I Retired (Much) Faster with the 8% Rule
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- Опубліковано 21 лис 2023
- The 8% Rule allowed me to retire sooner and doesn't require selling stocks (at the right time). Today's episode explains why I ditched the 4% Rule, how I used the 8% Rule to retire earlier, and whether the 8% Rule might be for you. Topics covered include Covered Call ETFs, mREITs, BDCs, CEFs, MLPs, and Preferred Stocks.
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I learned a lot this year from this channel. Thank you. I'm not brave enough for an 8% withdrawal rate. It's 6% for me. My reasoning is that the long-term growth of the businesses is likely around 9-10%. If I withdraw 6%, that leaves 3-4% to cover inflation.
At 6% the risk is much lower so your income will growth faster and you will sleep well at night. And you can retire sooner than with the 4% rule!
I know this is anecdotal. I had 4 uncles who worked in Blue-collar jobs. Then never earned a ton of money and worked their 40-plus years. Along the way, they invested in good stocks that paid good dividends. They reinvested those dividends over the years and retired. They retired in the 70s all wealthy. They lived off their dividends, not selling any stock, until they passed. They provided their heirs with a lot of wealth. So, I've tried to follow their lead. I'm currently retired and mostly living off of SS. We lived our lives frugally and within our means. God blessed us with good jobs and family. We just started our retirement journey and will be looking into revving up our dividend growth to make sure that inflation doesn't stop us from enjoying our retirement years. Thanks for a all the advice.
Thanks for sharing your investment experience!
Excelent video. I love that you named this approach, “the 8% rule”! Your motivation and approach is exactly mine and you’re the first person on UA-cam to express this and explain it. Great job. I look forward to seeing your videos. Thank you.
Thanks for sharing your feedback, great minds...If the 8% Rule becomes a "thing" then you saw it first here!
Thank you for making these and for speaking plainly and clearly to us all. Really learning from these videos
Glad to hear it! I appreciate your encouraging feedback :)
Awesome video…Appreciate the personal insights and balanced commentary. My research methods and due diligence have improved greatly since watching your channel. Thank you and keep up the great work!
Thanks for your feedback and I'm glad the channel is helpful :)
Thank you so much for sharing this. I have never been comfortable with the idea of selling off my portfolio to live, but all most people talk about is the 4% rule. I really appreciate you giving another option to consider. 👍🏼
Glad it was helpful! I think people like the 4% rule because it’s simple.
Understood
I don’t want to sell any of my principal wealth
Instead I target a 6 percent dividend return
Works well for retirement
I like your philosophy "the 8% rule". Your rule mirrors what I started working on a few years ago when I knew retirement was in sight at age 58. I realized that if I could get 6 to 8 percent on most of my portfolio I would likely never run out of money. I titled my spreadsheet "My Perpetual Money Machine". My portfolio is full of the usual high yield funds that are talked about, like JEPI and SPYI and some boring lower yield funds. Thank you for doing these videos and showing that book The Income Factory. Think I will pick that one up.
Thanks for sharing your approach. Maybe I should ask Bavaria for 5 cents from every copy :) The money machine or factory metaphor resonates with me too.
Do you put your income etfs in roth ira?
I like it! I’ve always worked on 7% as my personal rule. Nice to see I’m not alone in this way of thinking!
You’re not crazy!
Always enjoy our videos. For me the kick comes from constructing and optimizing the portfolios. Growth portfolio is covered and currently deployed for me, my wife, and son. This new cash flow portfolio I'll need in 2 years at retirement has been a blast to work on. I've made all the same mistakes with yield traps and treating stocks like Pokémon cards by adding a new one to the portfolio each week. I'm finally down to my Core 30 cash flow portfolio holdings with several also on your list. I'm sitting at 6.5% right now. Perfectly content with this as a first attempt. I'll juice my returns to 7 - 8%+ with options when I finally retire and have time to look for trades each day.
Thanks for sharing your strategy. It sounds like you have a methodical and logical approach. I've made plenty of mistakes, going back to the dot.com crash. I don't think its possible to be a good investor without some costly "lessons". Creating a hybrid of growth and income can make a lot of sense. Wishing you all the best.
Another interesting video. When I retired early at 54, 17 years ago(working in the REIT industry) there didn't seem to be as many great higher yield opportunities as there are today. I switched this year from being a growth and income investor to investing mainly on high yield choices focused on income. One challenge I didn't realize was the tax implications that go along with that choice, especially since I over doubled my income with this strategy. Almost all of my income is non qualified. The solution has been heavily utilizing my IRA for high income stock holdings and keeping choices like SPYI(has become my #1 position) that pays 12% and shelters 90% of those dividends from federal tax in my taxable accounts. Also, MPL's like EPD which distributes 7.5% to 8%. Most years I pay no tax on that distribution due to how they categorize the distributions. My goal which I think I have achieved, is to have such a strong stream of income coming in, that a "hit" the stock price in one or a few stocks doesn't up end the entire strategy. The tax angle is really going to be important due to being a year away from taking RMD distributions. Anyway, great video.
exactly ^^ Im living this too.. I have been optimizing my port for awhile now.. however with recent laws, REITS also get favorable tax treatment in a taxable portfolio, so my taxable port now looks like that, REITs, SCHD, some QDI, and SPYI, along with some bond HIGH. Learned the hard way when building it while working, cracked me into tht top tax bracket.
Almost in the same boat as you are (just turned 71). Between SS and an IRA of about 23 positions I'm doing better than when I was working. This is a great channel. Won't have to worry too much about RMD's much since my living expenses are covered by div. transfers from IRA as well as SS. My only regret is not starting a Roth about 20 years ago......
Loved this -- thanks for sharing!
Glad you enjoyed it!
Fascinating video I’m so glad I discovered this channel! 26 year old trying to improve my financial literacy and plan for retirement effectively.
