SCHD Withdrawal Rate Calculator

Calculate your safe withdrawal rate for SCHD investments and optimize retirement income

Home SCHD Withdrawal Rate Calculator

Calculator Inputs

Enter your starting investment amount

$
4 %

The "4% rule" suggests 4% as a safe starting withdrawal rate

30

How many years your portfolio needs to last

8 %

SCHD's 10-year average annual return is approximately 10.47%

3.9 %

SCHD's current dividend yield is approximately 3.91%

2.5 %

Historical average is around 2-3%

Adjust withdrawals for inflation
Reinvest excess dividends

Withdrawal Analysis Results

Withdrawal Summary

Initial Annual Withdrawal:

$4,000

Initial Monthly Income:

$333

Portfolio Survival:

30 years

Final Portfolio Value:

$1,853,738

Dividend Coverage

Annual Dividend Income:

$3,900

Withdrawal Covered by Dividends:

97.5%

Additional Principal Needed:

$100

Portfolio Projection

Understanding SCHD Withdrawal Strategies

What is a Safe Withdrawal Rate?

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.

The Dividend Advantage of SCHD

SCHD (Schwab U.S. Dividend Equity ETF) offers several advantages for retirement income:

  • Higher dividend yield compared to many index funds (typically around 3-4%)
  • History of dividend growth, helping to offset inflation
  • Focus on quality dividend-paying companies with strong financial health
  • Lower volatility compared to the broader market

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.

Historical Performance

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.

Dividend-Focused Withdrawal Strategies

Many retirees aim to live primarily off dividends while preserving principal. With SCHD's higher yield, this becomes more feasible:

Dividend-Only Strategy:

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.

Hybrid Approach:

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.

Total Return Approach:

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.

Considerations for SCHD Withdrawal Strategies

Benefits of SCHD for Retirement Income

  • Dividend stability from established companies with track records of reliable payouts
  • Diversification across multiple sectors including financials, healthcare, technology, and consumer staples
  • Low expense ratio (0.06%) compared to many dividend funds, maximizing your investment return
  • History of dividend growth exceeding inflation, helping to preserve purchasing power
  • Qualified dividends eligible for preferential tax treatment (0%, 15%, or 20% depending on income)
  • Quality screening that focuses on companies with strong fundamentals and sustainable dividend policies

Tax Efficiency Considerations

SCHD's dividends are typically qualified dividends, which are taxed at lower rates than ordinary income. Consider account placement in your withdrawal strategy:

Taxable accounts:

Benefit from preferential tax rates on qualified dividends (0-20% depending on income bracket)

Tax-deferred accounts:

Traditional IRA/401(k) withdrawals taxed as ordinary income regardless of dividend status

Tax-free accounts:

Roth IRA/401(k) with no taxes on qualified withdrawals, including dividends

Tax Optimization Strategies

  • Hold SCHD in taxable accounts to benefit from qualified dividend tax rates
  • Use tax-loss harvesting to offset capital gains from portfolio rebalancing
  • Consider a tax-efficient withdrawal sequence, typically: taxable accounts first, then tax-deferred accounts, and tax-free accounts last
  • For high income earners, manage withdrawals to stay below tax bracket thresholds

Risks to Consider

Market Downturns:

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.

Sector Concentration:

SCHD has higher exposure to certain sectors like financials. This concentration may increase vulnerability during sector-specific downturns.

Dividend Cuts:

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.

Inflation:

If inflation exceeds dividend growth, purchasing power erodes over time. Historically, SCHD's dividend growth has outpaced inflation, but this is not guaranteed.

Interest Rate Changes:

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.

Withdrawal Strategy Adjustments

Consider these adjustments to make your withdrawal strategy more robust:

Dynamic Withdrawals:

Adjust withdrawal rates based on portfolio performance. In down years, reduce withdrawals to preserve capital. In strong years, you might take slightly more.

Cash Buffer:

Maintain 1-2 years of expenses in cash or short-term bonds to avoid selling during market downturns. This reduces sequence of returns risk.

Guardrails Approach:

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.

Diversification:

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.

Frequently Asked Questions

Is the 4% rule still valid when using SCHD?

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.

Can I live off SCHD dividends alone without touching principal?

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.

How does SCHD compare to other dividend ETFs for retirement income?

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.

How should I adjust my withdrawal strategy during market downturns?

During significant market downturns, consider temporary adjustments to preserve portfolio longevity:

  • Reduce or freeze withdrawal increases - Skip inflation adjustments temporarily
  • Cut discretionary spending - Identify non-essential expenses that can be reduced
  • Live off dividend income only - If possible, avoid selling shares at depressed prices
  • Utilize your cash buffer - Draw from cash reserves to avoid selling investments
  • Consider part-time work - Even modest income can significantly reduce portfolio withdrawals

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.

Should I reinvest SCHD dividends during retirement?

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.

Example Scenarios:

Scenario 1: Full Dividend Reinvestment
  • $1,000,000 portfolio in SCHD
  • 3.9% dividend yield ($39,000/year)
  • Withdraw 3% ($30,000) from principal
  • Reinvest all dividends ($39,000)
  • Result: Growing income stream and principal over time
Scenario 2: Partial Dividend Reinvestment
  • $1,000,000 portfolio in SCHD
  • 3.9% dividend yield ($39,000/year)
  • Withdraw $45,000/year for expenses
  • Use all $39,000 in dividends for income
  • Withdraw additional $6,000 from principal
  • Result: Lower principal erosion than 4.5% SWR

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.

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