[John]

I just read this little nugget in “Simple path to Wealth.
If I were to seek absolute security (a very different thing than the smooth ride most mistake for safety), I’d hold 100% in VTSAX and spend only the ~2% dividend it throws off.

Nothing is ever completely certain, but I can’t think of a surer bet than this.”

The fact is, I am very nearly 100% VTSAX right now. I am retired, and get only about 1/3 of my monthly cash from investments.

The other 2/3 come from cash flows that are not affected by the stock market or the state of the economy.

This makes me even more comfortable not having bonds in my portfolio.

So as I understand Collins’s advice which is at the end of chapter 4, I would not re-invest the VTSAX dividends.

Keep them as cash, pull them out for my spending needs, and I don’t have to worry about whether shares are up or down at the moment.

What’s wrong with that advice? This book is considered the bible of retirement planning , so I want to know if he is wrong.

[Frank]

Nothing. It’s the “don’t spend money in retirement” strategy and works quite well with most any portfolio.

The “don’t spend money in retirement” strategy is quite popular among many FI-people and comes in infinite variations.

Many are festooned with window dressings involving buckets, ladders, hoses and flower pots full of cash.

All it means is that you are grossly over-saved and probably could have retired earlier. And are essentially managing your money with the principal goal of dying at your highest net worth.

So, you are probably leaving life on the table in favor of money.

And will likely get a reputation for being miserly when your family finds out what you are doing.

But hey, if that trips your trigger, you go girl!

[Adam]

The “problem” is you will almost certainly die with a lot of money. Is that what you want?

Or would you rather spend it or give part away before you die?

[Dan]

I would hesitate to call this book the “bible of of retirement spending” – in fact, I’d say please don’t ever rely on this book for that!

Research Wade Pfau, Karsten Jeske (Big ERN) when considering retirement income and withdrawal rates.

[Paul]

The 2% is the problem. Most FIREes aim for 25x, which is 4%
Additionally the current dividend yield of VTSAX is lower than 2%
However if you had enough, that would absolutely be a good way to go

[Christopher]

The shortcomings are that you need to save substantially more than ~25x, and when the market drops, so do the dividends. Oversaving takes years of your life.

Treating “Simple path to wealth” as a bible, and seeking tightness or wrongness therein, isn’t really a useful exercise. It’s a good, simple plan that essentially anyone can do, and that’s its goal.

It’s not the be-all-end all, nor does it aim to be. Is JL Colins “Right”? What does right even mean in this context? He even says “nothing is ever certain.”

Dividends aren’t a magical money faucet. It’s tempting to believe so, but they aren’t. They can and do end.

[Catrina]

I’d look at Paul Merriman’s work for a nuanced discussion of diversification.

Even if you are all in equities, diversification can benefit by lowering volatility & increasing returns.

[Godfrey]

Honestly, do what works for you. You don’t need to “die with zero”. You’ve just got to feel comfortable with the choices you make to live a life that works for you.

Not everyone will save, spend and live optimally.

Run the numbers, consider the lifestyle you want, and find a percentage that you feel comfortable with. But remember this is an art, not a hard science.

There is no “correct” percentage, no guru with the answer. It’s whatever’s correct for you financially and psychologically.

[Amy]

“I would not re-invest the VTSAX dividends. Keep them as cash, pull them out for my spending needs.”

That part is good practice. If you’re living off your portfolio, reinvesting dividends then turning around and selling shares to take out that same amount of cash creates an unnecessary step.

Do take the dividends as part of your income, but don’t stop there. Sell shares as needed to meet your spending needs.

As others have commented, if the dividends alone meet all your spending needs, wants and desires, you have over-saved.

[Blair]

I like the idea of living off of dividends, but I wouldn’t do it from anything yielding only ~2%. As others have said, that forces you to save too much.

I’d consider doing it off a dividend-focused ETF like SCHD

[Author]

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