Welcome aboard! If you start at that age it will be simple. If you invest just a little each month, compounding will make you quite wealthy.
@@armchairincomechannel That’s the plan! Videos like this make working towards retirement exciting and seem more achievable so I appreciate it👍🏻
That's great to hear. Retirement is wonderful; keep at it!
Fantastic video, I love this one! Actually I very much enjoy all of your videos. In fact, of the 20 or so finance related channels I sub, yours is in my top 3. Please keep it up and I'll be here for the journey!
Thanks for the encouragement! i'll work on making it to your top 2 :)
care to share the others of the top three.thanks
Your videos are perfect, thanks
Glad you think so! I appreciate you taking the time to let me know.
This is the best income video I’ve seen on UA-cam. Most videos treat dividends as a religion, don’t acknowledge the pros and cons of growth vs income, and most haven’t been in the game very long. Thank you for sharing some practical alternatives!
Thanks, I really appreciate your feedback :)
Thank you . I appreciate your video
Glad it was helpful!
Excellent video thanks
Glad it was helpful and thanks for letting me know :)
Great video sir, thank you
Glad you liked it, and thanks for letting me know :)
ANOTHER GREAT VIDEO.......DON'T STOP😂
Just getting started ;)
"Therapy"😅.
Excellent video.
Glad you liked it!
Very good !
Thank you! Cheers!
I like your presentation style. Thanks for sharing! Subscribed.
I am pretty much doing something similar, invest in yields, collect the incomes, then put the incomes into the most attractive stock/funds at that moment.
BTW, I bought a lot around March of 2020 instead of selling. 😉
Thanks for your feedback and congratulations on the 2020 move 👍🏼😀
Great video
Glad you enjoyed it! I was spending a lot of time on detailed analysis and thought it was time to just explain why I made the channel in the first place...to find good income investments!
Another great video, and all of it makes sense. If I can add a little more income to that portfolio, I have also been selling calls on some of the funds, like ARB, when it goes up and it's close to its all time high. So far, I was never assigned and just collected the premium. But, not all funds have options.
I should get back into selling covered calls too. Just have to be in the mood for it. Thanks for your feedback (as always).
Make some more videos about preferred stock income! I don’t believe you have mentioned preferred stocks on the channel before
Here's a video I made about Preferred Stocks.. ua-cam.com/video/xt1MHQAziWo/v-deo.html I plan to make more in the future!
Great video! I've been following this approach for the last several years as well and it's definitely worked for me. It took me a couple of years to establish a good process for selecting investments but like you, once I got there it's been great. I'll admit to still stressing a bit when the market price of a given investment dives but I've learned to live with it.
Please keep the videos coming, they're wonderfully informative and stimulating!
Thanks for your feedback and words of encouragement. It's a source of motivation :) Glad to hear your investment approach is working.
The Trinity study was later updated to 5% but people still use 4% as a rule of thumb which is lower than the new Trinity study.
Thanks for the update. 👍🏼
Completely agree with this ! I take 6-7%.. using 4% you will keep growing your portfolio if it averages 7-10% a year !
Makes sense!
When I first met my new advisor at age 64 a few years ago,he suggested strongly that I should start spending because I’ll be dead in 15 years..At first I thought he was abrupt, but thinking back he’s probably correct considering the mortality rate for males in Canada is 79-81..I’m now 69
He's thrown down a challenge! Up your exercise and veggie intake and show him who's boss! But also spend a few bucks to enjoy life :)
I discovered this strategy only one year ago, and it will allow me to retire 5 years earlier. Thanks for pointing out that it does require more work and research than a simple ETF portfolio. But it’s all part of the fun 😁
Yes, we are of the same mind with our approach to investing. 5 years is life changing!
Great video. We share similar strategies for early retirement.
Thanks for watching and commenting (again) :)
This is great. The one thing I kept asking myself throughout this was 'how are you factoring in the distribution rates? i.e. How much higher does monthly distribution rank for you over quarterly distributions? Do you even consider annual only distributions since you are living off them?'
Hi,
Monthly is nice but I don’t favor it. I prioritize the safety and growth of the income stream. Quarterly payments make the income a bit lumpy but I have just over 30 stocks/funds which helps to even it out. It just requires the discipline to keep some of the income from the higher months to spend during the lower months. I draw the line at annual distributions. That’s too long to wait and increases the risk that something negative will happen before the money reaches your bank account.
@@armchairincomechannelOver 30 stocks??? I would be scattered brain with that many stocks to manage. For me that would be really difficult and stressful b/c I will always feel like most of my stocks would be under funded and neglected. For now I'm concentrating on building at 5 main positions that have had safe and consistent dividend payout histories. Build these positions into giants quickly and then use these massive dividend returns to expand my portfolio by buying more positions of these safer lower yielding stocks like Coca Cola, a REIT such as Realty Income or a ETF like SCHD. These high yield BDCs are great to buy into, but once I've hit a certain dollar mark invested I prefer to have some of those dividend returns sitting in safer positions like the three I just mention or in a high yield savings account.
just subscribed.. this is really interesting, I stumbled across this video, and my optimized portfolio looks almost identical to the author describes. Im drilling 8% optimization with overflow with volatility buying. In addition I sell options for extra and have some pension income to help. My projections have me able to live on a possible 5% drawdown.. but its also about expense control. Im 3 years to go and things are beginning to look better. I own every one of the stocks and ETFs he mentions. my mix is a little different as Im still working but wow.. nice work sir. Its taken me a couple of years of research and sampling to weed out the Traps from the champs. my Low yielders are 4-6 with 10% divGrw, my mids are 6-9 with min 6% divgro, and my high yielders are 9% with only Not negative grow, and pos safety margin.. I watch for NAV collapse, and thats how diversification saves ya. I have around 40 stocks/etfs.. statistically 40 is optimized.. Also, not for most but a cash housing life insurance policy provides loan collateral for those nasty draw down years.
