Calculating Portfolio Yield From Dividend and Interest Income

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As I’m about 2/3rds of the way to having theoretically enough money to cover our living expenses, I wanted to take a closer look at the actual mechanics of living off of my investment portfolio.

I’m using a 3% withdrawal rate, which means that for each $100,000 I have, I’m expecting it to grow such that I can withdraw $3,000 a year, adjusted for inflation, for 40+ years (essentially forever). A conservative way to take withdrawals from an investment portfolio is to spend only the dividends and interest while leaving the principal untouched. This is assuming you don’t go reaching for yield by buying things like troubled, high-dividend stocks and high-yield junk bonds. As a baseline, I wanted to see how much income my passive portfolio would create with my current target asset allocation:

There are many different yield definitions to choose from, but I decided to go with trailing 12 month (TTM) yield as it’s based on a year of past distributions. Specifically, the Morningstar yield is found by dividing the sum of the fund’s income distributions for the past 12 months by the previous month’s NAV (net asset value). Only interest distributions from bond funds and dividends from stock funds are included.

Model Portfolio Yield Breakdown:

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