Dividend INvestments after retirement

[Kaufmanrider]

The idea of moving my money to an IRA upon retirement and investing in dividend earning stocks and bonds is something I have thought about recently.

Anybody tried this? Anybody know anything about it. Been searching the internet, but I can't find much info. If you know of any, shoot me a link and I'll gladly check it out.

Pimco has a total return bond fund ETF (just started a few months ago, though they have a mutual fund been around a number of years) The bond fund has made decent returns (3-8%) a year and pays monthly dividends for anywhere from .12 to .25 per share. If I went 100% I might get from 500 to 900 a month before taxes if my calculations are correct.

Stocks pay quarterly? Some pay fairly decent per share. The American Association of Independent Investors now has a pay service for finding and buying good dividend paying stocks.

Maybe a 50/50 split of 60/40????

My question, can you have dividends paid out to you/me, and is it taxed as normaly income or would there be a 10% penalty for early withdrawal?

The idea of justing letting my money stay invested and hopefully grow, and receiving dividend income monthly/quarterly, sounds interesting.

Thanks

 

[SkyPilot]

I think much of what you are interested in is very possible. However, you should probably schedule an appointment with a specific investment counselor so you can be sure what they offer and what all the implications may be. Many of my co-workers use EdwardJones and seem to be very happy. Maybe you will want to skip the counselor and do it yourself? Sometimes paying for a proffessional is worth the investment.. best of luck!

 

[Kaufmanrider]

I think much of what you are interested in is very possible. However, you should probably schedule an appointment with a specific investment counselor so you can be sure what they offer and what all the implications may be. Many of my co-workers use EdwardJones and seem to be very happy. Maybe you will want to skip the counselor and do it yourself? Sometimes paying for a proffessional is worth the investment.. best of luck!

I have a couple small ROTH accounts with Schwab, that is where I saw the Pimco Bond ETF advertised. However, I am thinking using the AAII pay service I could probably manage it myself. But of course, if the management cost is low enough, that might be an option.

I can go next June 2013 Skypilot. Have you heard, they are moving the South Central Regional Office to Grand Prairie. Gonna add some mile to my commute, might just be the straw that pushes me to retire after 25 BOP.

 

[Stoplight]

Kauf,

That's kinda what I was looking at doing, as well. I'm NOT a "sophisticated investor" by any stretch of the imagination, and frankly, I don't want to spend a lot of time and effort to become one ! Does that doom me to a life of being broke ? I don't think so...but it does put me in the "buy and hold" camp, I guess...the way I figure it, if I do a little research and pick good stable dividend-paying stocks, I really don't care what the day-to-day stock price does, just as long as the company is going to stay in business and continue paying dividends ! With a careful selection, the rate of return beats any CD's you can stash your money in, and you might even get some price growth thrown in

So far, I've been working with the Wife's IRA...We both have a self-directed IRA with USAA, and they have a screening tool that lets you filter stocks by dividend, etc. Now that I've retired, I'll move my TSP into a similar account I have, but I can't withdraw mine for a few more years, while the Wife can tap hers now, without the tax penalty, as needed. Somewhere along the line, I picked up the old advice to "buy stock in the things you use"...I've also tried to "diversify" among various sectors...thus, we have small amounts in McDonald's, Coke, General Electric, Bristol-Meyers, CSX railroad, Stanley-Black-Decker, a utility company, McCormick, etc...you get the idea ! I've also put some $$$ into a USAA stock mutual fund, a couple of bond funds, and their "Precious Metals" fund, which has done terrible :embarrest: Oh well...you live and learn ! We've only been doing this over the last 2 years, so I can't really say it's a successful strategy for retirement yet...

Birchtree's account thread is a good source of potential stock buys..he seems to be happy with the dividends he receives, through good times or bad !

Lastly...I was discussing the whole "Now that I'm retired, what do I do with my money, and my time ?" issue with an old friend. He sent me a link to a blog he follows...the woman is/was a CPA, and retired at age 44. As my friend said : "She retired with gobs more money than we'll ever have, but she makes some good observations...go back and read her earlier posts !" She has them broken down into categories, including money...I haven't yet read a lot of her material, but what I HAVE read, she says makes sense to me...quite a bit of stuff about the "4% withdrawal rate rule", etc. You might want to check it out :

Retirement: A Full-Time Job: Money Mondays

Anyway...I hope this helps...and good luck !

Stoplight...

 

[Kaufmanrider]

Thanks Stoplight. I'll be 48 or 49 when I retired, depending on the month I go next year. I'll have 25 years LEO and bought back 6 years of military. I'll probably work part time (or full if the right position and pay comes along ) so I am seriously thinking of rolling the money into the IRA, taking dividends as a supplement to my retirement, and maybe add some back into the IRA from my part time work if I find I have some extra cash.

I also found this blog which I am starting to read. Come early next year I'll take a trip to the local Schwab Office to discuss some options.

