Some Quick Thoughts On The Dividend Income Retirement Model

FB engagement is almost dead but once in a while, there is good discussion on a controversial topic, and I do expect the comments on this FB sharing to reach 100 very soon.

Basically, Kyith (Investment Moats) ruffled a few feathers when he criticised the dividend income model and suggested the reasons why he himself also switched to ETF investing.  He also explained why he would be more comfortable employing a drawdown method in his retirement years.

Even though I do believe that Singapore has one of the best environments for dividend investing, I am also partial towards Kyith’s views. Well, different strokes for different folks. Below is some quick sharing off the top of my head.

Pros of Dividend Income Investing:

  • No dividend taxation in Singapore, REITs have been a great play riding on Singapore property boom in the last two decades
  • 5-6% dividend yield provides quick route to Lean FIRE or possibility of growing AUM even in retirement
  • Psychological comfort in not drawing down on principal, especially for younger retirees
  • Notable success stories include AK, STE, Chris Ng, Paul Low and CW8888. They have beaten STI ETF returns by a significant margin
  • Local dividend stalwarts/aristocrats like banks and REITs have provided good returns on top of dividends

Cons of Dividend Income Investing:

  • Limited to SG/HK investing since avoiding dividend tax will be a major factor
  • In my humble opinion, the investors above are more active than passive. I noticed most of them were decisive and cut Telcos really early on to preserve their capital
  • The strategy is unlikely to outlive you. Will your offspring have both the desire and capacity to manage the dividend income portfolio just as well as you?
  • Objectively, total returns is the ultimate benchmark and a passive investment in S&P 500 or even QQQ (almost no dividends at all) would have performed just as well, if not better. But well, you could argue I am cherry-picking and the future returns of these indexes could disappoint

If possible, I think most people should be able to invest and grow their wealth by investing in a well-diversified ETF. This way, you avoid paying fees to advisors or middlemen. Idealistic? Maybe.

But I think it is even more idealistic to think that the majority of retirees can purely rely on a dividend income retirement model. Diversification in the form of ETFs, bonds and of course, CPF or other annuities should help.

For myself, I think besides relying on investments, I would hope to have either some form of employment or business income even in my golden years. To ensure I am good to go even with a pathetic 2% dividend yield or 2% drawdown rate.

Increase the size of your investment portfolio just to increase your safety net.

6 Replies to “Some Quick Thoughts On The Dividend Income Retirement Model”

  1. Hi 15HWW,

    Same thinking here about using the human asset to generate income as long as we can. For me at least, I look at all my assets (including myself) and see that the human asset (myself) is the best income generating asset.

    Unfortunately the reality is that the human asset will eventually become a liability one day (when we retire). Instead of generating income, it will only be spending money. So I have been preparing for this eventuality for a long time. To borrow the term (income taps) from dear CW, we have been building up our income taps as below. We ranked our income taps according to their stability / dependability or reliability. Gold taps for income sources that are most stable / dependable, Silver taps for those that next most stable / dependable and bonus taps for those good to have (bonus) but not so stable / dependable sources.

    Our current passive income taps that we could tap on (combined for a couple)
    From now (62 @ 2022) to 2030 (69 yo)
    1. Gold Tap 1 (interest from OA & SA) : $68K pa
    $65K (2022 interests), $68K (expected interest for 2023)
    2. Silver Tap 1 (SRS drawdown) : $42.4K pa (drawdown over 10 years) but since still working, drawdown will be deferred to later years.
    3. Silver Tap 2 (CPF MA) : tap when needed for medical expenses
    4. Bonus Tap 1 (dividend) : $88K pa
    (2022 dividend = $88K), $21K (up to Apr 2023)
    5. Bonus Tap 2 (rental) : $42K pa
    (2022 rental = $39.2K)

    From 70 onwards, we will start the CPF Life payout our Gold Tap 2. Based on Basic Plan.
    Gold tap 2 (CPF Life payout) : $72.2K pa

    So two important things to note:
    1. I am still working, so all the dividends and rentals collected are reinvested yearly to grow the dividends further. Interests earned in CPF stay in CPF to compound.

    2. We planned our retirement lifestyle based only on our gold taps :
    Gold tap 1 (OA & SA interest) : $68K pa
    Gold tap 2 (CPF Life payout) : $72.2K pa (starts at 70)

    The incomes from the Silver tap, the bonus taps (dividends & rental) are bonuses to us. We will use them to pamper ourselves, buy a car, go for long holidays, gifting, reinvesting, etc…but we can live without them. Also if our bonus taps perform well year after year, we may defer tapping on our Gold taps and let them compound further.

    The Covid pandemic was the latest reminder to us not to be dependent on the dividend and rental incomes. Thats why they have been “relegated” to bonus taps.

    1. Hi mysecretinvestment,

      Thanks for the detailed sharing. I guess now I have a better appreciation of Uncle CW’s income taps concept!

      It seems like if things go according to plan, you should easily have 150k-300k of semi-passive income for the next 2 to 3 decades.

      A few questions off the rest of my head:

      1. What is the typical annual expense of your household for the past 5-10 years?
      2. Do you enjoy your work/job so much so that an earlier retirement has not crossed your mind?

      Would appreciate lots if you could shed some light on the above questions. Thanks in advance!

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