Calculate your safe withdrawal rate for SCHD investments and optimize retirement income
Enter your starting investment amount
The "4% rule" suggests 4% as a safe starting withdrawal rate
How many years your portfolio needs to last
SCHD's 10-year average annual return is approximately 10.47%
SCHD's current dividend yield is approximately 3.91%
Historical average is around 2-3%
Initial Annual Withdrawal:
$4,000
Initial Monthly Income:
$333
Portfolio Survival:
30 years
Final Portfolio Value:
$1,853,738
Annual Dividend Income:
$3,900
Withdrawal Covered by Dividends:
97.5%
Additional Principal Needed:
$100
A safe withdrawal rate is the percentage of your portfolio that you can withdraw annually, adjusted for inflation, without depleting your retirement savings prematurely. The well-known "4% Rule" suggests withdrawing 4% of your initial portfolio in the first year of retirement, then adjusting that amount for inflation in subsequent years.
This strategy, developed by financial advisor William Bengen in 1994, was based on historical market data showing that a portfolio with a 50/50 allocation of stocks and bonds could sustain withdrawals for at least 30 years without running out of money, even through significant market downturns like the Great Depression and the stagflation of the 1970s.
SCHD (Schwab U.S. Dividend Equity ETF) offers several advantages for retirement income:
These characteristics make SCHD an attractive option for retirees who want to generate income from their portfolios while maintaining the potential for long-term growth.
Since its inception in October 2011, SCHD has demonstrated strong performance with an average annual return of approximately 10.47% (as of December 2023), which includes both price appreciation and dividend income.
Period | SCHD Annual Return | S&P 500 Annual Return | SCHD Dividend Yield | Dividend Growth Rate |
---|---|---|---|---|
2018-2023 (5 Years) | 11.2% | 9.8% | 3.4% | 10.6% |
2013-2023 (10 Years) | 10.9% | 11.5% | 3.2% | 9.2% |
Since Inception (2011) | 10.5% | 11.2% | 3.1% | 8.7% |
Note: Historical performance data is for illustrative purposes and not indicative of future results.
Many retirees aim to live primarily off dividends while preserving principal. With SCHD's higher yield, this becomes more feasible:
Withdraw only the dividend income, preserving your principal entirely. This is the most conservative approach.
Example:
With a $1,000,000 investment in SCHD yielding 3.9%, you would receive $39,000 in annual dividend income without touching your principal.
Use dividends as the primary income source, supplemented by small principal withdrawals as needed. This provides more income while still preserving most of your capital.
Example:
With a $1,000,000 investment in SCHD yielding 3.9%, you receive $39,000 in dividends but need $50,000 annually. You would supplement by withdrawing $11,000 (1.1%) from principal each year.
Focus on total return (dividends plus growth) rather than just dividends. This may involve selling some shares over time but potentially provides the highest sustainable income.
Example:
With a $1,000,000 investment in SCHD, you withdraw 4% ($40,000) annually, regardless of dividend income. If dividends provide $39,000, you sell $1,000 in shares to reach your withdrawal target.
SCHD's dividends are typically qualified dividends, which are taxed at lower rates than ordinary income. Consider account placement in your withdrawal strategy:
Benefit from preferential tax rates on qualified dividends (0-20% depending on income bracket)
Traditional IRA/401(k) withdrawals taxed as ordinary income regardless of dividend status
Roth IRA/401(k) with no taxes on qualified withdrawals, including dividends
Sequence of returns risk can significantly impact withdrawal sustainability. Early market downturns can permanently damage portfolio longevity, even if long-term average returns are positive.
SCHD has higher exposure to certain sectors like financials. This concentration may increase vulnerability during sector-specific downturns.
During severe economic downturns, even quality companies may reduce dividends. The 2008 financial crisis and 2020 pandemic both saw significant dividend reductions across many companies.
If inflation exceeds dividend growth, purchasing power erodes over time. Historically, SCHD's dividend growth has outpaced inflation, but this is not guaranteed.
Dividend stocks may be sensitive to interest rate fluctuations. Rising rates can make bonds more attractive compared to dividend stocks, potentially affecting SCHD's price.
