We are now in the income phase of portfolio management, partially withdrawing each month from the available settled cash from earned dividends *only* (leaving all IRA positions and principal untouched, except for trading activity)!
I have enabled reinvestment of dividends for shares held at Computershare ($PGH, $PGF.CA or PGF.TO) where I reinvest shares at 95% of the share price and I am taking part in their discounted OCP allowing me to purchase additional shares at 95% of the share price. This is a ‘lottery play’ on a Canadian oil stock. I have decided that all dividends paying less than $100 per quarter will be DRIPped (BGCP, DRAD, O, PGF.CA, PGH). All other dividends in our accounts will not be DRIPped, but will be added to the available cash. Part of the cash in our accounts will be withdrawn each month on an ‘as needed’ basis. The available withdrawal amounts are shown on the Expected Dividends Part (2 and/or 3) spreadsheet, published weekly on Saturdays.
Projected checkbook balance for the end of the current month should now be ~$5,000.00 (+-$1,000.00) but if it’s not within that range of 20% or so then the withdrawal amount(s) will need to be adjusted. Also, the next two month’s projected EOM balance will also be used to determine if adjustments are necessary. This will provide a greater ‘margin of safety’ and hopefully avoid any unpleasantness. I think planning up to 3 months in advance should provide a reasonable level of financial security, all things considered.
- Monthly withdrawals of 50% of available settled cash will be taken.
- Monthly withdrawals are subject to a minimum withdrawal of $10.00 (imposed by fidelity).
- Monthly withdrawals are subject to a maximum withdrawal of $1,000.00 (imposed by me).
- Withdrawal amounts were increased to 50% because our large summer expenditures were due.
- This should also lessen the number of withdrawals and hasten any needed recovery to our checkbook balance.
- In case our checkbook balance exceeds above limits, then a deposit to our joint account will instead be made.
- In this case, of course that also means there would be no withdrawals that month.
- Withdrawals were changed from weekly to monthly on 6/2, with the first monthly withdrawal on 7/1/15.
- Monthly withdrawals will only be scheduled on the first of each month on an ‘as-needed’ basis.
So, based on the checkbook balance at the end of the previous month would determine whether or not I should make a withdrawal on the first of this month. If no withdrawal is warranteed, then based on the checkbook balance at the end of the current month I would determine whether or not I should make a withdrawal on the first of next month. Based on the checkbook balance at the end of the following month I would determine whether or not I should make a withdrawal on the first of the month following that. This procedure will also determine if I should make a deposit instead. This could change…
In my IRA account, I will withdraw 21.76% of the average monthly dividends this month, or $199, with 33% of that amount ($65.67) withheld for federal taxes, leaving $133.33 for a net deposit. This is a sustainable amount, which still allows for accumulation of cash in the account to either withdraw or reinvest.
In my wife’s IRA account, I will withdraw 21.09% of the average monthly dividends this month, or $193, with 33% of that amount ($63.69) withheld for federal taxes, leaving $129.31 for a net deposit. This is a sustainable amount, which still allows for accumulation of cash in the account to either withdraw or reinvest.
In our joint brokerage account, I will withdraw 31.92% of the average monthly dividends this month, or $60 from the account. This is a sustainable amount, which still allows for accumulation of cash in the account to either withdraw or reinvest.
In my Roth IRA account, I will withdraw 26.02% of the average monthly dividends this month, or $37, with 33% of that amount ($12.21) withheld for federal taxes, leaving $24.79 for a net deposit. This is a sustainable amount, which still allows for accumulation of cash in the account to either withdraw or reinvest.
In my wife’s Roth IRA account, I will withdraw 38.08% of the average monthly dividends this month, or $125, with 33% of that amount ($41.25) withheld for federal taxes, leaving $83.75 for a net deposit. This is a sustainable amount, which still allows for accumulation of cash in the account to either withdraw or reinvest.
Any cash left in the accounts will be allowed to accrue for any upcoming stock purchases, but I plan on keeping an amount equal to 1 month of withdrawals available in each account to cover any upcoming withdrawals. The cash balance of each account and the amount available to invest (after deducting for withdrawals at current withdrawal rates) are shown on the Equal Weight spreadsheet. The available withdrawal amounts are shown on the Expected Dividends Part 3 spreadsheet, published weekly on Saturdays. Withdrawals will only be taken as needed.
This is not a permanent solution, however. I am only doing this until some of our monthly expenses are paid off, such as the furniture we bought when we moved here, and any other monthly expense that might be eliminated or reduced. I should probably mention that all loans with the exception of my 401k loans are/were at 0% interest, because I don’t like to pay interest, I just like getting paid interest (i.e.; dividends!). My 401k loan re-payments were simply added to my 401k balance, although I did pay ~3.25% premium for the privilege.
