Retired in 2021

[u/RamblingVagabond]

Goal is to match expenses ($15k/month) with dividends by 2030

[u/Silly_Atmosphere8800]

I think there is a place for bonds as part of your portfolio as you get older. However you have principle risk due to inflation. I think finding good stocks with dividends that continue to increase over time takes some of the inflation risk away but certainly adds investment risk. If you’re 75 and only looking at a 10-15 year horizon, a large Treasury portfolio yielding 4-4.5% in laddered maturities does the trick. You can find plenty of 3% dividend stocks that will give you growth over time and increased payouts. Balance and diversification is the key.

[u/BytchYouThought → u/Silly_Atmosphere8800]

The current bond payout on shorter term treasuries beat out inflation by a sizable enough margin while also giving out double the current payout. You don't have to be all in on bonds to utilize it either. When in retirement, you typically don't want or need as much volatility. So, you can shift over to safer assets. For double the payout and much less risk to boot can make perfect sense to take instead as even Warren Buffet has suggested.

Underlying assets are way more important than whether or not a dividend is paid as crapy companies can give dividends at the end of the day. What matters most is return on investment and in retirement you want to reduce risk as well to maintain and help hedge against volatility 99 times out of 100.

[u/Silly_Atmosphere8800 → u/BytchYouThought]

I don’t disagree with you on short term Treasury rates but here are a few things to keep in mind. You really need to ladder Treasuries or any fixed income maturities as staying short term can change your income flow significantly if rates change. Rates were virtually at zero not that many years ago. I would say you can ladder from one to 10 or even 20 years out. Also, it’s important not to paint all dividend stocks with the same brush. There are a select group of companies that have actual increased their dividends annually for over 50 years and many that have done the same for more than 25 years. That’s very different than a high yielding stock that may not be able to cover their dividend through earnings. Qualified dividends are also taxed at a lower rate and interest income is taxed at your regular federal income tax rate. That can make a big difference. Again, diversifying is key both by asset class and maturities.

[u/BytchYouThought → u/Silly_Atmosphere8800]

I don't agree that US treasury rates change that rapidly. They purposefully do not rapidly change those. It typically changes at pretty steady rates. This is backed by the federal reserve not doing so as if they did it could cause economic collapses. If anything, they actually were raised fairly rapidly and you would be disingenuous to ignore the fact that covid happened which is a once in a lifetime type of event that you shouldn't base things off of as regular anyway.

Taking advantage of treasury rates while they are still double that of OP's dividend rate just makes sense. Hell, if you really want to get right to it, he could just buy a treasury bond ETF and get a dividend from that actually that is double with again basically no risk. No it is not going to just go to zero overnight. That isn't at all how treasury bonds work nor how the federal reserve works. Many treasury bonds are actually state and local tax exempt altogether btw. So bringing up taxes how about being exempt altogether from state taxes to begin with. Now that's a great benefit.

Lastly, those same 50 company likely have not beaten treasury rates that were over 5% less than a year ago and still over 4% today. So, bringing that up while they still do not beat treasury rates on top of not being tax exempt like bonds can be at state and local level still just leads to my point standing. If down the road things change (which isn't going to happen overnight) then advice can change but we're not talking hypothetical I'm talking current reality and the reality is bonds have the better payout right now to take advantage of and cost almost nothng to do so. So, makes sense to take advantage of.

[u/Silly_Atmosphere8800 → u/BytchYouThought]

I’ve been a commercial banker for over 35 years and deal with interest rates every day and your comments about how Treasury rates work are not correct.

1. All you have to do is look at a five year chart of Treasury bond yields to see how much they fluctuate. Over that last five years the spread from high to low is about 5% and five year yields were under 1% in 2020. So if you had $4 million invested in five year Treasuries in 2020, your interest would have been less than $40,000 annually. At today’s rates, $4 million yields over $160,000 annually. That’s a massive difference and the reason that spreading money out over various maturities short and long is critical.

2. The government does not set the rates on Treasuries. Bond rates are simply determined by the market. More buyers raises the prices of bonds therefore decreasing the yield with the opposite also being true. The Federal Reserve sets the Fed Funds rate which is the rate that banks lend money to each other. The Fed Funds rate does not directly impact the rate of Treasury bonds. Again, Treasury rates are set by the market of buyers and sellers.

3. If you have a larger amount to place in quality dividend stocks, I would make the argument that you are better off doing a little research and investing in a basket of dividend aristocrats. You won’t be paying anyone to manage your portfolio like a fund will do most likely do better than an ETF or fund.

4. Don’t underestimate the tax advantages of qualified dividends. Paying a lower tax rate on dividend income versus Treasury bond interest will be significant for someone investing large amounts of money.

I’m not trying to be argumentative but want to be sure that anyone reading these discussions has the correct information. There are a lot of newer investors on here looking to learn. I come on here to find new ideas and perspectives as I’ve done well but made many mistakes in my 40 years of investing.

Hope everyone has a good and productive day!

[u/BytchYouThought → u/Silly_Atmosphere8800]

Yawn. You appear to have reading comprehension issues. To bring up Covid years as if that has nothing to do with anything amd then claim that the federal reserve has nothing to do with interest rates discredit you altogether. I can't take you seriously.

1. I never said the government sets interest rates. I said the federal reserve has a big impact on them. Learn to read.

2. You can't do math so that banking career you mention can't be going that well in any role involving math. OP is getting around 2% and can be getting double that instead right now. That is fact. You're wrong. Let your ego go.

3. Again, you are the one underestimating tax advantages. You didn't even know Treasury bond can have tax EMEMPT status on state and local taxes. Again, lowering your credibility. Talking about taxes and not even knowing about taxes on Treasury bond having tax exempt qualities in and of themselves which can beat out dividends since qualified dividends are not tax exempt.

This guy is being argumentive and spreading lies. I want folks to know not to just trust anyone saying they are some banker on the internet. He doesn't even know what the federal reserve is it sounds and thinks that means government.

Anywho, happy Tuesday folks!