{"id":183135,"date":"2025-04-13T22:33:19","date_gmt":"2025-04-13T22:33:19","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/finance\/are-dividends-and-income-part-of-my-retirement-withdrawal-rate\/"},"modified":"2025-04-13T22:33:19","modified_gmt":"2025-04-13T22:33:19","slug":"are-dividends-and-income-part-of-my-retirement-withdrawal-rate","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=183135","title":{"rendered":"Are Dividends and Income Part of My Retirement Withdrawal Rate?"},"content":{"rendered":"


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Before the article, here\u2019s what\u2019s happening this week on our podcast, <\/em>Personal Finance for Long-Term Investors<\/em><\/strong>:<\/em><\/p>\n

\n<\/div>\n<\/div>\n

Today\u2019s Question<\/h2>\n

Barry wrote in and asked: <\/p>\n

\n

Jesse \u2013 I\u2019ll need about $100,000 per year from my portfolio in retirement. I have $3M in my retirement portfolio. It\u2019s producing about $60,000 in income and dividends for me, meaning I only need to sell $40,000 (net of taxes) of the principal value to fund the rest of my need. By my math \u2013 $40,000 divided by $3M is about 1.3%<\/strong>. That withdrawal rate is WAY less than the 4% rule. <\/em><\/p>\n

Am I thinking about this correctly? <\/em><\/p>\n<\/blockquote>\n

\n
\"pie<\/figure>\n<\/div>\n

Financial Planning Background Info<\/h2>\n

Before answering today\u2019s question, we must ensure we\u2019re all on the same playing field.<\/p>\n

The 4% Rule<\/h4>\n

If you\u2019re not familiar with the 4% rule, here\u2019s some excellent info for you: <\/p>\n

Where Do Investment Returns Come From? <\/h4>\n

We also need to discuss where investment returns come from. Where does the \u201cgrowth\u201d come from if you own stocks, bonds, real estate, or anything else? How does the \u201creturn on investment\u201d end up in your pocket? <\/p>\n

The answer is different for each investment class. <\/p>\n

But *most* investments provide their return to investors via two separate mechanisms<\/strong>: <\/p>\n

    \n
  1. They <\/strong>regularly return cash to investors.<\/strong>\u00a0This could be interest from a bond,\u00a0<\/span>a dividend from a stock, or rent from real estate. <\/li>\n
  2. The investment itself appreciates in value.<\/strong> This could be a stock increasing in price over time (as the underlying company grows and becomes more profitable) or a building you own growing in value (due to capital improvements or increased demand in its local market). <\/li>\n<\/ol>\n
    \n
    \"shallow
    Plants grow bigger AND provide annual fruit.<\/em><\/figcaption><\/figure>\n<\/div>\n

    For a typical retirement portfolio:<\/p>\n

    \n

    Portfolio\u00a0Growth =\u00a0Dividends\u00a0<\/strong>+\u00a0Interest\u00a0<\/strong>+\u00a0Capital Appreciation<\/strong><\/p>\n<\/blockquote>\n

    When someone says, \u201cA 60\/40 portfolio grows by ~9% per year, on average,\u201d<\/em> what they are actually saying is:\u00a0<\/p>\n

    \n

    9% = Average Dividends\u00a0+ Average Interest\u00a0+ Average Capital Appreciation\u00a0<\/p>\n<\/blockquote>\n

    Do Dividends and Income Count Toward the 4% Annual Withdrawal? <\/h2>\n

    To answer today\u2019s question: <\/p>\n

    Yes, if <\/strong>dividends and income leave your portfolio, they are part of your withdrawal rate.\u00a0<\/strong>If you extract<\/span> 2% of your portfolio via income and dividends and\u00a0another 1.3% via selling assets, then your\u00a0withdrawal rate is 3.3%<\/strong>. <\/p>\n

    The dividends and income are not free money. They are one of the key components of your overall portfolio return. If you weren\u2019t extracting those dollars, you\u2019d reinvest and compound them. Believing that dividends are \u201cfree\u201d is one of the biggest misconceptions in DIY investing<\/a>. <\/p>\n

    \n
    \"a<\/figure>\n<\/div>\n

    The 4% Rule Is Limited\u2026But *This* Is Much Better<\/h2>\n

    The simple fact is that the 4% rule\u2014or any withdrawal rule\u2014is only a rule of thumb. It\u2019s a starting point but highly limited. You must go deeper. <\/p>\n

    A real CFP financial planner would use a long-term cash flow model to analyze your portfolio\u2019s planned withdrawal sequence, including any income or dividends from your taxable account. <\/p>\n

    \n
    \"\"<\/figure>\n<\/div>\n

    Your withdrawal sequence is likely to be lumpy. It\u2019ll change once you start collecting Social Security<\/a> And change again when you hit RMD age. Some years should include Roth conversions<\/a>. You should plan all of this out ahead of time! <\/strong><\/p>\n

    Starting your retirement without taking this detailed step is a risky move. If you haven\u2019t taken it already, there\u2019s no better time than now. <\/p>\n

    Thank you for reading! If you enjoyed this article, join 8500+ subscribers<\/strong><\/a> who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters<\/strong><\/a> before signing up.<\/p>\n

    On that note, our podcast \u201cPersonal Finance for Long-Term Investors\u201d<\/a><\/strong><\/em> is by far outpacing this written blog. Tune in and check it out.<\/a> <\/strong><\/p>\n

    -Jesse<\/p>\n

    Want to learn more about The Best Interest\u2019s<\/strong> back story?<\/em> Read here<\/a>. <\/p>\n

    Was this post worth sharing? Click the buttons below to share!<\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"

    Before the article, here\u2019s what\u2019s happening this week on our podcast, Personal Finance for Long-Term Investors: Today\u2019s Question Barry wrote in and asked: Jesse \u2013 I\u2019ll need about $100,000 per year from my portfolio in retirement. I have $3M in my retirement portfolio. It\u2019s producing about $60,000 in income and dividends for me, meaning I […]<\/p>\n","protected":false},"author":1,"featured_media":183136,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[93],"tags":[14969,10975,3341,1485,11077,55734],"dealstore":[],"offerexpiration":[],"class_list":["post-183135","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-dividends","tag-income","tag-part","tag-rate","tag-retirement","tag-withdrawal"],"yoast_head":"\nAre Dividends and Income Part of My Retirement Withdrawal Rate? - Som2ny Network<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fivemor.com\/?p=183135\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Are Dividends and Income Part of My Retirement Withdrawal Rate? - Som2ny Network\" \/>\n<meta property=\"og:description\" content=\"Before the article, here\u2019s what\u2019s happening this week on our podcast, Personal Finance for Long-Term Investors: Today\u2019s Question Barry wrote in and asked: Jesse \u2013 I\u2019ll need about $100,000 per year from my portfolio in retirement. 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