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Retire Early
Lifestyle
Retirement; like your parents, but way cooler
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In 1991 Billy and Akaisha Kaderli retired at the age
of 38. Now, into their 4th decade of this
financially independent lifestyle, they invite you
to take advantage of their wisdom and experience. |
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Living off
Dividends or Selling Stock Shares - What Should I Do?
Q and A with a Reader
Billy and Akaisha Kaderli
Hello Billy & Akaisha,
Thank
you for sharing your experience with all.
I continue to enjoy many of your
articles.
My wife and I retired 4 years
ago, me 60, she 56. Now we
live in PalaU, Thailand.
I’ll try to make my question understandable, I
hope. I am invested, mostly in dividend paying stocks, and some bonds, and
also several diversified value funds, which pay lower dividends.
My way of
thinking, is that if I only withdraw my dividends (and possibly some capital
gains distributions if I need more), I will never deplete my number of shares.
I feel comfortable with this method.
S&P 500 Index return 1991 - 2025
But, when I think about an
alternative approach that you have been successful with - of using funds like an
S & P 500 - I know I would need to withdraw more than the 1.2% dividends in
order to have enough money to live on. So that means I would need to sell
some shares to do this. Even though you have proven it works and it can be
done, I can not get my mind to understand how selling my shares (shrinking my
share balance every year) makes sense.
I realize the share value
increases over time, but for some reason, I just can’t figure out how to feel
comfortable with investing this way.
I even believe that I would most
likely have a stronger portfolio performance with the S & P 500 method.
I
have a fear of seeing my share balance go lower every year.
Do you have
any illustrations that might help me and others grasp this proven way to provide
an income in retirement? I have never seen any articles anywhere about
this topic.
I would truly appreciate any help with this!
Jeff & Trina
11.226% Annualized Return since we retired
in 1991.
Hi Jeff and Trina,
Thanks for
your interest in our articles.
Regarding withdrawal methods
- If you are comfortable
with what you are doing and it’s working then leave it alone.
However, have you
factored inflation into your strategy? Inflation will slowly erode your
purchasing power over the years.
Perhaps your dividends will grow more than
inflation - or not - I do not know. If they do you will be in great shape. But if
they don’t you will be slowly going backwards.
Using the S&P 500 index as an
example,
it has historically grown about 10% - including dividends - per year.
If inflation is running at 3%
per year (the 70-year historic average), you have a
net return of 7% after inflation.
If
your spending is 4% or less,
then you have 3% to
keep in the market for growth.
The number of shares is not important. It’s the
share price that matters. You can have 50,000 shares of a 1 Dollar stock, or you
can have 1 share of a $50,000 company, you still have the same amount.
When we were
younger, we utilized reverse dollar cost averaging by selling shares as they appreciated
in value to cover our living expenses.
As we have grown older (but not up),
receiving
Social Security and having Required Minimum Distributions from
retirement accounts, we now do a combination of both.
Soon to be entering into our
36th year of financial independence and freedom from the workplace, our net
worth has grown out-pacing both inflation and our spending.
You have to be
comfortable with whatever you choose to do, just be sure you are covering
inflation creep.
Best of luck to you and enjoy Thailand.
Billy and Akaisha
Retire
Early Lifestyle appeals to a different
kind of person – the person who prizes their
independence, values their time, and who doesn’t
want to mindlessly follow the crowd.
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