This is the time-frame with the reduction amounts;
Home Depot (patio furniture, etc.) – already reduced from ~$110/month to $83.50/month starting August, 2014.
My 1st 401k loan (incurred before I left work.) – already reduced from ~$520/month to $0.00/month starting October, 2014.
My 2nd 401k loan (incurred before I left work.) – reduced from ~$208/month to $0.00/month starting January, 2015 (paid off early).
NCL mastercard (we booked a cruise.) – reduced from $125/month to $100.00/month starting February, 2015.
NCL mastercard # 2 (10,000 point bonus and a $50 gift card.) – reduced from $200/month to $150/month starting February, 2015.
Disney Visa (6 months interest-free vacation financing) – reduced from $484.82/month to $264.00/month starting April, 2015.
NCL mastercard # 2 – reduced from $150/month to $0/month starting April, 2015.
Home Depot (patio furniture, etc.) – reduced from ~$83.50/month to $0.00/month starting May, 2015.
Kane’s Furniture (my wife’s La-Z-Boy recliner.) – reduced from $45/month to $0.00/month starting July, 2015.
Disney Visa (6 months interest-free vacation financing) – reduced from $264.00/month to $0.00/month starting September, 2015.
NCL mastercard (we booked a cruise.) – reduced from $100/month to $0.00/month starting August, 2015.
Rooms To Go (almost all of the furniture in our house.) – reduced from $250/month to $70/month starting January, 2016.
Rooms To Go (we bought a couple of pieces after the initial purchases.) – reduced from $70.00/month to $0.00/month starting November, 2016.
Putting it another way, we were paying about $1,258/month for these temporary expenses. This is the reduction schedule;
August, 2014 – $1,231.50/month
October, 2014 – $711.50/month
January, 2015 – $703.50/month (paid off 2nd 401k loan, added $200 for NCL # 2)
February, 2015 – $628.50/month
March, 2015 – $1,113.32/month (added brand new Disney Visa – 6 months interest-free vacation financing plus what we spent at the park that wasn’t interest-free)
April, 2015 – $893.00/month
May, 2015 – $659.00/month
July, 2015 – $614.00/month
August, 2015 – $250/month
January, 2016 – $70.00/month
November, 2016 – $0.00/month
This is the YTD withdrawal history;
Expected Dividends part 3
I rolled over my 401k into my IRA last year since the final 401k loan was paid off (I bought some more dividend stocks!). BTW, I do not recommend taking out any loans from your 401k. You contribute to it with either before-tax or after-tax money. I chose after-tax for my weekly contributions. Then I took out the loans. Each payment is after-tax, so in effect I was taxed twice on those loans! Not a good deal. Add to that the fact that I was fired in 2001 and had to withdraw the entire amount to make house payments, etc., and was taxed and also penalized for early withdrawal, I was doubly, and then triply penalized. I was re-hired in 2003, and maxed-out my contributions, but soon needed to take the loans. That was a huge mistake, but it was just one of many. So, avoid taking any loans or withdrawing early from your 401k at all costs!
When enough of a ‘surplus’ (i.e.; ~$5,000.00) has been accumulated in our checking account, the withdrawal amounts will be reduced starting with the IRAs (to reduce our tax burden). I foresee that the withdrawals from our IRAs might be just about completely eliminated sometime in 2015 or 2016. Then, we need to plan for my wife’s first RMD withdrawal in December of 2017, which should be totally covered by dividends for *at least* the first few years (she also has a TSA, which is not tracked as a part of the #HYHRD portfolio). My RMDs will start in 2024 and dividends will also totally cover the RMDs for *at least* the first several years.
Of course, we’ll still have our regular recurring monthly charges that will need to be paid, but the withdrawals from the IRAs and individual brokerages should cover that, and we are already taxed on anything that we make in our individual brokerage accounts.
This plan will provide the necessary augmentation of social security to allow us to live quite comfortably on a minimum income.
BTW, the cruise we booked is part of a larger vacation in which *at least* part of the airfare will be paid for with points earned and/or credits (Tampa-Boston) and the 1-day hotel stay in Boston (so we can rest up for the upcoming transatlantic flight) & 3 or 4-day stay in Paris (or Dublin) will also be paid for *at least* partially with points earned. We’ll be staying with family in London for ~1-2 weeks before the transatlantic cruise back to Tampa. And now we’ve booked an impromptu vacation at Disney World to be with some of our grandchildren and charged it to our brand new Disney Visa card so we’ll have 6 months to pay it off with no interest. That’s figured in with this update.
