Related Posts
Conversation Starter
Anyone have a good tax person in Philly
Patient experience consultants? Are your here?
Top 10 books to read about consulting life ?
Additional Posts in FIRE Financial Independence Retire Early
Decided to payoff my mortgage.
New to Fishbowl?
Download the Fishbowl app to
unlock all discussions on Fishbowl.
unlock all discussions on Fishbowl.
Mentor
We built a high yielding dividend portfolio for a client last week… it’s expected yield was 5.2%… which was pretty solid… had a bunch of preferred stock and common stock…
Mentor
Another consideration, which I just thought about… if you build your dividend strategy inside of a Roth IRA, you pay 0% taxes… so a lot of the time it makes sense for your Roth to be your income producing portfolio, and your taxable brokerage growth oriented… this is one of the most tax efficient strategies which can add tax alpha…
Mentor
The general thought is this is unnecessary.
Funding retirement via spending dividends vs investment sales are effectively the same thing.
Mentor
If you build a solid dividend portfolio using companies with a consistent history of maintaining or increasing their dividends, you can create a relatively reliable income stream in most market environments… one that reduces reliance on portfolio drawdowns and mitigates longevity risk…
I have not investigated it in detail but seems like a tax-inefficient way to supplement your retirement income. Please note that most SWR academic calculations are made in a tax-free world (e.g. Bengen), and adding full income tax (not even the lower capital gains tax) to the equation has a huge impact.
Qualified dividends are taxed at the capital gains rate…
It can be worth it for diversification. But I reinvest the dividends everywhere anyway.
Coach
Depends where you’re based. In the US it’s not tax efficient to do so since it gets taxed at the same rate as earned income compared to capital gains.
Some countries don’t tax dividend income, so if you’re based in one of those - it makes sense to do so. I focus largely on dividend income since where I’m based we get taxed on capital gains, rentals and other forms of income but not dividends. I get about $380k in dividends annually from $6.1M invested and it’s all tax free, so it’s totally worth it to me. Plus dividends are more stable for me - with less frequent and lower fluctuations compared to the stockmarket. My investments could go up by +\~ 30% but my dividends only fluctuate by +\~5%. I also get paid every month so it’s psychologically comforting not to have to decide which stocks to sell every month especially if the stockmarket is volatile or down.
Mentor
A few reasons -
Living off dividends is a generally inefficient way of managing drawdowns. Using a total return strategy and some variation of the 4% rule is more efficient of managing your drawdowns
It can lead to chasing risky high dividend stocks and funds which are sometimes bad investments.
High dividend payers have significantly lagged high growth stocks the last 15 years producing lower returns. (This may not necessarily continue - but many folks have a bias towards growth)
Capital gains taxes can be managed and deferred. Dividend taxes cannot be
Coach
Listen to the Steven Bavaria episode of Thoughtful Money. He explains it in great detail. And yes, dividends are a significant part of my fixed income-centric portfolio. I am retired. https://open.spotify.com/episode/5g5QEKifz93XbIpCXwwC52?si=dl5GBd8ZSuq_AmgfvVNMEw
Supplementing on top of what? Are you drawing from your portfolio in retirement?