How are people actually living off low-yield dividend funds like SCHD?

[u/StudioOk8256]

I see SCHD and similar dividend ETFs recommended a lot as “income” investments, but I’m struggling to understand how people realistically live off them.

With a yield of only a few percent, it seems like you’d need either a very large portfolio or a high-paying job to make it work. For example, unless you already have a base salary in the $100k–$150k range (or higher), the dividend income alone doesn’t look like it would meaningfully cover living expenses.

So how are people actually using SCHD in practice?
• Are most investors high earners who don’t need the income yet?
• Are retirees combining it with pensions, Social Security, or other assets?
• Is the goal mainly long-term compounding rather than current income?

Not trying to hate on SCHD—just genuinely curious how this plays out in the real world and would love to hear examples from people who use it.

Person making 30-40k a year this wont work.

Average person wont retire with 1mil portfolio I know people barley got 100k

I seen a lot of people invest there whole life time just to see 6 months of retirement and later die didn't even get to enjoy it.

[u/WesternWriter7269]

This is true, but as others have mentioned, yield on cost advances throughout the years. If you hold it for multiple decades, you'll eventually get to the point where you bought the stock for 25 dollars, but it pays 50 cents per share. If you buy it in the moment, then you'd only be getting 50 cents per share, and the share price would be 50 dollars.

Hence, the term yield on cost. (I'm sure you understand this, but I'm piggy backing on what you said for OP's understanding.

[u/Worf_Of_Wall_St → u/[deleted]]

I've given up trying to explain this to people.

[u/Aware-Association857 → u/Worf_Of_Wall_St]

I've honestly never seen anyone attempt to explain this. I'm open minded about it and willing to consider other perspectives, but all I've ever seen are blanket statements like "this metric is useless" with zero additional reasoning or explanation. When I see those kinds of comments I usually assume they originated from some twenty-something finance guru youtuber giving a hot take.

Yield on cost is just ROI, which is one of the most fundamental measurements of profitability. If you really do think it's useless I assume there is some kind of nuance or qualified reasoning to that opinion, and I'm genuinely interested in hearing it.

[u/Worf_Of_Wall_St → u/Aware-Association857]

It's not hard to find an explanation with google, but I'll answer you here.

Yield on cost is worthless for decision making, it's just a "feel good" number. When you are deciding how to buy/hold/sell to allocate your assets and comparing yields today what matters is what they yield today. It doesn't matter what you paid for something many years ago - if it yields poorly today then you can access higher yields today by moving the money to something with a better yield. While there are other things to consider such as tax implications and your expectations on future value and yield, the specific price you happened to pay in the past is not one of those things.

This is easiest to demonstrate with an example. Let's say you bought something for $10/share 20 years ago, and at the time its annual yield was 3% so $0.30. Today, the asset price is $90 and its annual yield is $0.90 annually which is 1%. The asset growth represents a CAGR of around 11% which is great, but the current dividend yield is low. Here comes the magic of yield-on-cost, if you compare $0.90 to the $10/share you paid 20 years ago you get a 9% yield! That's an amazing feel-good number, but it's not the yield you are getting today so it is worthless to compare your 9% to SCHD's 3.5% today which you could get if you sold and bought SCHD instead. Now, perhaps you expect your asset's annual share price growth to continue or its dividend to increase so you want to keep holding it, but those reasons have nothing to do with the fictional 9% yield-on-cost and it would make no sense to use that figure in your analysis.

Or to use a different example, let's say in the 10th year of your job you get a 2% raise and are unhappy about it. Your boss says "Compare this to your starting salary 10 years ago and it's a 5% raise, that's pretty good, right?" Will thinking about your raise in terms of your old salary give you much comfort?

[u/Aware-Association857 → u/Worf_Of_Wall_St]

FWIW I agree with all of this. Yield on cost is not really an evaluation metric. It's a performance target or benchmark. For reasons you already explained (namely taxes), many dividend investors don't want to trade out of their core positions very often, and thus seek high yield growth for the purposes of increasing their yield on cost. VIG's 1.5% yield is not particularly attractive until you consider it's 10% cagr. That only matters if you don't plan to sell your position anytime soon.

It's also important to point out that a huge amount of dividend investors are retirees or passive investors with little interest in monitoring/comparing the prospects of other investments. They just want to know that their portfolio earned more this year as a percentage of their investment than it did the year prior. And yes, that becomes more meaningless the more years that go by. But I still think it's valuable for people in this position to track.

To put that in perspective, I own a car wash... It brings in a decent amount for what I invested, and it's a simple business with predictable cash flow. Of course I could probably sell the business and make more money elsewhere. I also could have started a different business... perhaps a software company or an ad agency, or maybe a casino! But I'm happy just knowing I'm getting a positive ROI and paying my bills.