Building My Portfolio for Retirement, with Dividends and Bonds | The Dividend Ninja

Kauf,

That's kinda what I was looking at doing, as well. I'm NOT a "sophisticated investor" by any stretch of the imagination, and frankly, I don't want to spend a lot of time and effort to become one ! Does that doom me to a life of being broke ? I don't think so...but it does put me in the "buy and hold" camp, I guess...the way I figure it, if I do a little research and pick good stable dividend-paying stocks, I really don't care what the day-to-day stock price does, just as long as the company is going to stay in business and continue paying dividends ! With a careful selection, the rate of return beats any CD's you can stash your money in, and you might even get some price growth thrown in

So far, I've been working with the Wife's IRA...We both have a self-directed IRA with USAA, and they have a screening tool that lets you filter stocks by dividend, etc. Now that I've retired, I'll move my TSP into a similar account I have, but I can't withdraw mine for a few more years, while the Wife can tap hers now, without the tax penalty, as needed. Somewhere along the line, I picked up the old advice to "buy stock in the things you use"...I've also tried to "diversify" among various sectors...thus, we have small amounts in McDonald's, Coke, General Electric, Bristol-Meyers, CSX railroad, Stanley-Black-Decker, a utility company, McCormick, etc...you get the idea ! I've also put some $$$ into a USAA stock mutual fund, a couple of bond funds, and their "Precious Metals" fund, which has done terrible :embarrest: Oh well...you live and learn ! We've only been doing this over the last 2 years, so I can't really say it's a successful strategy for retirement yet...

Birchtree's account thread is a good source of potential stock buys..he seems to be happy with the dividends he receives, through good times or bad !

Lastly...I was discussing the whole "Now that I'm retired, what do I do with my money, and my time ?" issue with an old friend. He sent me a link to a blog he follows...the woman is/was a CPA, and retired at age 44. As my friend said : "She retired with gobs more money than we'll ever have, but she makes some good observations...go back and read her earlier posts !" She has them broken down into categories, including money...I haven't yet read a lot of her material, but what I HAVE read, she says makes sense to me...quite a bit of stuff about the "4% withdrawal rate rule", etc. You might want to check it out :

Retirement: A Full-Time Job: Money Mondays

Anyway...I hope this helps...and good luck !

Stoplight...

 

[Stoplight]

Kauf,

Thanks for the link you found ! That looks like an interesting "read", too !

I would think that your tax situation would be more complex than mine...as an LEO, and as "young" as you are (I thought I was "young", retiring at 57...my non-Fed friends are jealous...everything is relative !), taking money from your retirement account before 59 1/2 might be painful. I'm no expert on FERS or the tax code, though...perhaps you have special rules for avoiding the 10% penalty, as well ?

As I understand things, any dividends earned or stock price growth within the Wife's IRA (or mine) are not taxed by the Feds until withdrawn...and then they're taxed as "ordinary income", just as if I received them in a paycheck...no fancy capital gains/loss deductions or such, but at a currently higher rate...we'll see if Obama changes that !

We're thinking of spending the $$$ and sitting down with a USAA financial planner, just to get our options straightened out...might be money well-spent !

Stoplight...

 

[Kaufmanrider]

I had contemplated 72T withdrawals (or TSP Life expectancy pay-out), but then I could not add any money to the account. Monthly/quarterly dividends would help out in lieu of the 72T, but allow me to continue to add to the IRA, or so I am thinking.

I guess my question I'll have to pose to an expert down the roadis would my dividend income be taxed at the 10% penalty or just flat income tax rate.

Kauf,

Thanks for the link you found ! That looks like an interesting "read", too !

I would think that your tax situation would be more complex than mine...as an LEO, and as "young" as you are (I thought I was "young", retiring at 57...my non-Fed friends are jealous...everything is relative !), taking money from your retirement account before 59 1/2 might be painful. I'm no expert on FERS or the tax code, though...perhaps you have special rules for avoiding the 10% penalty, as well ?

As I understand things, any dividends earned or stock price growth within the Wife's IRA (or mine) are not taxed by the Feds until withdrawn...and then they're taxed as "ordinary income", just as if I received them in a paycheck...no fancy capital gains/loss deductions or such, but at a currently higher rate...we'll see if Obama changes that !

We're thinking of spending the $$$ and sitting down with a USAA financial planner, just to get our options straightened out...might be money well-spent !

Stoplight...

 

[sdouglas3]

Here is a link of favorites from Cramer. News Headlines Also, look at NLY. It sports a 13.3% dividend.

Steve

 

[SkyPilot]

...

 

[SkyPilot]

Dude, I had not heard that! Yikes... Many changes afoot, which may pusth many of us out the door before we hit the mandatory 57. Ride easy, my friend, and good fortune being able to go out at a much younger age than I!​

I think much of what you are interested in is very possible. However, you should probably schedule an appointment with a specific investment counselor so you can be sure what they offer and what all the implications may be. Many of my co-workers use EdwardJones and seem to be very happy. Maybe you will want to skip the counselor and do it yourself? Sometimes paying for a proffessional is worth the investment.. best of luck!

