01-23-2014, 11:45 PM
I think its easy to assume after a 5 year bull market that pulling from principal "capital gains" and taking cash dividends from a portfolio is essentially the same thing. The problem is when you have a year or two of down markets you are really killing the golden goose.
Dividends are about as sure a thing as you can get in investing, especially when you have a diversified portfolio spread across sectors to spread risk. There are nearly 500 companies on the David Fish's CCC List, it really isn't that hard to build a portfolio that yields 4% and produces a dividend growth rate greater than double the rate of inflation.
I think one of the most important things to do to prepare for retirement is first to get out of debt so you don't have all of the monthly payments. With no mortgage, car payments, student loans, etc. you can really live a pretty comfortable life with a reasonable income, especially if you are willing to move to a part of the country with low taxes. Also keep in mind that once you hit retirement you won't have the monthly contributions to the retirement account as well and if you are 62 you have S.S. supplementing your dividend income.
Finally, who says that retirement has to be an all or nothing ordeal? My dad "retired" a couple years ago and now is a free-lance leather-worker and upholsterer. Another I know helps out with tax preparations in the spring and makes decent money in a couple months. Another is an avid gardener and has discovered people will pay good money for him to till up their gardens in the spring.
Anyways, there's no perfect answer to the question. You have to do what you are comfortable with. Retiring with a $1M portfolio puts you well above the majority of Americans at that stage. If you've been smart enough to accumulate that much, I have no doubts you'll be smart enough to make it last as well =).
Dividends are about as sure a thing as you can get in investing, especially when you have a diversified portfolio spread across sectors to spread risk. There are nearly 500 companies on the David Fish's CCC List, it really isn't that hard to build a portfolio that yields 4% and produces a dividend growth rate greater than double the rate of inflation.
I think one of the most important things to do to prepare for retirement is first to get out of debt so you don't have all of the monthly payments. With no mortgage, car payments, student loans, etc. you can really live a pretty comfortable life with a reasonable income, especially if you are willing to move to a part of the country with low taxes. Also keep in mind that once you hit retirement you won't have the monthly contributions to the retirement account as well and if you are 62 you have S.S. supplementing your dividend income.
Finally, who says that retirement has to be an all or nothing ordeal? My dad "retired" a couple years ago and now is a free-lance leather-worker and upholsterer. Another I know helps out with tax preparations in the spring and makes decent money in a couple months. Another is an avid gardener and has discovered people will pay good money for him to till up their gardens in the spring.
Anyways, there's no perfect answer to the question. You have to do what you are comfortable with. Retiring with a $1M portfolio puts you well above the majority of Americans at that stage. If you've been smart enough to accumulate that much, I have no doubts you'll be smart enough to make it last as well =).