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Bond Funds in retirement: Reinvest distributions or take them in cash?
Let's say you are planning to take 4% out of your bond funds every year. Is it advantageous to reinvest the dividends and then take the 4% or, take the dividends in cash and take out the balance to meet the 4%?
Well, consider this, maybe: I'm retired, wife's not. (That's how we can make expensive Hawaii work for us.) 4% is the figure that might work for us, as long as it amounts to the year's profit we remove from the portfolio, each January--- because, as long as the Market continues to rise, we'll make up that 4% and it will bring the portfolio back up to where it was, LAST January, before the withdrawal. So, we are not "spending down" the principal in the portfolio. I want to leave something behind. She's 19 years younger, and there is my son and her brothers to think about.
We're 36 stocks and 57 bonds and the rest in cash. That recipe is an aggregate of the fund managers' decisions. Of course WE are the ones who decided to be bond-heavy, now. We hold one equity fund (balanced, really) PRWCX, which comprises over 30% of our total. The fund is golden. It's closed, now. Because it's such a sizeable chunk of the portfolio, it produces profit in good years that's rather much higher than our other stuff. We take that 4% from THERE, not from our bond funds.
...WE might decide in days to come to begin to take the bond distributions and use them, but not yet. PRSNX RPSIX and PTIAX. I'm less than pleased with RPSIX, so on Friday last, I transferred a good chunk into PRSNX. These days, our monthly bond pay-outs amount to $300 in a good month. I want to keep growing that until it's worth much more. We have monthly automatic payments going into PTIAX. So we still re-invest all bond dividends. We take 4% (or so) yearly, but do not spend-down what's in the portfolio. We can have our cake and eat it, too.
Comments
We're 36 stocks and 57 bonds and the rest in cash. That recipe is an aggregate of the fund managers' decisions. Of course WE are the ones who decided to be bond-heavy, now. We hold one equity fund (balanced, really) PRWCX, which comprises over 30% of our total. The fund is golden. It's closed, now. Because it's such a sizeable chunk of the portfolio, it produces profit in good years that's rather much higher than our other stuff. We take that 4% from THERE, not from our bond funds.
...WE might decide in days to come to begin to take the bond distributions and use them, but not yet. PRSNX RPSIX and PTIAX. I'm less than pleased with RPSIX, so on Friday last, I transferred a good chunk into PRSNX. These days, our monthly bond pay-outs amount to $300 in a good month. I want to keep growing that until it's worth much more. We have monthly automatic payments going into PTIAX. So we still re-invest all bond dividends. We take 4% (or so) yearly, but do not spend-down what's in the portfolio. We can have our cake and eat it, too.