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Comment by dot1x | Hacker News Reader

> getting rid of dividends makes no sense and is borderline intellectually dishonest just to make the point

How so? Once you retire, you don't let dividends reinvest. Makes perfect sense.

You should be taking money out at your chosen rate, not depending on how those companies choose to allocate money between dividends vs. buybacks vs. cash piles vs. reinvestment. So treating dividends as reinvested by default makes sense to me.

Exactly -- dividends and share buybacks are nearly the same, but the original paper stripped out the first.

Dividends aren't enough to cover living expenses.

If you plan to withdraw 4% per year, so you preserve your wealth indefinitely, you're more than 2 percentage points short when the dividend yield is 1.71% [1]

If you want to live solely from dividends, you'll need more than double the capital.

If you want to die with zero [2], it's impossible.

I'd much rather invest in a dividend-accumulating index fund and sell as I please.

[1] - https://www.multpl.com/s-p-500-dividend-yield

[2] - https://www.goodreads.com/book/show/52950915-die-with-zero

Seems like you agree returns would be even worse since you'd take out more than the dividend to survive.

Once you start selling off your assets, the """returns""" are worse, but equally so no matter what you invested in. It's better to leave that math out of the situation and look at the returns of the actual assets by themselves. Which includes reinvesting.

If you really want to factor in the sell-off, then every dollar of dividend means one less dollar of sold stock. If dividends go higher than withdrawals for a year, then you need to buy more stock to compensate. So the math comes out the same. What you don't do is ignore dividends, or let excess dividends pile up in cash form. Which the original paper apparently did.

You can absolutely die with zero: buy a life annuity and let someone else worry about the problem.

I think parent is saying that you can't die with zero if you plan to live off dividends. (Because you need to keep owning the stock throwing off the dividends.)

OK sure; same's true of bonds or CDs or any other asset type though no? The point is that "invest in equities with dividend reinvestment until retirement and then buy a life annuity" is a totally viable strategy. That's basically the way pension saving in the UK works historically, for example.

Right. Life annuities may or may not be a good deal. But that's certainly the main way to not be essentially forced to pass on assets. (Modulo real estate you own and are living in.) And, as you say, defined benefit pensions basically work the same way--although, in the US, current ones are fairly uncommon outside public sector--although a lot of people still have them from years past.

Just to add. Bonds and CDs do have durations though so you can essentially do your own actuarial calculations to a certain degree.

In the UK this is actually the typical pattern for defined-contribution schemes; I haven't looked recently but it used to be the case that you were legally required to buy an annuity with 75% of your tax-deferred retirement savings.

Interesting. I'm not sure how common annuities outside of defined benefit pensions are in the US. My impression is not very.

I've noticed them mostly in the form of charitable trusts (which can offer the benefit of basically shielding large asset gains from taxation). But it doesn't seem to be a widely-used investment strategy in general. Maybe it's more common if someone doesn't have an interest in passing down any money.

You’re not required to any more, but there are heaps of people on annuities there.

I haven’t read anything about it yet but a lot of them must be in pretty awkward straits because most aren’t fully indexed to inflation…

The rules were changed some time ago; also buying an annuity hasn't been worth it for a while.

I'd expect a good portion of deaths involve very expensive health care for the last few months or years of life.

Live off dividends, then sell to pay for the healthcare right before you die

In the US.

In most other developed countries a) healthcare is funded by the government (to a first approximation). b) end-of-life healthcare expenditure is considerably lower outside the US.

And Medicare for those 65 and older in the US is funded by the government.

It may be hard to imagine, but dividend yields were not always this low [1]. Investopedia has it usually something healthy over 4% up until 1990s it seems. Over that 1926- time frame, dividends are said to have contributed 32% of the total return of S&P 500 [2].

[1] https://www.investopedia.com/articles/markets/071616/history...

[2] https://www.spglobal.com/spdji/en/research/article/a-fundame...

US stocks are arguably overpriced leading to low dividend yields. In emerging markets you easily get 5-7%.

Why would you exclude part of the total return on an investment? It'd be like ignoring the principal value of a bond because you expect to live on the coupon. Cashflows are cashflows.

Because you'd be selling it as you earn it to be able to live on on retirement. In fact, dividends wouldn't even be enough.

but they still exist and can be a large fraction of the value...

> Once you retire, you don't let dividends reinvest. Makes perfect sense.

You don't let interests from bonds reinvest as well then.

There are enough “cash cow” securities that maintain a same / similar share price by distributing heavily for this to make sense. The price wouldn’t show the whole story and the cash could go much further over 100 years than just sitting in a bank account.

I don’t know many people that spend 100 years in retirement.

It's not a chart of "how much money does Jonny have".

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