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A DGI Investor Planning For Retirement

Reading Regarded Solution's recent Retirement Strategy article - and some of the comments that it inspired got me thinking.

I am now 3 yrs retired and thanks to my DGI mentors at SA (DVK, David Fish and Chowder), embraced the DGI strategy several years before my retirement.

Although I didn't start with a $1M portfolio, I have restructured my portfolio to include 20 DGI stocks which meet my personal criteria: YoDG >=15, Yield (on cost) >=3.5% and 5YR DGI >=7%.

Since my retirement plan is to use the dividends to augment my Social Security benefit and never sell the stocks for income, I developed a model (spreadsheet) to forecast the future income.

As RS mentioned, none of us knows how long we have or what unplanned medical expenses await us as we age, but there are some basic factors we can anticipate.

Age

Portfolio (NASDAQ:COST)

Portfolio YoC

DGR

Annual Dividend

Income taken out

Reinvested

Reinvested YoC

Expenses

COLA

Social Security

SS COLA

68

500,000

5.4%

7.5%

27,000

24,372

2,628

3.5%

60,000

 

35,628

 

69

502,628

5.8%

7.5%

29,117

25,459

3,658

3.5%

61,800

3.0%

36,341

2.0%

70

506,286

6.2%

7.5%

31,429

26,587

4,842

3.5%

63,654

3.0%

37,067

2.0%

71

511,128

6.6%

7.5%

33,955

27,755

6,200

3.5%

65,564

3.0%

37,809

2.0%

72

517,328

7.1%

7.5%

36,719

28,966

7,753

3.5%

67,531

3.0%

38,565

2.0%

73

525,082

7.6%

7.5%

39,744

30,220

9,524

3.5%

69,556

3.0%

39,336

2.0%

74

534,606

8.1%

7.5%

43,059

31,520

11,538

3.5%

71,643

3.0%

40,123

2.0%

75

546,144

8.5%

7.5%

46,692

32,867

13,825

3.5%

73,792

3.0%

40,925

2.0%

76

559,969

9.1%

7.5%

50,678

34,262

16,415

3.5%

76,006

3.0%

41,744

2.0%

77

576,384

9.6%

7.5%

55,053

35,708

19,345

3.5%

78,286

3.0%

42,579

2.0%

78

595,729

10.0%

7.5%

59,859

37,205

22,654

3.5%

80,635

3.0%

43,430

2.0%

79

618,383

10.5%

7.5%

65,141

38,755

26,386

3.5%

83,054

3.0%

44,299

2.0%

80

644,770

11.0%

7.5%

70,950

40,361

30,590

3.5%

85,546

3.0%

45,185

2.0%

81

675,359

11.5%

7.5%

77,342

42,023

35,319

3.5%

88,112

3.0%

46,089

2.0%

82

710,678

11.9%

7.5%

84,379

43,745

40,634

3.5%

90,755

3.0%

47,010

2.0%

83

751,312

12.3%

7.5%

92,130

45,527

46,602

3.5%

93,478

3.0%

47,951

2.0%

84

797,914

12.6%

7.5%

100,671

47,373

53,298

3.5%

96,282

3.0%

48,910

2.0%

85

851,212

12.9%

7.5%

110,086

49,283

60,803

3.5%

99,171

3.0%

49,888

2.0%

86

912,015

13.2%

7.5%

120,471

51,260

69,210

3.5%

102,146

3.0%

50,886

2.0%

87

981,226

13.4%

7.5%

131,928

53,307

78,621

3.5%

105,210

3.0%

51,903

2.0%

88

1,059,847

13.6%

7.5%

144,575

55,425

89,150

3.5%

108,367

3.0%

52,941

2.0%

89

1,148,997

13.8%

7.5%

158,538

57,618

100,921

3.5%

111,618

3.0%

54,000

2.0%

90

1,249,917

13.9%

7.5%

173,961

59,886

114,075

3.5%

114,966

3.0%

55,080

2.0%

Notes:

  • Portfolio is increased by Reinvested each year
  • Portfolio YoC is Annual Dividend divided by Portfolio
  • Annual Dividend is previous year Annual Dividend times DGR
    plus Reinvested times Reinvested YoC
  • Income taken out is Expenses minus Social Security
  • Expenses are increased by COLA each year
  • Social Security is increased by SS COLA each year

Assumptions:

  • Reinvested criteria is Yield >= 3.5%, DGR >=7.5%

Since my model doesn't anticipate selling stocks, I don't include Market Value. None of the calculations require it.

The Portfolio YoC and DGR are the actual weighted numbers for my portfolio. The starting Expense and Social Security numbers are mine as well.

As you can see, since these companies are growing their dividend over time, the Annual Dividend from the portfolio and the YoC are both increasing, even though the Reinvested dividends are used to purchase stock with a lower yield.

Yes, I have already had to replace some of the original 20 stocks in this portfolio - because they either stopped paying dividends or drastically reduced them. They were replaced using the same criteria used for reinvesting dividends.

This is a greatly simplified version of my model and doesn't include taxes or my IRA, which includes 30 stocks selected using the same criteria and managed in the same manner. I have now begun taking RMDs and are using them to withhold my taxes.

YMMV, and you may disagree with my assumptions of a 3.5% COLA and a 2% SS COLA - and your DGI stock selection criteria may differ from mine, but this is certainly a credible model - and doesn't require any Monte Carlo randomizers or mortality projections.