 

[Boghie]

Kaufmanrider,

HUGE RED FLAG

Thanks Stoplight. I'll be 48 or 49 when I retired, depending on the month I go next year. I'll have 25 years LEO and bought back 6 years of military. I'll probably work part time (or full if the right position and pay comes along ) so I am seriously thinking of rolling the money into the IRA, taking dividends as a supplement to my retirement, and maybe add some back into the IRA from my part time work if I find I have some extra cash.

At age 49 you will NOT be considered retired by the IRS. None of your TSP or Traditional IRA assets can be drawn from a retirement account without penalty prior to reaching a true retirement age - you already know about the 72T variant of true retirement... Retirement age is 55, and there must be no willful intent to seek other employment.

That includes the gains and dividends of holdings in your retirement account - whether TSP or an IRA.

I think you are setting yourself up for a huge and complicated tax situation.

Regardless, I'll bet your chosen IRA custodian will not even let you do this. My guess is that they will force you to keep the dividends in the retirement account till you reach retirement age. The advice to seek professional help is critical for your idea - and, my guess is that a very good tax attorney would be the best bet.

 

[SkyPilot]

Kauf,

Thanks for the link you found ! That looks like an interesting "read", too !

I would think that your tax situation would be more complex than mine...as an LEO, and as "young" as you are (I thought I was "young", retiring at 57...my non-Fed friends are jealous...everything is relative !), taking money from your retirement account before 59 1/2 might be painful. I'm no expert on FERS or the tax code, though...perhaps you have special rules for avoiding the 10% penalty, as well ?

As I understand things, any dividends earned or stock price growth within the Wife's IRA (or mine) are not taxed by the Feds until withdrawn...and then they're taxed as "ordinary income", just as if I received them in a paycheck...no fancy capital gains/loss deductions or such, but at a currently higher rate...we'll see if Obama changes that !

We're thinking of spending the $$$ and sitting down with a USAA financial planner, just to get our options straightened out...might be money well-spent !

Stoplight...

LEO's Firefighters and ATC can retire in the year in which they turn 55 without the 10% penalty... before that and they have to wait until 59.5 or the penalty is in force, unless they take equal monthly payments based on life expectancy (72t rule.)

 

[Elgallo]

If you read my retirement thread you will see I recently transferred 100% of my TSP to Fidelity. I Model a Growth and Income portfolio of appx 60/40 stocks/bonds which I receive from a subscription to a news letter whioch concentrates soley on Fidelity and is staffed by ex Fidelity folks. Prior to my retirement I was Agressive Growth (100% stockls) for appx. 20 years, also derived from tnhe news letter.

BTW it took over 6 weeks to effect this transfer of over $500K!

One may also want to look into one of the newer Fidelity products which in essence is income insurance. It's kinda like a triditional annunity but not exactly.
It's called the MetLife Growth and Guaranteed Income annunity, MGGI. It would be interestinbg to here your opinions on this investment.

 

[Kaufmanrider]

Boghie, thanks. My question was on the dividend payments and taxes. I had thought dividends would afford me extra monthly income inlieu of 72T but leave me the ability to add money to an IRA. I guess I'll need to do some further research.

Kaufmanrider,

HUGE RED FLAG



At age 49 you will NOT be considered retired by the IRS. None of your TSP or Traditional IRA assets can be drawn from a retirement account without penalty prior to reaching a true retirement age - you already know about the 72T variant of true retirement... Retirement age is 55, and there must be no willful intent to seek other employment.

That includes the gains and dividends of holdings in your retirement account - whether TSP or an IRA.

I think you are setting yourself up for a huge and complicated tax situation.

Regardless, I'll bet your chosen IRA custodian will not even let you do this. My guess is that they will force you to keep the dividends in the retirement account till you reach retirement age. The advice to seek professional help is critical for your idea - and, my guess is that a very good tax attorney would be the best bet.

 

[Birchtree]

Why not consider a discount brokerage account and just purchase dividend paying stocks and reinvest those dividends. I have 3 dividends due today and 8 due tomorrow. On 6/1 I have 17 that will be reinvested and a total of around 75 for the month. I've received 78 dividend increase announcements so far this year - that's good money coming into my account. Qualified dividends are taxed at 15% along with long term capital gains - with new leadership those rates will be continued to help the economy. Every three months the cycle is repeated and when a dividend is reinvested at good pricing you acquire more shares and then three months later you've earned a larger dividend payout - it's a regular self-feeding system. I use my margin interest deduction to offset my dividend taxes - margin can be productive but also dangerous but for me it's worth the opportunity.

 

[typhoon42]

You might want to check out Vanguard Wellesly income fund.