My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. Thank you for your support.

Jack Bogle on Mailbox Money

While poking around the Bogleheads investing forum, I came across a thread discussing a 2015 ETF.com interview with the late Jack Bogle that touches on the topic of mailbox money in retirement. First, a nice dose of Bogle common sense:

If anybody were to give you a blueprint, I would say put your hand over your wallet. There are no blueprints. There is common sense, and the obvious principle here is to be more conservative and more protective when you’re older than when you’re younger. When you’re young, you have a small amount of capital, you can take more risk, you’ve got years to recoup, and you don’t care about income. When you’re older you want to protect what you have; if you’re wrong, you don’t have a lot of time to recoup, and on balance you want more income.

Bogle on the idea of Social Security and stock dividends as mailbox money:

But you ought to think about all sources of your retirement income. Having said that, when you own an equity portfolio, don’t get into it for market reasons, get into it for income reasons. Oversimplifying, what you want to do when you retire is walk out to the mailbox on Social Security day and on dividend payment day for the funds—assuming they’re the same day—and make sure you have two envelopes out there. One is your fund dividend and the other is your Social Security check. The Social Security will keep up with inflation year after year, and dividends are likely to increase year after year. They have been going up. Every once in a while there is an interruption, such as the Great Depression of the early 1930s. And many bank stocks eliminated their dividends in 2008, so there was obviously a drop. But it has long since recovered, and then some.

Bet on the dividends, and not on the market price. You’ve got those two envelopes and that’s your retirement. If you have a pension plan (one that is not likely to go bankrupt—and a lot of them are likely to) that is a third envelope. You want to be concerned about whether you have enough income to pay utility bills, pay for your food, pay your rent or your mortgage, whatever it might be, every month. You want income to help you pay those bills. And in the retirement stage, that’s what investing should be about—regular checks from dividends and/or from Social Security and/or from a pension account.

The problem is that the yield on the Vanguard Total US Stock Market (VTSAX) or S&P 500 Index fund is only about 2%. That’s a lot less income than most people would like out of their portfolio. Here’s Bogle on a high-dividend stock strategy:

If you really need the dividend income, I see nothing wrong with overweighting high-dividend stocks, knowing you’re taking a small risk of falling significantly behind the total market. But you can own blue chip stocks, and you’re going to get a higher dividend, a situation I think would be attractive to an awful lot of investors. But once you depart from the market portfolio, you’re taking on extra risk. Any strategy may have done very well in the past, but in this business, the past is not prologue.

The draw here is that the low-cost Vanguard High Dividend Yield Index Fund (VHYAX) sends out bigger income “checks”, currently an SEC yield of 3.37% as of 5/31/19. However, roughly speaking, the dividend payout from high-dividend stocks is going to be more likely to drop with poor market conditions.

Alternative #1: Low-cost Value funds. While not from this interview, Bogle has said elsewhere that he thinks that Large-Cap Growth and Large-Cap Value stocks will have roughly the same average returns over the long run. The difference is that in Value you’ll get a slightly bigger share of returns in the form of dividends and a little less in share price appreciation. Growth is the opposite – less dividends and more price appreciation. Therefore, if you wanted to create a little more “mailbox money” than the S&P 500, you may consider buying the Vanguard Value Index Fund (VVIAX) or Vanguard Value ETF (VTV) with a current SEC yield of about 2.8%.

Alternative #2: Low-cost Dividend Appreciation fund. I can’t find any Bogle commentary on this strategy, but you could also buy into the Vanguard Dividend Appreciation ETF (VIG), which invests in companies with at least ten consecutive years of increasing dividends. This fund also has a ~2% yield similar to the S&P 500, but historically they offer a more stable and steadily growing income stream without sacrificing too much in total return.

In the end, treating your dividend checks as retirement income is not all that different than taking out about conservative 3% a year from your portfolio. If you really wanted to make your income checks equal 3%, you can do some tweaks like going with the Vanguard Value Index fund and the Vanguard Total Bond fund and get very close without “reaching for yield” with junk bonds or niche investments. My portfolio is different and yet the income still gets close to 3% when I track the dividends and interest every 3 months.

Bogle would also remind you to make sure you are investing in low-cost, passive funds so you aren’t giving away 1% off the top to a fund manager. If you have a DIY mindset, you also avoid paying a financial advisor taking out another 1%. Paying both of those and you’ll be missing 2/3rds of your potential mailbox money.

Even A Little Paid Work Makes You Happy

Over the weekend, I saw a local news piece on how the “average person needs only eight hours of work per week to be happy”. The source was a paper in the Social Science and Medicine journal titled A shorter working week for everyone: How much paid work is needed for mental health and well-being? The study used data from the UK Household Longitudinal Study, which tracked over 70,000 people living in the UK aged between 16 and 64 across the last decade (2009–2018). Per the abstract, here are the two major questions posed.

Q: What is the minimum amount of paid employment needed to deliver some or all of the well-being and mental health benefits that employment has been shown to bring?