That sounds like a nice blend! Thanks for sharing and all the best for your investing journey. Sounds like you're almost there.
ha..@@armchairincomechannel this is about my 5th pass thru this video.. its really informative, I hear something new each time, so Im learning perspective too.. really really great work.. Yes Im working hard to bring it home and like you fine tune it before I go fully live in 35 months.
Thanks for sharing. I am 3.5 years away from retirement. 59.5 is the goal. I am slowly starting to structure to a high yield strategy. Many of the same funds you talk about. I am using 7.5% yield as my target and reinvesting the rest is my plan. No reason to use the 4% rule if you structure the portfolio correctly. When the trinity study was preformed many of the investments used today were not available. Correct structure using a 1 year cash balance using only 7.5% and reinvesting the rest takes all the stress out of planning. I also like to read and study about this. I read the income factory book. Thanks for your videos.
Why not 59.4? Just kidding. Sounds like you have a methodical approach. For those who have the time and inclination to manage their own investments, there are many strategies beyond the 4% rule. Thanks for your feedback.
@@armchairincomechannel very fair question. Better yet why not right now. Main reason is health insurance. Second reason is I live in a RV and I’m traveling the United States. I work remotely and it pays well. I also don’t mind working. When we are done traveling and settle down. We will retire. Yes I know you are to by the RV at retirement, but we did it when we young and healthy. We plan on a retirement house to settle into and going on the affordable healthcare act when we stop working. Would like to hear about your healthcare and it has worked out retiring early.
RV life sounds like fun! I've watched a few YT channels about it. If I was living in the US I'd probably do the same and follow the warm weather. I moved to asia. Once I left the US, healthcare is very affordable and accessible. I pay out of pocket and have insurance for accident/major illness. Loving early retirement, every day is a gift.
Another great video. I see we are doing basically the same thing and own mostly the same investments. I dropped BST 2-3 years ago because of the poor Total Returns, and bought STK which has crushed BST. BST has had poor stock selection. STK has also had much Higher Sharpe Ratios.
STK is currently to high a Premium to buy. I would recommend switching to STK after the next Tech 10-20% drop, we know unfortunately it will come eventually. :)
Thanks for your feedback. The STK fund managers are excellent tech stock investors! I agree that it has outperformed BST, though providing less yield. Next time tech corrects, I'll probably buy both.
Thanks for mentioning BST and the performance. I bought this one about 6 months ago and wondered why it has gone down in that period.
Thank you for this video. I am learning so much from your videos.
What is your take on over diversification? If i devote 5% of my portfolio to ETFs that already contain a diversity of funds, wouldn’t that be over diversified? Worried that if im over diversified I wont be able to focus my portfolio into the most profitable funds.
Diversification is a tricky subject as it depends on so many factors, including what you're optimizing for. Higher diversification does generally reduce your maximum total return (versus a single high flyer tech stock). I diversify more than the average person because I'm partly optimizing to reduce the impact of any one stock/fund on my portfolio, ie sleep well at night. I would probably make a higher return if I just bought the Magnificent 7 (Nvidia, Apple, etc). As for overlap between funds, this website is a useful tool to measure overlap: www.etfrc.com/funds/overlap.php
Switched out of the fun stocks like Tesla, Apple, Microsoft, AMAT etc...(had 15 great companies) in March so I could convince my wife to retire early. Jumped into the high dividend ETFs like Jepq -Jepi - Tsly - Spy - and other high yield single stocks like BXSL - SLG - TFC -BAM - etc.... went from about $1500 month in dividends to $7500. She retired at 61 and I am able to whenever I decide to with her two small pensions and our 2 Roths and 2 other brokerage accounts with 2 SS checks to boot. We have more monthly income with her retired than when she was working about about 30%..... insane that we were looking at doing the 4% rule when this alternative was there available for so long....
Glad to hear its working out so well for you. I wake up every day thankful for retiring earlier than I thought possible. It's a gift. Enjoy your freedom!
I have a simulated 8% dividend portfolio on dividend tracker, I am retiring soon and doing my research in slowly, but surely zeroing in on the investment I want to make. I am also sprinkling in. Some growth stocks, like apple, etc. and also some dividend stocks with lower dividend yield but plan on selling covered calls to enhance their income and hopefully get some growth out of them to balance off the high yield dividend part of the portfolio. Your thoughts great video . once again.
That's a really nice blend of strategies. Sounds like you're enjoying it too, which I think helps a lot.
I do enjoy it and I also enjoy your videos. They are very helpful a lot of great insight. Can you recommend a free portfolio test website other than portfolio visualizer. Thank you.
@@g.ajemian4968 Portfolio visualizer is the only one I'm familiar with for backtesting portfolios. I use Seeking Alpha to compare total return between socks/funds.
Use Yieldmax and Defiant funds to retire early on. I use the zero percent rule, never took a penny out of my 457b!
Thanks for sharing your strategy.
Very cool man, this strategy is way more achievable for the average joe then accumulating a million + in a reasonable time period…you said you live in Asia…Thailand?
Good guess :) Planning to do a video from Vietnam in the new few months.
Yessss HESM for the win!!! My favorite MLP plus no k1 crap
Nobody likes a K-1. Its on my short list to research; thanks for mentioning it!
Subscibed
Welcome to the Channel :)
I posted on Reddit. Is 4% rule obsolete with new products like CC ETFs. Consensus was no. I disagree and will continue living on JEPI and JEPQ. I like your individual stocks but want to stick with ETFS for diversity. I typically spend 50-60% of dividends and reinvest the rest. I still have VOO which I don’t touch.
Thanks for your feedback. I think there's something to be said for blending growth and income and your approach makes a lot of sense.
I too only buy ETFs or Closed end funds and prefer those that pay monthly.
@@J_International That eliminates the concentration risk!
