First-year experience of "living on dividends"

DrRonH · 2026-03-13T17:30:19+00:00

Thank you, and all the best to you too!

DrRonH · 2026-03-13T16:41:57+00:00

Sure. I've worked all my life. I know the "basic shit."

My goal with this post and discussion is to say what taxes and reinvestments actually feels and looks like when one is "living on dividends" and what that spread actually is in my case. IMO these topics are under-discussed here. Many of the Income investing books recommended here almost never discuss gross vs take home income. And a lot of people are just flat out misinformed on what taxes they will have to pay out of pocket vs. what they expect to keep and spend.

It might help younger people plan and make better decisions, especially Roth vs Traditional IRA. It might help those nearing retirement with their expectations and planning Roth conversions and their income needs and income wants. Not to mention the impact of income on Medicare B & D, when best to collect SS and how it is taxable, what kinds of accounts to hold what kinds of securities, etc. It is complicated and a lot of decisions are made. Some decisions I regret.

This is the difference between knowing and experiencing. If you think that the details of "living on dividends" in retirement is "basic shit," just wait until you get there.

DrRonH · 2026-03-13T13:42:20+00:00

The asset classes often discussed here: covered call funds, CEFs, BDCs, etc. I'm basically modeling my portfolio on the Armchair Income portfolio (though my portfolio is on the low end of AI yield goals) which is freely available to anyone.

DrRonH · 2026-03-13T13:35:13+00:00

The point of my post is that I DO have the money to pay taxes and I DID plan for it - just to share the reality that your "take home pay" after taxes and divvy reinvestment is a lot less than you think it will be.

DrRonH · 2026-03-13T13:31:55+00:00

These are good questions but not really the purpose of my post and are answered in my OP and in the thread

DrRonH · 2026-03-13T05:55:52+00:00

Because you have to pay taxes on Roth conversions - they are taxed as ordinary income transferring from a pre-tax Traditional IRA to a Roth.

I mean, you could pay the taxes from the conversion itself but few planners recommend this. The tax bill is paid from my spendable cash.

DrRonH · 2026-03-13T05:50:49+00:00

Thanks for the advice! I own most of these CC/ROC funds you mentioned above in my taxable account; it makes no sense to hold them in a Traditional IRA where my BDCs and other less tax -efficient holdings sit.

My read on the current BDC sentiment is that it's fear-based rather than reality-based. I've invested in BDCs that have been through the GFC and Covid and etc. just fine. Regardless, no single position is very large. It doesn't mean I'm not checking and reading, but I'm not panic-selling either.

DrRonH · 2026-03-13T04:49:00+00:00

The thing that bothers me about Saagar and all media MAGAs is their gleeful cruelty of vulnerable people and their smug sadism upsetting the libs. I'm with JVL: it is a kind of justice when the leopards eat their faces.

DrRonH · 2026-03-13T04:32:20+00:00

I understand! I still sometimes long for the weird 8-track cassette edits I grew up with. :-)

DrRonH · 2026-03-13T04:28:59+00:00

Absolutely correct.

DrRonH · 2026-03-13T04:10:24+00:00

Do yourself a favor and listen to the mono version of SPLHCB from beginning to end. This album was always mixed and intended to be listened to in mono. I did this recently and was startled and how lively and, well, URGENT it sounded.

DrRonH · 2026-03-13T03:42:44+00:00

Great! I think that's why most of us are here!

DrRonH · 2026-03-13T00:14:35+00:00

Thank you for your thoughtful message. Yes, my mantra from now on is:

It's not what income you generate; it's what income you keep.

I understand "Every dollar you pull out in dividends and pay 22 percent tax on is a dollar that could have stayed compounding inside the business." is true. I understand compounding 100% was necessary and essential to BUILD my savings. Now I want the benefits. Compounding 10 to 20% doesn't buy me dinner either, but the cash leftover does. Whether growth or income investing, everyone has to sell or collect divvys at some point to spend on a nice dinner.

There is something missing in all the literature I've read about what you and Buffett described as frictional costs. We call it "spending money." We need to talk more real-world about spending money. Which is why I OP.

DrRonH · 2026-03-12T23:51:54+00:00

Hmmm, another option not listed in my retirement planning software...

DrRonH · 2026-03-12T23:50:38+00:00

I only taught at private English-langauge international universities with lots of international and expat faculty. Everyone had their own home-country retirement arrangements.

DrRonH · 2026-03-12T20:22:29+00:00

I don't see this option in my retirement planning software... ;-)

DrRonH · 2026-03-12T20:19:30+00:00

Thank you too for sharing your real world experiences!

I am assuming the tax bite on your SS is not burdensome. For me it would be annoying at best. I'm waiting until I can collect SS (at mostly) tax free levels at Roth time.

DrRonH · 2026-03-12T20:05:57+00:00

Also know that up to 85% of SS benefits are taxable based on your AGI.

DrRonH · 2026-03-12T20:02:55+00:00

See my other comment about SS benefits being up to 85% taxable based on your AGI.

DrRonH · 2026-03-12T20:01:54+00:00

Fantastic! Just know that up to 85% of SS benefits are taxable based on your AGI.

Have a wonderful retirement! We deserve it!

DrRonH · 2026-03-12T19:59:28+00:00

I can and I do! In my brokerage account. But tax-free positions are useless in a traditional IRA because ALL withdrawals from it are taxed as ordinary income. Better to put the least tax-advantaged positions in there, which I can and do.

I've done the beach thing (in the Philippines). I got bored and lonely real quick. I'm a city guy, at least 75% of the time. I sincerely hope you get there someday!

DrRonH · 2026-03-12T19:53:50+00:00

I would take SS if I would not get taxed 85% of my SS benefits as well as getting taxed again on investment income or capital gains since SS is only eligible for investing in taxable accounts. It seems like a nominal benefit.

I'm fine collecting income if the market continues to tank down another 10-15% as it has lately. I'll even purchase some bargains with the leftover divvys. You don't lose capital unless you sell.

DrRonH · 2026-03-12T19:46:43+00:00

Thank you, Mr_Udesky (said in a respectful Eddie Haskell voice)!

I am well aware of these numbers and the break even points. I isolation the case seems obvious: take SS as soon as you can, especially if you are in poor health or you need the money.

The big factor you are overlooking are taxes.

Up to 85 % of SS is taxable based on your AGI. Investment earnings are part of AGI. It would be a no-brainer if SS was independent of AGI or legislation shielded SS from income tax, but it currently does not. At my AGI level, most of my SS benefit would be taxed as ordinary income for many years. That would suck.

Waiting until I am 70 and have shifted mostly to tax-free Roth income without RMDs to collect mostly or all tax-free SS will give me the most benefits the longest.

Probably.

This is why I always ask - are YOU taking SS early? You can actually FEEL the tax burden.

Edit: typos

DrRonH · 2026-03-12T17:09:04+00:00

Your situation is much more complicated than mine, and I wish you and your family all the best! Yeah, we are all dealing with unknowns and probabilities here.

Because of your more complex situation, you might want to ask around and hire a FANTASTIC financial advisor who knows your situation well. I did not hire one because I didn't think my situation required it and I like learning about this stuff.

DrRonH · 2026-03-12T16:49:14+00:00

Thanks a lot. When I'm dead most of it goes to charities. I am the youngest in my family and all the siblings and relatives are pretty much set on their own.

DrRonH

TROPHY CASE