We are now in the income phase of portfolio management, partially (or totally) withdrawing each month from the available settled cash from earned dividends *only* (leaving all positions and principal untouched, except for trading activity)!
As of March 1st, I have decided that all stocks will be DRIPped, except stocks showing a 10% (or more) decline in value (AI, ANCX, CNMD, CNSL, DRAD, HTBK, MORL, NRE, NRF, NRZ, NTRI, NWL, NYMT, ORC, PULB, SPTN, WSTG), until they show an increase in value (over 0%). (No sense putting money into a losing position). Part (or ALL) of the cash in our accounts will be withdrawn each month on an ‘as needed’ basis.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 4 spreadsheet.
Projected checkbook balance for the end of the current month should now be at least $5,000.00 – $10,000.00 but if it’s not within that range then the dividend reinvestment and withdrawals 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 or 4 months in advance should provide a reasonable level of financial security, all things considered.
- Monthly withdrawals from available (i.e.; settled) cash will be taken.
- Monthly withdrawals are subject to a minimum withdrawal of $10.00 (imposed by fidelity, no limit is imposed by the joint account).
- Withdrawal amounts were decreased due to DRIPping the dividends instead of withdrawing the cash.
- 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.
- Monthly withdrawals will only be scheduled on the first of each month or on an ‘as-needed’ basis.
- Starting 9/1/15, ALL available cash will be withdrawn from each tax-advantaged account until checkbook balance is satisfactory.
- Starting 9/1/15, the taxable account is the only account making additional investments exclusive of dividend reinvestment.
So, based on the amount of 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 warranted, then I will base it on the checkbook balance at the end of the current month. If no withdrawal is warranted, then I will base it on the checkbook balance at the end of the following month. This procedure will also determine if I should make a deposit to the taxable account instead. This could (and did, and probably will again) change…
In my IRA account, I will withdraw 0% of the average monthly dividends this month, or $0.00 for a net deposit. (There was a withdrawal of $45.32 on 2/2, leaving $50 in the account that was transferred to our joint brokerage, reflected on the tradelogs as PandAjoint, which was re-named from Computershare. Future cash will be allowed to accumulate for either withdrawals or investment.)
In my wife’s IRA account, I will withdraw 0% of the average monthly dividends this month, or $0.00 for a net deposit. (There was a withdrawal of $50.22 on 2/2, leaving $50 in the account to keep it open in case we want/need to undo any of the Roth conversion in the future. The $50 will also cover Fidelity’s fee to close the IRA if the conversion stands.)
In our joint brokerage account, I will withdraw 0.00% of the average monthly dividends this month, or $0.00 from the account. (There will be no withdrawals from this account until 4/1/16 at the earliest.)
In my Roth IRA account, I will withdraw 110.78% of the average monthly dividends this month, or $359.53 for a net deposit.
In my wife’s Roth IRA account, I will withdraw 100.85% of the average monthly dividends this month, or $393.98 for a net deposit.
Any cash left in the Fidelity accounts will be allowed to accrue for any upcoming stock purchases and/or withdrawals (except for my wife’s IRA account which will have a balance of $50 to cover Fidelity’s fee to close the account). I am ‘setting aside’ 8.33% in each of the other accounts to cover any upcoming investments, and plan to increase this percentage quarterly. 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 4 spreadsheet, published weekly on Saturdays. Withdrawals will only be taken as needed. This is subject to change as necessary.
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 YTD withdrawal history (as of the last posting);
Expected Dividends part 4
When enough of a ‘surplus’ (i.e.; ~$5,000.00 – $10,000.00) 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. There will probably not be any RMDs for my wife’s IRA because I plan to totally convert her holdings to her Roth IRA this year.
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.
UPDATE: January 1st, 2016 Partial conversions to our Roth IRAs have been initiated on 12/31/15 from our IRA accounts. CYS & ORC positions have been rolled over, and AGNC positions will be next, followed by NYMT and then AI. I also plan to convert my CNSL holdings to my Roth IRA this year, and I also plan to totally convert my wife’s holdings to her Roth IRA this year. I still have a few years to go before RMDs are required and will most likely convert 1 of the 7 remaining holdings in my IRA each year starting in 2017.
This plan will provide the necessary augmentation of social security to allow us to live quite comfortably on a minimum 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 money will 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)!
But, as I always say; “Hindsight is 20/20, foresight not so much.”