In my opinion, your best video so far! Interesting to the philosophy behind your portfolio/style of investing! I'd like to do something similar but as a European it's harder to get the 8% yield 'cause Uncle Sam takes 15% of the dividends and the US$ is loosing value compared to my homeland currency CHF/Swiss Franc ... but I'm working on it and I'm almost there 😀
Your number should be 9.25%, so your net return is 8% after the 15% hit for foreign tax. I have the same problem when investing in Canadian or UK stocks.
I’m in Asia but we should be in the same boat. The IRS only takes 15% if you let them. The broker withholds 15% per your tax treaty. That’s not the tax rate. My suggestion is to file a tax return with the IRS so that you pay the actual tax due. As a foreigner you will generally pay a lower rate of tax than a US tax payer. For example, you pay no capital gains tax, no tax on Return of Capital, no tax on interest. Your net tax due should be less than 15% which will result in a refund from the IRS.
I’m in Asia but we should be in the same boat. The IRS only takes 15% if you let them. The broker withholds 15% per your tax treaty. That’s not the tax rate. My suggestion is to file a tax return with the IRS so that you pay the actual tax due. As a foreigner you will generally pay a lower rate of tax than a US tax payer. For example, you pay no capital gains tax, no tax on Return of Capital, no tax on interest. Your net tax due should be less than 15% which will result in a refund from the IRS.
@@armchairincomechannel Thanks for the answer! I could do that but it wouldn't make much of a difference down the line because all dividends are considered regular income in Switzerland and the taxes paid to the IRS are deductible. Geographical arbitrage might help with my 30% tax rate (a lot of Eastern European countries have a 15% flat rate tax, Dubai/UAE have NO income taxes, ...)
Didn't know that about Switzerland. The price to live in such a beautiful country. Geo arbitrage is wonderful.
Great video . What do you think of JEPQ and TLTW? Also, I’d love to see your portfolio. Can you a video of your portfolio. Thx Ron
I'm a fan of JEPQ and currently hold it. I like TLTW but I don't currently hold it because I'm waiting until the Fed lowers interest rates. I don't publish my entire portfolio because I don't want to encourage people to just copy it. I do mention when I buy a stock for the purpose of disclosure. I understand that I talk about a lot of stocks and its confusing so I'll meet in the middle and be more specific about which stocks are my favorites and that I'm most heavily invested in. That will be addressed in my next video...researching it now and it will be out within a week.
@@armchairincomechannel thx.
I have NOW watched about 9 videos of your videos. And I must say I like your style. You’ve inspired me to be an 8%er.
9 is a lot! Thanks for letting me know that you found them helpful. Lots more to come!
Every person;s situation is different, so the solution needs to be tailored individually....I think the two most important things in retirement is have multiple income streams and little to no debt....In addition lifestyle choices can make or break you....If you live beyond what your assets and income streams produce you could run out of money really fast...
That's true. I have no debt so I don' think about it. Multiple income streams fixes a lot of problems/risks.
Hi it's me again. Great video as always! I have a mix of BDCD's, REITs, CC ETFs and dividend stocks. My strategy with CC ETF's is to combine them with the mother index ETFs. I vary depending on market situation using Tech anal. When markets look overbought I put more weight on CC ETF's and less on Index ETF's (80%-20% to 60%-40%). As an example when TLT was falling I was 100% in TLTW and then when it looked way oversold I switched to 80% TLTW and 20% TLT and it's workng super well. The mother index like VOO or QQQM keep the value of principal stable while the income etfs keeps money flowing in. I don't believe in totally passive investing. You always need to be active to keep up with market evolution.
Welcome back. Thanks for sharing your approach. You're a lot more active than I am! Sounds like you're enjoying it which is key.
@armchairincomechannel I love it and like you I could talk about finance until I loose my voice
Doing something similar with LQDW/LQD (50/50). I look at it as a temporary Ultra HYSA. When (and if) there's a major downturn I will sell and deploy funds to my ever growing collection of credit CEF's and REITS. I don't use BDC's as I strongly question how they'll perform in the event of a hard landing (which I expect).
My friends are bored by the subject, that's why UA-cam is great!
Thanks for sharing your strategy. BDCs get hit harder than most sectors but a few (like MAIN) are more resilient. I wouldn't want large exposure to them, but moderate exposure adds a lot of income. Depends on your risk tolerance.
If we are in a higher income tax bracket then we don't want to have extra income at nonpeferred tax rates that are not sheltered for things like dividends, which are just going to reduce the value of a stock in the first place.
That's true. I'm retired so my pay check is zero. That put me in a lower tax bracket than when I was working. During the accumulation phase, growth produces the highest returns. The volatility doesn't matter because you have a pay check, and as you point out...its more tax efficient. As you approach retirement, regular income becomes more important than having the biggest nest egg, or paying the least tax.
Can you do a video explaining how you live and budget your money and dividend income after retirement? What percentage do you suggest keeping as spending cash for living expenses and how much do you reinvest back into the market? Since these stocks are labeled as "high risk"; what percentage of cash would you suggest keeping in a high yield savings in case those stocks may cut/reduce their dividends, totally cancel them or those comapnies go bankrupt?
Hi, that's a lot of questions! My channel is focused on finding an selecting high income stocks and funds. I don't go into personal expenses and budgeting because it varies wildly by person and country. I'm now in Asia and my expenses are completely different from when I lived in the US. Living within your means is important, and so is managing your debt, keeping a buffer for emergencies, dividend cuts, and bankruptcies. However, these are all personal decisions based on factors like age, cost of living, dependents, and risk tolerance.
Personally, I have zero debt, have low fixed overhead, and my variable expense is travel. I love travel but if my income were to fall I would travel less. I manage the risk of bankruptcy and dividend cuts by diligently researching and then diversifying. No matter how much I like a stock or fund, I never commit more than 5% to it. Any company could cut a dividend, or go bankrupt. Funds that hold a diversified portfolio are at dramatically less risk of either of these events, so I prefer funds to individual stocks if all other factors are equal.
