but since I use g fund as my bonds, I figured I could try puts in taxable. Yes the expense fee and poor tax treatment isn't good but so far I am happy with them in place of bonds for stock down turns. So far the hvpw put returns about 30 cents per share, so I just use that figure to find how many shares I need to hit my goal. I do the same for the G fund. I try to keep it at 80% stocks and everything else I treat as fixed income. No rentals yet, maybe in future and I will toss that into the fixed income too. Like I said I have an annuity and pension later in life so I could go heavier into stocks but I like the 80/20 how I have it since I don't want to plan FI with them and find out the payout is lower than planned.
« Last Edit: September 03, 2015, 07:52:00 PM by eyem »

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5942
  • Age: 36
  • Location: Seattle, WA
    • My blog
Re: How do you plan to live off your investments in a practical sense?
« Reply #39 on: September 03, 2015, 10:53:45 PM »
Purely dividends and distributions for me.

Ideally 85% of what I actually receive, so as to give myself some buffer and growing income from raises/ reinvested dividends.

Yes there's a huge margin of safety built into that plan.

I like your thinking.  Once you have enough invested to live off dividends or distributions (ETFs, REITs), you can safely call it a day.

You can safely call it a day long before your dividends pay all of your bills. The 4% rule works. Go with 3% if you're really worried about the next few decades being the worst ever. Refusing to consider retiring until the 2% dividend yield from your index funds pays your bills is just wasting your time on extra working years that will add almost nothing to your odds of retirement success.

There's nothing at all magical about dividends. Some companies pay them, others don't. Companies that pay dividends convert part of your investment to cash and give it to you on a quarterly basis. Companies that don't pay dividends let you decide when to liquidate your investment. That's the only difference.

NorCal

  • Pencil Stache
  • ****
  • Posts: 888
Re: How do you plan to live off your investments in a practical sense?
« Reply #40 on: September 04, 2015, 12:00:43 PM »
At the moment plan is a ladder of short term bonds, refilled every year by rebalancing from an equity pool.  So maturing bonds = that year's spending

Don't want to hijack your thread kiwichick but can you elaborate on this okonumiyaki or provide a link?  Sounds very interesting - Thanks!

Here's a good book on strategies to do this.  The book has some well thought out draw-down strategies.

http://www.amazon.com/ASSET-DEDICATION-Wealthy-Generation-Allocation-ebook/dp/B001E5W2I8/ref=sr_1_1?ie=UTF8&qid=1441389519&sr=8-1&keywords=asset+dedication




« Last Edit: September 04, 2015, 02:44:16 PM by NorCal »

RyanAtTanagra

  • Handlebar Stache
  • *****
  • Posts: 1221
  • Location: SF Bay, CA
Re: How do you plan to live off your investments in a practical sense?
« Reply #41 on: September 04, 2015, 07:09:09 PM »
By having 2 years on term deposit it means you don't have to sell on the down market ie when the market is like this don't cash out and wait for the market to recover and then take out a larger tranche next quarter or the quarter after.

People mention this a lot.  Do the numbers back this strategy up?  What happens if this year the market is down 10% so you draw down cash, but then next year it's down 20% so you have to sell even lower.  Isn't it just another form of timing the market, only with withdrawals instead of purchases?

I'm thinking of this as a completely separate issue than that of having excessive unproductive cash sitting there, which has already been proven to reduce the success rate compared to having them invested.