UPDATE: Seems the plan to enjoy 6 months interest-free financing on the vacation to Disney World was not to be. I charged some other expenses to the card while I was there. When I got back, I called customer service and asked how to avoid finance charges and was told to “simply pay what you charged plus the minimum balance due”, so I did. In fact, I paid a little more. Well, when I got the next statement I saw my ‘promotional balance’ had been reduced by the amount I ‘overpaid’ (above the minimum amout due). Well, I called again and again asked how to avoid finance charges and was again told to “simply pay what you charged plus the minimum balance due”, so I did, AGAIN. Not happy with this, I sent them an email and the reply they sent me said that I WOULD be charged a finance charge, and the ‘promotional balance’ had been reduced by the amount I ‘overpaid’ (above the minimum amout due) because I paid ‘too early’, before the charges hit the statement. This did not make me happy. I paid the full amount and filed a complaint with the BBB. I expect nothing to come of it, because this is a “Too Big To Fail” bank, after all. So, my checking account balance will show a slight hit due to this, but it should all work out within the previously expected timeframe. I’m still not happy, though.
We’ll still be making rather regular trips back to Boston to see our families, and might take other trips as well. For example, we would like to go up for a visit this summer, and possibly spend a week at a camp with our granddaughters. We’d also like to visit during Thanksgiving week. For the Thanksgiving trip we’d probably fly and rent a car and stay in a hotel, but for the summer trip we’d like our own car so a trip on the Amtrak Auto Train from Sanford, FL to Lorton, VA is in order, with an overnight stay at a hotel near Lorton, and another overnight stay near Wilkes-Barre, PA before reaching either our hotel or possibly staying a couple of days with friends. At any rate, we’d want our own car for that extended stay.
UPDATE: We booked our Thanksgiving week trip as well as our summer trip, and those charges should hit our credit card bills within the next month or two, adding to the hit on the checkbook balance slightly (by about $5k!). It should all work out by the fall, however. Also, I expect a tax refund so that will help offset the hit(s) to the checkbook balance.
UPDATE: (Yes, yet another update!) We booked a stay near our cousin’s because we were invited to their Passover Seder. Those charges should also hit our credit card bills within the next month or two, adding to the hit on the checkbook balance slightly (by about $200). Hoo, boy! Thankful for our dividend income!
We met with our tax advisor in mid-2014 and went over this plan. It got a glowing review. The tax advisor is happy, I’m happy, and (most importantly!) my wife is happy. I aim to keep it that way.
On 12/18/14, I performed a calculation of how long my will my money last with systematic withdrawals on the Mutual of Omaha website.
Here are my conservative assumptions (Current portfolio balance of $225,000, proposed monthly withdrawal amount of $1,300.00, annual withdrawal increases of 1.5%, annual before-tax return of 12%, Federal marginal tax bracket 15%, desired amortization schedule monthly);
(Current portfolio balance of $225,000 is actually higher, and doesn’t account for my wife’s TSA. Proposed monthly withdrawal amount of $1,300 is high, and is currently scheduled at $1,000 (except for January & February). Annual withdrawal increases of 1.5% seems about right, but is not scheduled at this time. Annual before-tax return of 12% is about right. Federal marginal tax bracket 15% is about right. Desired amortization schedule of monthly directly coincides with monthly withdrawals.)
Here are the results;
As you can see, our portfolio should more than quintuple in 30 years according to these results, even after withdrawals. I believe the rate of increase is actually under-estimated, and the portfolio should increase at a much higher rate.
Here’s the withdrawals:
The first 15 months;
and the next series of withdrawals shows a slight increase in beginning balance, annual interest, taxes, withdrawal amounts, and ending balance.
…and lots of withdrawals in between, from 33-342 months (not shown), which all show a slight increase in beginning balance, annual interest, taxes, withdrawal amounts, and ending balance.
So, after 30 years (the maximum shown on the website) of these monthly withdrawals, $225,000 turns into more than 1.2 million dollars. What am I going to do with all that money when I’m 90? Well, there are a couple of things on my list; an Excalibur Cabriolet for one thing. Gifts to the kids is another. I hope I don’t start watching Televangelists or voting for the GOP (or the Democrats, or Libertarians)!
So, how are we really doing? This will show the most recently available EOM balances for our retirement accounts (My wife’s TSA reports once a quarter).
But, as I always say; “Hindsight is 20/20, foresight not so much.”