A significant risk for me would be if most of the stocks and funds went bankrupt or severely cut their dividends. Although I accept that this could happen during a financial crisis to 1, or 2, or even a handful of my holdings, I am betting that it doesn't happen to most or all of them. The only way to completely eliminate this risk is to buy other non-correlated assets like real estate or bonds. I haven't chosen to do that but it might make sense for other people to do it.
Discussing investments for retirement can open up a lot of related topics, including the ones you mentioned. I'm pretty busy researching income investments so I don't have the bandwidth to cover all the related topics in video format. However, some of the topics related to income investing are discussed in the Armchair Income Community, and you're welcome to join :)
facebook.com/groups/1960447914286446/
Thanks. You and Dividend Bull have strongly influence me into changing up investment strategy. I wanted to speed up this investment process and I now know I can thanks you all. I'm more driven now to doing a more in depth research on stocks and try to better understand all of these statistics. Some of these "higher risk" stocks don't seem to be as risky as they're said to be. But I'll still invest with caution though.
You have a great attitude! If you do more in depth research then...my work is done :)
You could do this with the lawn portion of a 50-50 portfolio and put the rest in growth to balance off any erosion of the share prices your thoughts
I'm confused about the term "lawn"...If you're suggested the idea of 50% laddered bonds and spending that part of the portfolio during a correction, yes, that could work...more so now because yields are high.
Is your whole portfolio in these funds?
a caveat remains that you need to deduct taxes from this income, to ensure growth, I believe you will need to allocate a portion to something nasdaq style as well that doesnt yield a dividend. Last but not least I may disagree but to cushion volatility I would include bonds or savingaccounts which all make your actual yield way lower
Yes, taxes need to be deducted from the 4% Rule and the 8% Rule; neither are an after tax number. I agree that blending growth into the mix can make sense, especially if you're young. Some QQQ doesn't hurt :)
MO makes up 2.81% of my portfolio. Dont want to make it too much bigger, but it does feel like it could make good returns from the current price.
MO's dividend history is magnificent. It's a complicated company to analyze because of the changing regulations, risks of litigation, and attempts to diversify their product and new innovations. After about 30 minutes I put it in the "too hard" category. However, if you really understand that industry then perhaps it can work for you.
Fascinating fact:
if you had $1MM in SPY in 2018 and withdrew 8% per year, you would have $1.1MM today.
That’s cool! It (growth) works most of the time, but not always.
8% historically has less than a 50% chance of success over a 30 year retirement.
Most equities paying an 8% dividend has a decreasing value in princeipal. (Ie, div is high, but value of the investment goes down over time.)
Thanks for sharing those findings. I agree that most stocks and funds paying 8% suffer from declining NAV which is why I 1/ Avoid most stocks and funds paying 8% (you have to be selective) and 2/ Mix in some that pay more than 8% and reinvest a portion to compound growth. There are plenty of examples of stocks and funds that pay 8% yield or yield on cost and don’t erode their NAV. Eg MAIN, ARCC, HESM.
When they enacted the 4% golden rule. They did it from the year 1968 forward. After 1968, for about 15 years the market had a bear market. It was literally the worst time to retire period over time. This isn’t realistic. Secondly, i have many investments that pay 15-40% (covered call etf’s). I live off a portion and dollar cost average the rest to existing positions, growth, or steady 10% jepq and other etf’s that move slowly with the market. Then i generate covered call income off of a portion of the portfolio. If you do this and not so much individual stocks you will be fine overall because you don’t the company risk. Plus many have the 60/40 tax rate benefit or good ROC as income to you.
thank you very much. I am in a similar boat, but I am collecting 4%, the traditional way. I am younger, I did not have a very huge nest egg when I left, so I want to bring in more, naturally. You should tell us about yourself a little more. Like what you did for work, what hobbies you do besides this, and what your plans are for each year, like a big project or a vacation.
Your home address, your bank account number and what time your house is empty... the internet is a safe place where to leave all your private info 🤑
Blood Type is O Negative. I'll be going for a long walk at 5pm and my safe is open.
Thanks for sharing your situation. I don't post too much info because once you lose anonymity online you can never get it back. To answer your question, my career was in commercial real estate, and I invested in residential real estate right up until when I retired (then sold it). My favorite hobby is tennis, I'm addicted to it like a crack addict! Over the next 6 months I plan to combine travel with shooting some episodes on the road...probably Vietnam first. Should make for a nice change of scenery.
@@samsamys5190 are you calling armchair investor stupid?
@@armchairincomechannel you are very likable on camera and sound very trust worthy. You obviously do your research and have great insight. I just thought that a little personal touch would only add to your already great internet persona.
The 4% is absurdly conservative. A 6%-8%, or even 10% depending on returns. Just having the ability to modulate +/-2% a year can go a long way in solvency. If you are taking out 8% and spending every penny may be cutting it to tight budget-wise.
Yes, I think that’s a good summary. Also depends if you’re selling vs spending dividends.
Exactly I hate the 4% rule also and research shows you can out live that money especially in a bear market cycle. I am open minded and enjoy seeing the high yield stuff. I get concerned with risk not saying seeking alpha knows the future but are any of those funds rated with a green dividend safety rating? Also SPYI i still say I need to see how it will perform when their calls get called away in a bul market to see how they manage losses having to buy back at higher share prices. I currently am building our retirement acount using leverage ETF but am a big fan of quality dividend companies. I will definitely continue to watch everything as we approach our portfolio goal to retire. Thanks
Thanks for your detailed feedback. I use Seeking Alpha a lot but I don't use the ratings feature because I don't know the methodology behind them. Same for other websites. Often the rating are generated by an formula that doesn't actually know each business. The only one I trust is SimplySafeDividends but its an expensive service. They only rate companies that humans actually study and they hold themselves accountable for dividend cuts versus their ratings.
