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Dividends aren't enough to cover living expenses. If you plan to withdraw 4% per year, so you preserve your wealth indefinitely, you're more than 2 percentage

Dividends aren't enough to cover living expenses. If you plan to withdraw 4% per year, so you preserve your wealth indefinitely, you're more than 2 percentage points short when the dividend yield is 1.71% [1] If you want to live solely from dividends, you'll need more than double the capital. If you want to die with zero [2], it's impossible. I'd much rather invest in a dividend-accumulating index fund and sell as I please. [1] - https://www.multpl.com/s-p-500-dividend-yield https://www.multpl.com/s-p-500-dividend-yield [2] - https://www.goodreads.com/book/show/52950915-die-with-zero https://www.goodreads.com/book/show/52950915-die-with-zero

dot1x 4y ago
Seems like you agree returns would be even worse since you'd take out more than the dividend to survive.
- Dylan16807 4y ago
  Once you start selling off your assets, the """returns""" are worse, but equally so no matter what you invested in. It's better to leave that math out of the situation and look at the returns of the actual assets by themselves. Which includes reinvesting. If you really want to factor in the sell-off, then every dollar of dividend means one less dollar of sold stock. If dividends go higher than withdrawals for a year, then you need to buy more stock to compensate. So the math comes out the same. What you don't do is ignore dividends, or let excess dividends pile up in cash form. Which the original paper apparently did.
NovemberWhiskey 4y ago
You can absolutely die with zero: buy a life annuity and let someone else worry about the problem.
- ghaff 4y ago
  I think parent is saying that you can't die with zero if you plan to live off dividends. (Because you need to keep owning the stock throwing off the dividends.)
  - NovemberWhiskey 4y ago
    OK sure; same's true of bonds or CDs or any other asset type though no? The point is that "invest in equities with dividend reinvestment until retirement and then buy a life annuity" is a totally viable strategy. That's basically the way pension saving in the UK works historically, for example.
    - ghaff 4y ago
      Right. Life annuities may or may not be a good deal. But that's certainly the main way to not be essentially forced to pass on assets. (Modulo real estate you own and are living in.) And, as you say, defined benefit pensions basically work the same way--although, in the US, current ones are fairly uncommon outside public sector--although a lot of people still have them from years past. Just to add. Bonds and CDs do have durations though so you can essentially do your own actuarial calculations to a certain degree.
      - NovemberWhiskey 4y ago
        In the UK this is actually the typical pattern for defined-contribution schemes; I haven't looked recently but it used to be the case that you were legally required to buy an annuity with 75% of your tax-deferred retirement savings.
        ghaff 4y ago
        Interesting. I'm not sure how common annuities outside of defined benefit pensions are in the US. My impression is not very. I've noticed them mostly in the form of charitable trusts (which can offer the benefit of basically shielding large asset gains from taxation). But it doesn't seem to be a widely-used investment strategy in general. Maybe it's more common if someone doesn't have an interest in passing down any money.
        rgmerk 4y ago
        You’re not required to any more, but there are heaps of people on annuities there. I haven’t read anything about it yet but a lot of them must be in pretty awkward straits because most aren’t fully indexed to inflation…
gkuan 4y ago
It may be hard to imagine, but dividend yields were not always this low [1]. Investopedia has it usually something healthy over 4% up until 1990s it seems. Over that 1926- time frame, dividends are said to have contributed 32% of the total return of S&P 500 [2]. [1] https://www.investopedia.com/articles/markets/071616/history-sp-500-dividend-yield.asp https://www.investopedia.com/articles/markets/071616/history... [2] https://www.spglobal.com/spdji/en/research/article/a-fundamental-look-at-sp-500-dividend-aristocrats/ https://www.spglobal.com/spdji/en/research/article/a-fundame...
- user_named 4y ago
  US stocks are arguably overpriced leading to low dividend yields. In emerging markets you easily get 5-7%.

dot1x 4y ago

Seems like you agree returns would be even worse since you'd take out more than the dividend to survive.

Dylan16807 4y ago
Once you start selling off your assets, the """returns""" are worse, but equally so no matter what you invested in. It's better to leave that math out of the situation and look at the returns of the actual assets by themselves. Which includes reinvesting. If you really want to factor in the sell-off, then every dollar of dividend means one less dollar of sold stock. If dividends go higher than withdrawals for a year, then you need to buy more stock to compensate. So the math comes out the same. What you don't do is ignore dividends, or let excess dividends pile up in cash form. Which the original paper apparently did.

NovemberWhiskey 4y ago

You can absolutely die with zero: buy a life annuity and let someone else worry about the problem.

ghaff 4y ago
I think parent is saying that you can't die with zero if you plan to live off dividends. (Because you need to keep owning the stock throwing off the dividends.)
- NovemberWhiskey 4y ago
  OK sure; same's true of bonds or CDs or any other asset type though no? The point is that "invest in equities with dividend reinvestment until retirement and then buy a life annuity" is a totally viable strategy. That's basically the way pension saving in the UK works historically, for example.
  - ghaff 4y ago
    Right. Life annuities may or may not be a good deal. But that's certainly the main way to not be essentially forced to pass on assets. (Modulo real estate you own and are living in.) And, as you say, defined benefit pensions basically work the same way--although, in the US, current ones are fairly uncommon outside public sector--although a lot of people still have them from years past. Just to add. Bonds and CDs do have durations though so you can essentially do your own actuarial calculations to a certain degree.
    - NovemberWhiskey 4y ago
      In the UK this is actually the typical pattern for defined-contribution schemes; I haven't looked recently but it used to be the case that you were legally required to buy an annuity with 75% of your tax-deferred retirement savings.
      - ghaff 4y ago
        Interesting. I'm not sure how common annuities outside of defined benefit pensions are in the US. My impression is not very. I've noticed them mostly in the form of charitable trusts (which can offer the benefit of basically shielding large asset gains from taxation). But it doesn't seem to be a widely-used investment strategy in general. Maybe it's more common if someone doesn't have an interest in passing down any money.
      - rgmerk 4y ago
        You’re not required to any more, but there are heaps of people on annuities there. I haven’t read anything about it yet but a lot of them must be in pretty awkward straits because most aren’t fully indexed to inflation…

gkuan 4y ago

It may be hard to imagine, but dividend yields were not always this low [1]. Investopedia has it usually something healthy over 4% up until 1990s it seems. Over that 1926- time frame, dividends are said to have contributed 32% of the total return of S&P 500 [2]. [1] https://www.investopedia.com/articles/markets/071616/history-sp-500-dividend-yield.asp https://www.investopedia.com/articles/markets/071616/history... [2] https://www.spglobal.com/spdji/en/research/article/a-fundamental-look-at-sp-500-dividend-aristocrats/ https://www.spglobal.com/spdji/en/research/article/a-fundame...

user_named 4y ago
US stocks are arguably overpriced leading to low dividend yields. In emerging markets you easily get 5-7%.