Consider these adjustments to make your withdrawal strategy more robust:
Adjust withdrawal rates based on portfolio performance. In down years, reduce withdrawals to preserve capital. In strong years, you might take slightly more.
Maintain 1-2 years of expenses in cash or short-term bonds to avoid selling during market downturns. This reduces sequence of returns risk.
Set ceiling and floor values to adjust withdrawals based on portfolio performance. If your portfolio drops below a certain threshold, reduce withdrawals; if it grows above another threshold, increase withdrawals.
Complement SCHD with other assets for broader diversification. Consider bonds, international stocks, or REITs to reduce overall portfolio volatility.
Important Note:
No withdrawal strategy is perfect or guaranteed. Regular monitoring and adjustments are essential to ensure your retirement income remains sustainable throughout your retirement years.
The 4% rule was developed based on a portfolio split between stocks and bonds. With SCHD's higher dividend yield and growth potential, a 4% withdrawal rate may be sustainable or even conservative depending on market conditions. However, SCHD lacks the diversification of a traditional balanced portfolio, which could increase risk. Consider complementing SCHD with other assets or using a slightly more conservative withdrawal rate if SCHD is your primary holding.
Recent research suggests that in the current environment of lower bond yields, a more conservative 3-3.5% initial withdrawal rate might be more appropriate, especially for longer retirement periods exceeding 30 years.
With SCHD's current dividend yield around 3.9%, you would need approximately $1 million invested to generate $39,000 in annual dividend income. This may be sufficient for some retirees, especially those with additional income sources like Social Security. The advantage of this approach is that it preserves principal, potentially allowing for growth and increased dividends over time. However, it requires a larger initial investment compared to strategies that incorporate some principal withdrawal.
Investment Amount | Annual Dividend Income (3.9% Yield) | Monthly Income |
---|---|---|
$500,000 | $19,500 | $1,625 |
$1,000,000 | $39,000 | $3,250 |
$1,500,000 | $58,500 | $4,875 |
$2,000,000 | $78,000 | $6,500 |
For those with smaller portfolios, a hybrid approach combining dividends with modest principal withdrawals may be more realistic.
SCHD offers a balanced approach with both current income and dividend growth potential. Here's how it compares to other popular dividend ETFs:
ETF | Dividend Yield | Expense Ratio | 5-Year Annualized Return | Key Features |
---|---|---|---|---|
SCHD | 3.9% | 0.06% | 11.2% | Quality focus, dividend growth |
JEPI | 7-8% | 0.35% | N/A (newer fund) | Higher income, options strategy |
QYLD | 11-12% | 0.60% | 6.8% | Highest income, limited growth |
VYM | 3.0% | 0.06% | 10.5% | Similar to SCHD, broader holdings |
DGRO | 2.2% | 0.08% | 11.0% | Focus on dividend growth rate |
Compared to higher-yielding ETFs like JEPI or QYLD, SCHD typically has a lower current yield but better long-term dividend growth and potential for capital appreciation. This makes SCHD well-suited for longer retirement periods where keeping pace with inflation is important. For those needing maximum current income, higher-yielding alternatives might be preferred, though often at the expense of long-term growth.
During significant market downturns, consider temporary adjustments to preserve portfolio longevity:
Research Finding:
Studies show that being flexible with withdrawals during poor market periods can significantly enhance portfolio sustainability. A temporary 10-25% reduction in withdrawals during significant market downturns can add several years to portfolio longevity.
If your withdrawal rate is below SCHD's dividend yield, you may have excess dividend income. Reinvesting this excess can help your portfolio grow and increase future income. Some retirees implement a partial reinvestment strategy, using dividends for current income needs while reinvesting any surplus. This approach can help your withdrawal strategy adjust naturally for inflation over time as reinvested dividends increase your share count and subsequent dividend payments.
The best approach depends on your specific needs, but generally, reinvesting dividends during retirement can provide a growing income stream that helps combat inflation while preserving more of your principal.
Optimize your purchase timing around SCHD's ex-dividend dates to maximize dividend capture.
Use CalculatorCompare long-term performance of SCHD against S&P 500 index funds for retirement planning.
Use CalculatorSee how reinvesting dividends can compound your SCHD returns over different time periods.
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