As for SPYI, I like it so far but its new and trust takes time. Covered call funds work well under certain market conditions (eg. gradual rising) but a crash will hurt the distributions for a while. For this reason I wouldn't allocate too much to them. There's no perfect investment that can weather any challenge.
@@armchairincomechannel i used simply safe dividends trail myself. I agree I like their ratings because they are transparent, and do not hide their history of grades. Also they will communicate with you. If I was in retirement I would happily pay the $400 or so they ask. I mean if I have a 1.7 million dollar portfolio to live on paying for that I call insurance of safety is a no brainer.
I use it every day. It's a fantastic way to keep track of everything and quickly sort by yield, ratings, etc. Also handy for the income projections.
@@armchairincomechannel glad to hear that, safety is most important. I believe MAIN was rated safe on simply safe but I can't remember. Nice talking to you and have a good holiday.
MAIN is "safe" at 62/100. Likewise and Happy Thanksgiving!
The 8% rule just makes sense if you want to retire early.
Agreed. Works for many of us. 😀
And go back to work when your 70😂
It does allow us to think more open about how much we can pull out of the accounts
For me 6 percent has been perfect for retirement
Interesting thumbnail for this one.....according to reddit I should place my entire portfolio into high yield Income ETFs and there is no risk. Thoughts?
Took me hours to finally catch that cheetah. If CTR is low I'll switch to a thumbnail that shows me at age 65. If Reddit say it...then it must be true! I'd aim for a yield of at least 50% to be safe ;)
@@armchairincomechannel AMC to the moon 😅😂😂🤣
COTY: I don't know anything about "reddit". But I do know, Professor Armchair is Very good at this stuff. If you ask, I think he would let you join our community.
COTY is more than welcome to join but he's probably busy with his own gang.
I am sorry for the typo I meant “bond” portion of a 50/50 portfolio
Thanks for the clarification :) Yes, per my previous comment, holding bonds is another way to avoid being forced to sell stocks during a correction. The yield is quite good at the moment. As interest rates fall, that strategy will become less attractive, but it's still an option.
@@armchairincomechannel i am sorry for not explaining by thoughts clearly, what I was considering was replacing the bonds with a portfolio of 8+% funds that you speak of for more income and tthe other 50% in low cost ETFs for growth . I am waiting until 70 to collect ss so I will need more yield until then . Are you comfortable with more than 50%of your portfolio in the 8-10% stocks? Thanks
If last year was your first year of retirement, an 8% withdrawal rate set you back at least 3 years. This year would be fine. Be aware of market return sequence risk and adjust when necessary.
My whole point is the exact opposite. Don’t withdraw 8%. Don’t withdraw (sell) anything. Invest in income stocks and spend a portion of the dividends, reinvesting the rest to compound your income. My portfolio moves up and down with the market but my income increases each year.
Warning to those in the US before buying MLPs. They issue a Schedule K-1 which is a pain in the neck to deal with partially because it can come out as late as March 15th if I recall properly. If you like to file early and don’t like painful tax forms to deal with if you do your own taxes, I suggest you stay away from MLPs. I made the mistake of buying one that caused me a big headache. That was after following another UA-camr’s “non-financial advice”. Hope this helps.
I wouldn’t let this deter you. There are some great MLPs and turbo tax handles the K-1 well. I do note you can’t hold them in a retirement account, but there is an ETF (AMLP) that invests in MLPs but can be held in a retirement fund (and no K-1). Current yield in that ETF is 7.64%. Expense ratio is O.85%
@@bobl6649 I wish I could agree with you on TurboTax handling the K-1 well. Maybe it was the fault of the reporting from the MLP I had a minuscule investment in. I even talked to tax attorneys at TurboTax through my subscription to that service and they were stumped! I spent many hours dealing with that. If you use an accountant then I guess I would consider MLPs, but there are plenty of other high yielding types of investments that were covered here well (thanks) that don’t issue K-1s. Just my 2cents. Not financial or tax advice 😉.
I avoid the MLPs that issue K-1’s for this reason. It’s a pain. Best to ask your accountant if it’s worth the hassle. I specifically gave HESM as an example because it does NOT issue a K-1.
I’ve owned ET, MMT, and EPD in the past. K1s are a pain but to me I don’t see these doing well in the climate activist environment we find ourselves in. As a class of investment they have already underperformed dramatically since 2011.
I have EPD and ET(both are MLP's) in my Merrill Edge IRA, so I believe it may depend on whether or not your investment company can handle the requirements for an MLP.
How can I do this in Australia?
I suggest opening an account with Interactive Brokers.
@@armchairincomechannel thank you! Yes, there are only a tiny handful of funds like you discuss available on the ASX, so buying outside this seems necessary
Do you have these investments in a taxable brokerage account since you retired early?
I don't. I live in Asia, and I'm not a US tax resident. Investing in the US as a foreigner is tax efficient. I try not to focus on tax too much because everybody's situation is different, making it difficult to give general advice. Aside from that, the US tax system is complicated!
@@armchairincomechannel very true! I’m trying to figure out to do a portfolio like this in a taxable account or do this in my Roth IRA and when I do retire early, pay the 10% penalty on withdrawals monthly. Which will be more efficient.
@@Whoisbu89 That sounds like a discussion between you and your tax accountant.
Similiar philosophy. Based on the assumption that rates aren't going up again, I started nibbling on TLTW. Still very eary though
When I made the TLTW video I thought rates would fall in early 2024. Now its looking like it will take longer so I'm in less of a hurry to hold it. Having said that, I can't predict the future.
Why would anyone do this if the index fund is paying on average ten percent per year
I don't know which index fund you're referring to, there are many. If you're talking about S&P 500 index funds like SPY...they are a great way to build wealth over the long term, but if you're retired they don't pay the bills unless you sell some shares. That works well in years like 2023 and not so well in years like 2022. In other words, they require some ability to time the market. When you're working, a down year wouldn't matter. When you're retired, you don't want your income to depend on whether the market is up or down.
