Do you necessarily need dividends and interest if you are willing to sell some assets as needed for spending needs?
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In my opinion yes - but my philosophy is to retain principal and grow earnings.
It works regardless of inflation - if you earn enough.
So if I was earning 4% and inflation is 8%, I’m behind.
But I make $100k and life costs $60k, as an example, I’ve now got $40k to buy more income and next year I’m at $61.6k.
Because I’m still working, I’m able to grow my income regularly.
So I’m not going to be worth as much as the person 100% in equities. Been there. Done that. Hard to sleep when the market plummets. My 401k is that way though so I’m getting those gains.
Even blue chips like Microsoft, Intel, Oracle, Toyota, UPS, etc plummet. They’ve come back. But you never know. Look at blue chip Carnival. Eliminated the nice 5% dividend and is 40% of what it was pre covid. Microsoft which I’ve owned since 1998 didn’t move at all for years. That causes worry.
It’s really risk tolerance.
But even if you have a 1-2% equity dividend, as you sell off securities to live, you are now reducing next year’s potential income.
In my mind, the goal is growing income. One cannot safely do this by spending down principal.
I know my net worth. I measure it 2x per year.
But far more important is how much passive income I’m earning.
And no matter what my net worth does, I need that income to keep growing.
I don’t have the wealth of the wealthy, but I invest like them. Even thieves like Bernie Madoff - he knew the market risks. Most of his personal money was in muni bonds. Ray Kroc was another. Bonds are what keep our country, states, counties, schools, cities etc growing. They also make these new shiny college dorms possible.
It’s not for all and everyone’s situation is different. But it’s for those who want near assurance and steady.
Back to your question - if you spend down and live long, you may run out of money. I ‘hopefully’ never will.
Thanks
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a good financial planner can provide proven strategies.
This! Sometimes the best way to save money is to spend money! We happily pay our financial planner. He is amazing, and he answers us within the day whenever we call him. Well worth the money.
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And there are many ways to invest for retirement. I’ve been in 100% aggressive growth posture for ever. But, as W and I get further into retirement I’m sure I’ll shift some IRA money into safer vehicles with various degrees of liquidity.
As I hear about changes in cap gain rates (44%, really??) it is increasingly clear that our brokerage account will need to sit on the sidelines. Happy that we don’t need those funds. They’ll all most likely just go to our kids.
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And it should go without saying… but I’ll say it for the folks new to retirement planning- there are NO silver bullets
And that whatever you planned initially needs to be reviewed on a very regular basis. Something done many years ago could very well not be the best plan now.
In terms of helping our elders plan, there has been an emphasis on reviewing their plan as things change over time. In my opinion, this is essential.
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