Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
When you retire and start to draw down your portfolio, regarding income producing securities, whether it be bonds or stocks, do you reinvest the dividends, and then sell shares, or do you take the dividends in cash, and sell less shares, or no shares at all?
@Soupkitchen: Regarding your portfolio retirement distribution question. I take all my fund distributions in cash and let them settle in the cash area of my portfolio. When I need a distribution I take it form this pool of money with the excess being held for new investment opportunity. My portfolio's income generation is such that I do not have to sell shares to meet retirement withdrawal needs. I ran my parent's portfolios this way and it worked well for them through their lifetimes. Since, I have been retired, for better than five years, this has also worked well, thus far, for me.
My rule of thumb is that I generally take no more than one half of what my five year average annual total return has equalled in dollars. In this way, principal grows over time. And, as my principal grows so does my distribution.
I've contemplated it-retirement, but at 65 I haven't pulled the trigger yet. But I have given plenty of thought to when I do. My thought for setting up withdrawals for when I do retire would be to have a cash bucket (MM, CD, maybe a short term bond fund) that held maybe 3 years of expenses needed. The rest of the pot would just be distributed in an overall risk-tolerant portfolio bucket. I've even thought about simplifying everything and just sticking the entire 'investment' bucket in a 60:40 robo (1/2 my savings are in one now and I've been satisfied so far). If done that way, the 2 bucket system, I would be more concerned about total return and not dividend income. But in saying that, it would probably be a good idea to have any income generated from the investment bucket not reinvested but go directly to that cash bucket to lessen the need for replenishment. In my case, the 3 year cash bucket would still need to be replenished periodically when markets are up. Investment income alone would not be enough to keep the cash bucket full.
Thanks for posting the question. I look forward to others responses.
Where is the money? taxable or IRA or in Rollover IRA and you need RMD? In IRA, reinvest the dist In taxable, 1) most investors dist are small than what they need to live on, in this case, let your dist go into cash 2) If your dist > than what you need you can reinvest the dist or use 2 funds instead of one with one fund paying what you need in dist to cash and the other fund to reinvest the Dist
As market grows and my 65/35 starts to creep closer to 70/30, I take my largest funds VOO and VDGIX and have dividends and cap gains go to cash, such as market we are in right now. When market falters, and equity portion goes lower, i reinvest.
Comments
My rule of thumb is that I generally take no more than one half of what my five year average annual total return has equalled in dollars. In this way, principal grows over time. And, as my principal grows so does my distribution.
I've contemplated it-retirement, but at 65 I haven't pulled the trigger yet. But I have given plenty of thought to when I do. My thought for setting up withdrawals for when I do retire would be to have a cash bucket (MM, CD, maybe a short term bond fund) that held maybe 3 years of expenses needed. The rest of the pot would just be distributed in an overall risk-tolerant portfolio bucket. I've even thought about simplifying everything and just sticking the entire 'investment' bucket in a 60:40 robo (1/2 my savings are in one now and I've been satisfied so far). If done that way, the 2 bucket system, I would be more concerned about total return and not dividend income. But in saying that, it would probably be a good idea to have any income generated from the investment bucket not reinvested but go directly to that cash bucket to lessen the need for replenishment. In my case, the 3 year cash bucket would still need to be replenished periodically when markets are up. Investment income alone would not be enough to keep the cash bucket full.
Thanks for posting the question. I look forward to others responses.
In IRA, reinvest the dist
In taxable,
1) most investors dist are small than what they need to live on, in this case, let your dist go into cash
2) If your dist > than what you need you can reinvest the dist or use 2 funds instead of one with one fund paying what you need in dist to cash and the other fund to reinvest the Dist
We always reinvest everything and then sell shares.