This makes no sense. Covered call etfs in the long run will always underperform their underlying and yet you take 2x the withdrawal rate with a portfolio generating worst total returns. It's not adding up.
1/ My portfolio extends far beyond covered call funds. Neither they, nor any other asset class is perfect. 2/ I agree that covered call funds underperform their benchmark for total return. My goal isn't to outperform a benchmark or die with the biggest portfolio, my goal is to provide a consistent income stream that grows over time and comfortably exceeds my cost of living. 3/ This strategy works very well for me, but I wouldn't know if it's ideal for you. If you'd like to share the strategy that works for you, you're welcome to elaborate...
Why would you take out your principal when you could just invest in dividend and income stocks and never have to spend the principal?
You make a good point 👍🏼
I honestly think the way you initially framed this video is confusing. At first glance a 4% rule versus 8% rule would seem to be about arguing that you can sustainably sell double the % of holdings. If you could, you’d need a portfolio half the size to produce the same income, hence retiring sooner because you only need to build up half the portfolio. That isn’t what you are saying, but the portfolio size is still the key to understanding your video - a portfolio of 8% yielding investment vehicles would mean a portfolio half the size for the same income. Intriguing.
One problem I see with this, is that as you are building up this income producing portfolio, the income it produces grows while you are still working and that is increasing your tax burden. If that income is reinvested to grow the portfolio, then you need to be setting aside funds for the tax bill… unless you are somehow structured in a tax effective way? Any comments on this?
That’s why more common simplified investing advice is to accumulate growth assets that don’t generate income, therefore minimising the tax burden along the way, but then when ready to live independently, then either consuming 4% (sustainable) or convert the portfolio to income producing assets. Either way has tax implications I guess - the latter involves bulk capital gain hits to restructure the portfolio and this is all done outside of the protected superannuation framework.
Thoughts?
Thanks for the feedback. I tried to explain at the beginning that this is essentially an argument for switching from growth to income when you retire. So instead of holding growth and selling 4% per year, you hold income investments....selling nothing...collect say 10% in income, spend 8% and reinvest 2% (to stay ahead of inflation).
During your working/accumulation phase, growth is more tax efficient than income. I think the further away from retirement you are (mostly that means younger) then the more focused you should be on growth investing because it produces higher returns (though more volatile) and is more tax efficient. So I'm not suggesting to start your investment journey with income.
I switched from growth to income at retirement and this is common. My suggestion is to start income investing with a small portion of your portfolio before retirement as an exercise in self education, and also to reduce the reliance on selling everything when the market is up when you retire.
Depends on your time horizon and when you retire. Can it work? Sure. Is it a conservative. No. You have about a 50% chance at 8%
Yes, time horizon matters. Probability of 8% working depends on your investments. If you're selling stocks to fund 8% it won't work. If you're only spending a portion of an income that exceeds 8% then its a question of selecting resilient income streams with sufficient diversification to mitigate risk. Works for me, might not work for you.
What about royalty trusts?
Had to Google that one...I'm not familiar with them. Do you invest in them? If so, got any favorites? I looked up SBR and the distributions varied a lot.
"Yes! But a very small part of the portfolio. However, their dividends fluctuate a lot, even though they currently offer a high yield. Love your channel!! Keep up the good work
I appreciate your words of encouragement :)
For the algorithm
Thanks for watching :)
I'm retired with the same strategy but I'm more lazy. So instead of doing the work of researching every fund I watch UA-cam videos ... I built my nest-egg with growth stocks ... and was planning on continuing the same in retirement ... 2022 convinced me otherwise. 😅
Growth works well most of the time. When it doesn't, it's a bit stressful! I hate the idea of selling a stock when its down. UA-cam contains a lot of useful info if you are selective enough. Congrats on building your nest egg, that's the hard part!
short answer - have a lot of money. LOL
That helps. There's no free lunch!
💵💵💵
It’s all about the cash flow 😎
Good ideology.
Thanks for your feedback, and for watching :)
My biggest concern would be that the majority of these funds have not beaten the market in total return since inception. Volatility not significantly better. Draw downs as bad or worse.
8% can work, but only if the market cooperates over the course of your retirement period. “Retiring” early, your retirement may be longer than the typical 30 year projections. you are at a much higher risk of having to reduce expenses to survive at some point.
Good thing, you are certainly not retired since you are actively working on this UA-cam channel and likely earning thousands of dollars per month in income on top of your portfolio! 🍻
We can’t know definitively without extensive back testing but my goal isn’t to beat the market. My goal is to cover expenses and grow income faster than inflation. Growth wins if you time your withdrawals to bull markets. I don’t want to relay on timing or die with the biggest portfolio.
As for UA-cam income…LOL…I have 8,000 subscribers…😂. My channel has lost money, not made money. The income at 8k subs doesn’t cover the cost of editing software, equipment, and that’s before accounting for the 30-40 hours of my time to make one video. If I wanted more money I’d get a job.
Having said that, I hope my channel is profitable one day because 1/ It would make it more fun, and 2/ I could justify doing some cool things like higher quality production, hire an editor, pay for more research services than I already do.
Thanks for watching and for
your feedback.
@@armchairincomechannel only 8K, wow I didn’t even realize that. I’m a little surprised it isn’t much higher. You put out excellent content that many other viewers and creators really should see. Thanks for being here, truly. Especially since you’re operating at a loss to do it! 🙏🏻
As for the market comparison, the reason I mention it is because as I’m sure you already know, several studies have shown the safe withdrawal rate is somewhere around 3-4% over a 40+ year retirement if you get market-like returns and adjust for historical inflation averages every year. The majority of income funds fall short of the market in the long run, with no meaningful improvement in volatility, draw downs or run ups. This would imply an even lower safe withdrawal rate.