A: 8 hours is sufficient. When going from unemployed/stay-at-home-parent/injured/disabled to working up to 8 hours a week, there was a significant increase in mental wellbeing. ScienceDaily stated that self-reported life satisfaction in men increased by around 30% with up to eight hours of paid work, although women didn’t see a similar jump until working 20 hours.

Q: What is the optimum number of working hours at which the mental health of workers is at its highest?

A: There was no single optimum number. There was basically no improvement (or deterioration) in mental wellbeing for working additional hours, up to 48 hours per week.

The authors claim that these findings support shorter work-week policies, while the local newspeople didn’t really think of much of that – “Yeah, well, I’d like to only work 8 hours a week too, but that’s not going to happen…”

My main takeaway is that having some form of paid work, however small, improves mental wellbeing. This can be an important lesson for retirees, those seeking financial independence, and even those who are stay-at-home parents. If you know that you actually want to work a certain amount, that can change your early retirement numbers. You might plan to work fewer hours per week for more years.

It’s true that not all jobs are good fits with part-time work, but I think finding something that does fit that could (should?) be part of the retirement planning process. A medical professional like a nurse has a lot of part-time options, an experienced accountant can line up a job helping out during the busy tax season, an engineer can grow a network of contacts that can supply limited-time consulting gigs, and so on.

This also aligns with my personal experience. After my wife and I found out we were able to have kids, we had to figure out how to balance childcare duties. Long story short, it turns out that neither of us wanted to be full-time stay-at-home parents. (We also didn’t want to go with full-time daycare and were fortunate to be able to make that happen financially.) Now, instead of one person being full-time employed and one person being stay-at-home, we both work part-time and that makes us both happier!

If you look closely at a lot of “retired” people, a lot of them still take on paid work. I think this is one of those things that I would put on a list of “Top 10 Secrets of Early Retirees.” Even if you no longer have to work to make your mortgage payment, it still feels good to add some purpose to your day and to be perfectly honest, get paid money!

Sprint Unlimited Kickstart: Unlimited Talk, Text, Data For $25/Month – Offer Expires July 18th

T-Mobile and Sprint have been doing the merger dance since April 2018, which meant Sprint was still highly incentivized to make their subscriber numbers as high as possible. However, reports are that the merger will finally be approved now that … [Read the rest]

Top 10 Best Small Business Credit Card Bonus Offers – June 2019

Updated June 2019. Do you have small business income or work as an independent contractor? Uber/Lyft, Amazon, eBay, Etsy, Airbnb? You are eligible to open a small business credit card, which keeps your personal and business expenses separate. … [Read the rest]

Southwest Credit Card Bonuses Toward 2019/2020 Companion Pass to Hawaii (Up to 80k Points)

New 80,000 point business card bonus, perfect for those aiming at Companion Pass! Southwest Airlines offers a unique feature called the Companion Pass, which lets you pick one person to fly with free when you book either paid or award flights. If … [Read the rest]

Immediate Annuity Payout Rates vs. Long-Term Bond Interest Rates

I'm still learning about immediate annuities as a potential future income stream, and came across this ImmediateAnnuities.com article about the relationship between immediate annuity payout rates and interest rates. (Note: I am not talking about … [Read the rest]

Navy Federal Membership Open to Veterans and Family Members

Navy Federal Credit Union is the nation's largest credit union and has recently surpassed $100 billion in assets as reported by DepositAccounts. I can understand their growth, as many of their financial products have very competitive rates, … [Read the rest]

Chase World of Hyatt Card Review: 50,000 Bonus Points, 10% Back Promotion

(Existing or new World of Hyatt or the Hyatt Credit cardholders: Register for this promotion to get 10% back of any Hyatt points you redeem between July 1st and September 2nd, 2019. You must register before July 15th and finish your stay by … [Read the rest]

Citi Premier Card Review: 60,000 Points = $750 in Airfare Booked at ThankYou.com, $95 Annual Fee

The Citi Premier Card has changed up their sign-up bonus to 60,000 bonus points (worth $750 in airfare booked at ThankYou.com) with a $95 annual fee for the first year (not waived). Here are the highlights: 60,000 bonus ThankYou points after … [Read the rest]

Home Bias Against International Stocks: Lower Past Performance vs. Cheaper Valuations

One the big decisions in portfolio construction is how much to allocate between US stocks and non-US stocks. You won't find universal agreement on a correct answer, but this Morningstar article Investors Have Fewer Reasons Than Ever for Home Bias … [Read the rest]

My Money Blog Portfolio Income and Withdrawal Rate – June 2019 (Q2)

One of the biggest problems in retirement planning is making sure a pile of money lasts through your retirement. I have read hundreds of articles about this topic, and still haven't a perfect solution to this problem. Most recently, I looked into … [Read the rest]

Free Websites Reveal Your Address History and Names of Relatives (How to Opt Out)

Updated 2019 with more websites. "People would care more about privacy if they knew how exposed they already are online," says Geoffrey A. Fowler in his WSJ article Your Data Is Way More Exposed Than You Realize. I hear this all the time: “I … [Read the rest]