I hope my last post address the queries of some readers.
I will try to do some of these if I can when I have. One of the main reasons I try to do that is that I can have something to refer readers next time to if they need a more detailed explanation.
The majority of the dividend investors have been supportive. They read into my points and interacted with me to better understand how to reduce blindspots in their dividend strategy.
There are some good reflective posts that were generated from this:
- Limster (who is planning his FI with a half ETF half stocks dividend-based strategy): Addressing Income Volatility and Addressing Risky Stocks
- Blade Knight (who is planning with a dividend-based portfolio) : Interesting Postings On Websites & Blogs Over the Weekend- 2nd Investment Property and Flaws in General Dividend Investing Mindset.
- My friend Thomas at 15HWW: Some Quick Thoughts On The Dividend Income Retirement Model
Limster reflected and thought it through, and he shared some similar thoughts as Thomas. The records of actual dividend investors have been good. But I feel that some of the focus has been on returns, but retirement is more than about returns. If returns is the answer, then a portfolio of small-cap value might solve all these problems.
The challenge with consistently drawing income is that you are solving a few uncertainties.
We have to recognize uncertainties as a big part of the base rate or the big gorilla in the room. The uncertainties or that we can live through a lucky or unlucky period and it is difficult to figure that part out.
A focus on returns is a symptom of the frame of mind when you are using the blueprint for accumulation in retirement income planning. While returns are important, they are less important if you don’t take care of the main thing: Respecting the income to your portfolio value.
You can have a poor investment return but have a good retirement if you plan well. But there is so much harping on returns, returns, returns. What happens if your returns fall short? Do you get a poor retirement? After blaming your adviser, the person conducting the investment course, and yourself, what do you do then? Find a new investment manager?
What if the good investment manager also fails to deliver as well as you hope during an unlucky period?
The second part is to re-emphasize that I am not beating down dividend investing as an accumulation strategy. Some of the examples brought up are people in the accumulation stage and I have no problems with that. It is not about whether they can get returns or not. Even 4% a year growth grows your wealth for FI!
But we have to recognize that what may have made the plans work for many is not due just to dividend income but that their capital base is of a size that buffers for income volatility.
My regular commenter Sinkie brings up this point:
I seldom come across people whose income is three times their annual spending needs but in my Telegram group there is a lady whose income is twice her needs and I think the psychological safety of dividends plus the buffer gives her comfort.
But we need to recognize that what may have given a safe retirement is some buffers, or technically a larger capital relative to the income needed.
How much more buffer?
That is what sometimes we do all these safe withdrawal rate studies or Monte Carlo to try and figure out. We want to figure out if we are closer to being safer or more risky in the plan.
But yet… in the middle of all this, I get comments like this:
My friend Chris seems to think that I do all this thing to drive home some better retirement income model and I am doing this either because it is good content to generate traffic or that I have some incentive to sell this.
If it is not clear enough, I wrote this because enough people have asked me about it. It is not because I got all the time in the world and wish to stir some controversy like he always does.
And you can detect that some of the people who asked about the comment I made are genuinely planning for their own eventual FI.
I didn’t wake up at 6 am and spend 4 hours writing a post just because I think it is a sport for likes.
What did I do it for?
So that you can understand why I lean towards what I prefer now and away from what I used to think is good enough more clearly.
Why do we need greater clarity on this subject?
Because your retirement income is not a simulation or paper exercise to me. Some of you may be like me, who may not eventually want to wake up one day from your retirement and realize there are flaws in my retirement income plan and have to scramble to make adjustments to a plan that I thought was very sound and comforting.
By then, you will realize that you have physical frailties, and are not competitive in the job market.
The key to retirement is peace of mind and for some, the numbers need to make sense.
My colleague Chin Yu told me one of his clients is thinking about officially retiring.
He is happy for them.
He asked: “How do you feel about it?”
“Happy and scary at the same time.”
“What clouds your thoughts?”
“We are not sure if we have any blind spots in our plan.”
Planning for retirement and actually retiring are two different things. When some retire, they leave behind a very lucrative career and likely leave a lot of future human capital income on the table.
We all want to make good decisions so that our families don’t suffer from our poor decisions.
What clouds Chin Yu’s clients clouds most of our minds.
I want you, my readers, to make good decisions in your lives.
If you don’t like it, but I think that is the truth, then I think I have some duty to point things out.
I also have added burden because I work at Providend. The reason why I look into this area of finance a lot is that clients put their family’s hopes for their family on us.
I don’t know about the advisers, but I fxxking don’t like to get this wrong. Whether you are high net worth or low net worth or what, you want to make good financial decision.
And retirement is one where the base rate is very different.
When you stop having an incoming recurring income, things change.
Recurring income from work buffers & corrects ALOT of poor, erroneous decisions and blindspots.
There are things you can correct because you have income but when you don’t have it, your hands are more tied.
If you ask me, whether you are using a dividend strategy for retirement or another strategy, I want you to have peace of mind. Peace of mind is a feeling and for some, they need to be assured more about the numbers to have that.
I probably spend enough time thinking about the subject of retirement income or passive income needed for different timeframes. Not investing but retirement income.
Deep down, I am so serious about it that I wonder how many in Providend know how serious this subject is to me. The comments I sometimes get are how “Kyith likes all this investing stuff” and I go home thinking how well they really know what I am most concerned about at Providend.
I can let a lot of things slip by such as Legacy planning and Children’s education if we don’t have a solution that leans towards great.
I know the base rate. People can adjust. The model is such that people can adjust.
Passive income for financial independence? The challenges are different man.
And if I don’t think about this, who is supposed to think about this?
I think I am done thinking about the passive income models more or less at this point. I will still be open and pay attention but I think its unproductive to continue. Knowing what I know, it also allows me to assess who really understands these retirement income problems, who are genuinely interested to know more and who are the people who consistently refuse to understand better but focus on arguing for the sake of arguing.
If you see me give you a long reply, it is because I detect you genuinely want to figure these things out or you matter enough to me to give you that. If I don’t, it means I have given up on you.
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