Now most of these studies are shooting for a high 90% success rate using Monte Carlo simulations, so you’d have a very high chance of dying with more money than you started with. And most retirees don’t actually increase spending with inflation in retirement. But generally, as you increase the withdrawal rate, you lower the success rate based on historical data. The closer you get to 50%, the higher the odds you’re relegating your retirement success to a coin flip, regardless of whether you’re relying on income or selling shares.
Being able to tighten your belt during bear markets and crashes will be key. Having a paid off house and a low relative amount of fixed expenses vs discretionary spending will make all the difference. This is typically why zero debt and a paid off house is strongly advocated before entering retirement, as well as delaying social security for as long as possible.
Sounds like you’re prepared to handle whatever the market throws at us. I’d love to make a 6%+ withdrawal rate work myself, so I’ll be following closely to see how you make adjustments when the crashes, bear markets and dividend/distribution cuts eventually come.
Thanks again for being here man. Keep the great content coming!
Thanks for your detailed explanation. We agree on many things but not everything, which makes for a more interesting discussion.
The studies I've ready are based on holding growth stocks or traditional dividend stocks (and sometimes a portion of bonds) and sell a percentage each year that's less than the average gain. I haven't seen any studies based on high yield categories like MLPs, BDCs, and Preferred Stocks, spending less than the annual yield, and reinvesting the rest to grow the income. Success or failure with high stocks and funds isn't dependent on growing earnings, it simply requires that the investment continues to distribute at the same rate (ie no dividend cuts) and doesn't go bankrupt. For Preferred Stocks, the income isn't reduced unless the company is in dire financial stress/bankruptcy. Admittedly, yields on Preferreds are higher than their historical average currently.
I would tighten my belt if there were large scale cuts in distributions, however, during market corrections where the prices of the stocks and funds correct, it doesn't necessarily affect the income...subject to holding the right investments of course. There are no guarantees but the stocks/funds that didn't cut distributions during the 2008 GFC nor during Covid, is a good start.
I have low fixed expenses and zero debt, which reduces subconscious stress. Both my parents died young, so the risk of an abbreviated retirement is a factor that I considered. In other words, I'd have more wealth if I retired later, but that wasn't my goal. I want to maximize what's left of the "good" years because we're not guaranteed to receive any more of them.
Thank you for your encouragement :)
Covered calls is not a sustainable strategy
What's your strategy?
@@armchairincomechannel I plan using the 4% rule. It’s safer and more conservative.
@@egs2169 The 4% Rule works for many people, it sounds like a good fit for you. I don't think these strategies are right or wrong. It's about finding what works for your timeline, risk tolerance, personality, etc.
Yield chasing🤦🏻♂️. People in the comments please listen: companies than pay large dividends like this are generally not growing and in many cases are seeing share price declines as a result which will deteriorate your capital.
In many cases that's true. However, if you are careful in your selection you can find companies with high yields that sustain their NAV, and in a few cases, gradually increase it. Sounds like you prefer another strategy and I wish you well with whatever it is.
Yes be careful but that isn’t going to protect your portfolio capital in every case. Things happen.
@@egs2169 Yes, any stock can blow up...income or growth. Diversification is important.
You can retire fastest with the 100% rule
Sounds interesting 🤔
@@armchairincomechannel It's the strategy Nic Cage used in "Leaving Las Vegas".
Wow, that's a throwback to a long time ago. Elizabeth was fantastic in that movie!
4% rule is garbage 🗑
I agree the oversimplification of Bengen's original analysis into a single rule that applies to everybody is just lazy, but "garbage" seems a bit extreme. After all, the original paper simply looked at actual results over a 75yr period based on common inputs at the time: 30yr retirement, 60/40 allocation, etc. And it turned out that a 4% initial withdrawal, adjusted for inflation thereafter was literally the worst case scenario that would have GUARANTEED success, up until that point. Of course higher withdrawal rates could also work, even with a 60/40 portfolio if you're willing to accept a little risk.
And yeah, if you take a totally different investment approach that prioritizes income over growth or leverages totally new asset types that didn't exist back then, all kinds of new strategies could be developed. I'm inclined towards some version of an 8% income rule myself, but I'm not aware of any analysis that backtests this over 70 years to show us what the risks might be.
I don't know the history of REITs, BDCs, etc, but for the various CC ETFs, hardly any are even 10yrs old at this point.
The 4% rule isn't for me, but the math is solid and it works for some people.
It's garbage because the strategy doesn't teach people how to rotate and reallocate properly. Selling down ones principle is amateur. If the 4% took in a couple more steps I would agree with the strategy. Sell and rotate to a dividend strategy or bond strategy to have the cash flow to live off of vs selling down net worth.
Is that a Trump 👿shirt you’re wearing in that photo 🤔😢or is it a Triumph shirt you’re wearing..😊👏😉…
Triumph. I had a Street Scrambler. Love that bike!
Yes! Great Bike! What’s your thought on TSLY..
Interesting idea but I’m concerned about NAV erosion so I don’t own it.
Dont give all this false hope :(
Just sharing what works for me because nobody told me this info...I had to work it out for myself. I'm not telling anybody what they should do. If you have a better strategy, please share it to provide others with some options that might work for them.
You didn't retire..... you are running a business called the Armchair. Seriously!
Haha...yes, I've been busy lately making videos. It's more fun than working in an office. Will incorporate some recreation beginning in late January.
Capital=1,000,000
{
Payout(10 Year)=2,500,000
Insurance:
Premium=? Yield=18% Year=10
Premium=2,500,000/1.18^10
Premium=480,000
PettyCash=20,000
Invest=500,000 Dividen=7%=35000
Note:Expenditure based on dividen
}
Thank you.
Best channel for investment.
That's very kind of you to say!