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SDS (Seductive Dividend Stocks)
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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? /... More
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  • A Dividend Growth Investor Can Beat IRS (13 March 2012) 8 comments
    Mar 14, 2012 11:56 AM
    IRA type accounts is a good velichcle for dividend investors because no taxes on dividends, but IRS required to have taxable distributions from such account after age 70.5 (IRS publ. 590 but I didn't read it because it is too early for me and IRS probably will change rules few times). IRS specified IRA Required Minimum Distribution (RDM). I took their table and calculated annual RDM growth rate:
    www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
    AGEDISTRIBUTION% distributionRDM Growth %
    7027.43.6496 
    7126.53.77363.40%
    7225.63.90633.52%
    7324.74.04863.64%
    7423.84.20173.78%
    7522.94.36683.93%
    76224.54554.09%
    7721.24.71703.77%
    7820.34.92614.43%
    7919.55.12824.10%
    8018.75.34764.28%
    8117.95.58664.47%
    8217.15.84804.68%
    8316.36.13504.91%
    8415.56.45165.16%
    8514.86.75684.73%
    8614.17.09224.96%
    8713.47.46275.22%
    8812.77.87405.51%
    89128.33335.83%
    9011.48.77195.26%
    9110.89.25935.56%
    9210.29.80395.88%
    939.610.41676.25%
    949.110.98905.49%
    958.611.62795.81%
    968.112.34576.17%
    977.613.15796.58%
    987.114.08457.04%
    996.714.92545.97%
    1006.315.87306.35%
    1015.916.94926.78%
    1025.518.18187.27%
    1035.219.23085.77%
    1044.920.40826.12%
    1054.522.22228.89%
    1064.223.80957.14%
    1073.925.64107.69%
    1083.727.02705.41%
    1093.429.41188.82%
    1103.132.25819.68%
    1112.934.48286.90%
    1122.638.461511.54%
    1132.441.66678.33%
    1142.147.619014.29%
    115 and over1.952.631610.53%

    Until age 112 years RDM growth rates are below 10%.
    I presume (and this is usually incorrect) that the market value of portfolio in a year is equal to the market value of portfolio in a previous year plus collected dividends. If you invest in dividend growth stocks with dividend growth rate above 10% (and there are plenty of such stocks e.g. in David Fish CCC list) you can beat IRS in retirement game.
    Amen.
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  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3477) | Send Message
     
    Author’s reply » BTW, there are many talks about financial advisors' recommendations to withdraw 4% of assets after retirement. As far as I understand it is simple illegal after age 73
    13 Mar 2012, 02:00 PM Reply Like
  • David Fish
    , contributor
    Comments (8080) | Send Message
     
    I'm not sure what you're referring to as "illegal" since you can withdraw anything you want...up to 100% of your assets.
    13 Mar 2012, 07:29 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3477) | Send Message
     
    Author’s reply » As far as I understand 75 years old MUST withdraw above 4%, so recommendation to take out 4% is illegal IMO.
    13 Mar 2012, 09:40 PM Reply Like
  • HoldenTodd
    , contributor
    Comments (16) | Send Message
     
    I am a retired CPA. During my career, I mostly did basic accounting work and computer consulting (very little tax.) However I have done a bit of reading on RMDs since they will soon be an issue for me.

     

    When I read your post, my immediate thought was that you had confused the guideline of a 4% withdrawal rate with the legal requirement to withdraw a portion of one's retirement account assets starting at the age of 70.5. If the RMD Uniform Life Table were shown as a percentage withdrawal instead of using years, more people might raise this question. However, the guideline and the RMD are two separate issues. If you subscribe to the 4% guideline, once the RMD exceeds 4%, a person will need to save the amount over 4% in a taxable account to continue to grow for future income. That said, I suspect that many people including some advisors could make this mistake. Since the penalty is substantial, anyone subject to RMDs should make certain that they are withdrawing the correct amount.
    20 Apr 2012, 02:28 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3477) | Send Message
     
    Author’s reply » HoldenTodd,
    Thank you for the comment. I'm not a CPA and far away from RMD age, so I just compared RMD growth rate with DGinvestment strategy. I do not confuse advisors recommendation about 4% withdrawal rate with IRS requirements: first is just opinion of some advisors, second is the law. I think 4% guideline is nothing more than a simple game any advisor can do with calculator (well now with iPhone) in hands to scare many investors about their finance and force them to buy advisor's service. It is more polite not to disclosure my opinion about tax laws in USA 8-).
    As I noted some of my assumptions are at least weak, so I 200% agree with "anyone subject to RMDs should make certain that they are withdrawing the correct amount. "
    SDS
    20 Apr 2012, 06:49 PM Reply Like
  • Be Here Now
    , contributor
    Comments (4390) | Send Message
     
    SDS,

     

    Thanks for the calculation. I had intuitively deduced pretty much the same but had not run the numbers. Bookmarked.
    24 Mar 2013, 06:49 PM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3477) | Send Message
     
    Author’s reply » Let me propose a probably controversial idea:
    A retiree after 70 has to pay Required Minimum Distribution (RMD) which is calculated as far as I know based on market value of IRA account. In order to minimize RMD the retiree who is dividend investor should want prices of his /her/ stocks go DOWN at least to compensate RMD growth rate. At the same time the retiree as any dividend investor (esp. DGi) wants to have positive DGR to be above inflation. In this case the retiree can use dividends as increasing part RMD.
    SDS
    2 Dec 2013, 02:22 AM Reply Like
  • Be Here Now
    , contributor
    Comments (4390) | Send Message
     
    SDS,

     

    You are correct on the RMD calculation. It is calculated based on the account value on the last day of the year, so of course you want the account value to be as low as possible. If your dividends are growing, they will cause the account value to increase, and will at least in part, and perhaps entirely, compensate for the increase in the RMD percent, which also increases.
    2 Dec 2013, 11:25 AM Reply Like
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