So, I have been plotting a retirement. If everything is paid off, and you have say, $500k in mutual funds etc, is there any reason not to put it in a fund like PRT or EFC or something and just live off the dividends?
Retirement investing...
- Thread starter Ws6
- Start date
First step is a financial plan.
Financial advisors can be hit or miss. I'm not advocating for or against them but either way it would be wise to take the time to educate yourself. Lots of information is at your fingertips and only you truly have your best interests at heart.
Last edited:
Is there any reason not to?
Sure, I can think of several reasons not to. First, I can’t find the funds so it’s hard for me to even figure out what you’re talking about. Most dividend funds pay on the order of 5%, so, you’re cool with a $25,000 a year income? I mean, sure you get your debt paid off, but that’s not a lot of room.
Financially, from an investment perspective, you’re not diversified at all, you have all your eggs in one basket, and if dividend stocks get hit, not only does your nest egg lose value, but then you start losing some of your income.
I think the whole plan is just a gross oversimplification of how you should approach retirement.
JHZR2
Staff member
Royalty trusts? Finance? What if one or a bunch go out?
$500k just isn’t a lot of money. It looks like these are paying 10% ish currently… Pulling a 10% div from a company or companies, nets you $50k of “income”. Not a lot, and seems to concentrate you into chasing dividends.
The comment on a financial planner is solid. Nobody knows what else you have in terms of assets/long term income. That all comes into consideration too.
$500k just isn’t a lot of money. It looks like these are paying 10% ish currently… Pulling a 10% div from a company or companies, nets you $50k of “income”. Not a lot, and seems to concentrate you into chasing dividends.
The comment on a financial planner is solid. Nobody knows what else you have in terms of assets/long term income. That all comes into consideration too.
There are some good stocks for retirees out there. One, Realty Income (O) pays a monthly dividend and has been increasing their dividend for years. Others might be Chevron, Prudential, Proctor and Gamble and Emerson Electric. But you should review your thinking with a professional.
Retire is the plan. As soon as possible.
I could easily live on $50K a year in my area once I pay everything off. Could live well, even. That said, I agree with the fear over it being tied up in a single asset.
If I were to choose a more conservative plan, such as a vanguard mutual dividend fund, it would be 25k a year. Or Id need about $1M for 50-75k.
I tend to approach things very simply, and once I begin sorting them, the details become clear and I refine the approach. I do not go to cut down only black walnut. I go to log a forest...and once my axe and I arrive and the market is reviewed, it turns out I only harvest the black walnut. So to speak.
It's a concept. I refine concepts into plans into actions into pathways to results. This is part of the process, albeit a very very initial part. Criticism is welcome and fine. It's all part.
If you need $50,000 a year, even in a dividend fund, you’re gonna need a lot closer to $1 million invested. Probably closer to about 1.2 million.
This isn’t magic, and there’s no free lunch.
Every single dividend stock fund pays a certain percentage, but you’re ignoring the fact that the net asset value of the fund goes up and down - when it does, so do the dividends.
So, you invest your hypothetical $500,000 in a dividend stock fund, one that pays 6%, so you get $30,000 a year, until dividend stocks fall out of favor, the net asset value on the stock takes a huge hit, call it 20%, as has happened in recent history.
Now, your portfolio is $400,000 and you are only getting $24,000 next year.
In order to account for those kinds of fluctuations, you need to be looking at much closer to a 4% return, and if you wanna live on 50,000, you’re gonna need 1.25 million.
Last edited:
- Joined
- Jul 18, 2022
- Messages
- 394
How old are you? How long do you plan to live off the next egg? Any SSI? Are the assets in a tax sheltered account? Do you already max out roth, hsa Etc. ?
This gets complicated and simplifying is good but also leaves alot on the table or open to risk.
Based on the info given. Probably the first actionable thing you can do is adjust your holdings based on your risk level. Which, given you want to retire soon. Should be very low as capital preservation is a priority.
And this even gets complicated becuase you could trigger a bunch of taxes by selling and buying a large amount.
This gets complicated and simplifying is good but also leaves alot on the table or open to risk.
Based on the info given. Probably the first actionable thing you can do is adjust your holdings based on your risk level. Which, given you want to retire soon. Should be very low as capital preservation is a priority.
And this even gets complicated becuase you could trigger a bunch of taxes by selling and buying a large amount.
Keep in mind $50k doesn’t go very far if you are buying health insurance in the marketplace until you qualify for Medicare.
A diversified portfolio should historically allow you to pull 3% per year safely for your lifetime. Work backwards from that, so $50k needs $1.67M. Maybe you can draw 5% as Social security will hopefully make up some of the difference later on. Putting all your savings in a dividend fund is far riskier. You may need less money if it averages 6% but the possibility you eat cat food for a few years is much, much higher.
Edit-morning math.
A diversified portfolio should historically allow you to pull 3% per year safely for your lifetime. Work backwards from that, so $50k needs $1.67M. Maybe you can draw 5% as Social security will hopefully make up some of the difference later on. Putting all your savings in a dividend fund is far riskier. You may need less money if it averages 6% but the possibility you eat cat food for a few years is much, much higher.
Edit-morning math.
Last edited:
A good plan is to plan for the unplanned, because that's what happens most, if not all of the time. I.E., someone crossed the center line and hit my wife head-on. Now, even simple plans to tour the U.S. in retirement are affected. Hiking, bicycling........nope. Adapt, adjust (plans), and move on.
Wishing everyone a good start to the work week (or, retirement bliss!).
Wishing everyone a good start to the work week (or, retirement bliss!).
Last edited:
In all honesty, there are plenty of investment post on this site. Of any topic we can speak about, this is the one in my opinion that should be off limits because it can actually impact ones life & well being more so than politics and religion.
Spend some time on bogleheads.org. Read some of the basic books. Maybe post on their forum. Dividend stocks funds for an entire portfolio may not be the best use of your nest egg.
If PRT is PermRock Royalty Trust, an investor in oil and gas properties, and EFC is Ellington Financial, a REIT, a reason the yields are so high is that the net asset value of their shares have been in decline. The expression "catch a falling knife" would apply here -- if the stocks are undervalued at this point, they might offer investment opportunities. I wouldn't go in to buy and hold, though. Considering that both stocks are out of favor, I'd be concerned that the dividends might be at risk. There's a reason why investors are running away.
Similar threads
